Network Carriage Fees in Spotlight at Investor Conference

8:14 AM PST 05/30/2013 by Georg Szalai

Discovery Communications CEO David Zaslav and the CFO of Verizon discuss the relationship between channel owners and distributors, as well as the state of the pay TV bundle.

Network carriage fee disputes and the future of the pay TV channel bundle were a key topic of debate at an investor conference Thursday.

Appearing at the Nomura Global Media & Telecom Summit in New York in a webcast session, Verizon Communications CFO Fran Shammo said the telecom giant has seen programming costs rise 3-4 percent per year at its FiOS TV pay TV service. "We must keep raising prices" like cable companies, he said.

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Asked about FiOS' willingness to drop channels that cost too much and don't deliver a big enough audience, he said: "We have taken some content off." He added: "It doesn't make sense to pay content cost on the basis of 5 million" subscribers if only a few hundreds or thousands of people watch. He didn't elaborate on what channels the company has dropped or may look to stop carrying.

Shammo argued though that Verizon's joint venture with DVD rental kiosk operator Redbox boosts Verizon's leverage and ability to control content costs in negotiations with entertainment companies as it can strike programming deals "on a broader basis" and use Redbox's subscriber base to benefit FiOS.

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Later in the conference day, Discovery Communications CEO David Zaslav said he expects that the cable networks company will see solid affiliate fee increases in the coming years.

"We have a very good story with the distributors," he said, pointing out market share gains for the company's networks. He wouldn't say how much of a fee increase Discovery would see though.

Asked about the state of the pay TV network bundle, Zaslav said "I don't see much risk really at all" that it could come to an end and be replaced by a la carte offerings of channels to subscribers. While there seems to be "political interest" in that model, networks would be "a lot more expensive" for consumers, and subscribers seem to enjoy the broader choice the bundle offers, Zaslav said.

Also, the bundle allows U.S. network owners to make a "huge investment" in content, he said, pointing out that Discovery spends $1.1 billion a year on programming.

Zaslav was also asked about the advertising revenue upside of its up-and-coming networks like ID and Science compared to the flagship Discovery and TLC channels. He said the ad rate difference was "very significant," but declined to share further specifics.

Email: Georg.Szalai@thr.com
Twitter: @georgszalai

 

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