Analyst: Al Jazeera America May Need to Reduce TV License Fees to Zero

Al Jazeera Logo - P 2011

Al Jazeera Logo - P 2011

A report suggests the not-yet-launched replacement for Al Gore's Current TV will lose $21 million annually by 2017.

Al Jazeera America, the yet-to-launch network that will replace Current TV, might have to drop its license fee to zero in order to encourage a meaningful number of U.S. cable operators to carry it, according to a study released Friday from a research analyst at SNL Kagan.

Current TV, a politically progressive network co-founded in 2004 by former Vice President Al Gore, had been in financial straits for years, but SNL Kagan figures it was cash-flow positive in 2012 with $108 million in revenue and $91.7 million in expenses.

More than 80 percent of Current TV’s revenue, though, is generated through license fees paid by cable and satellite providers who pay the network 12 cents a subscriber, regardless of how many of those subscribers actually tune in. Only about 40,000 viewers watch the most popular of Current TV’s shows each night, but 59 million of them have access to the network.

The day Al Jazeera, a news entity backed by the Qatari royal family, announced it would purchase Current TV for $500 million and rebrand it Al Jazeera America, Time Warner Cable said it would drop the channel “as quickly as possible.” It’s a move that could push Al Jazeera America into the red for years if other cable operators follow suit.

“With the evaporation of 9 million Time Warner Cable subs and the license fees that go with it, this brings the channel closer to breakeven,” Derek Baine of SNL Kagan wrote in a research note released Friday.

“We think Al Jazeera may have to drop the license fee to zero to gain widespread support for carrying the channel in the U.S., a move that would certainly imperil its economic model, which relies upon license fees for 80 percent of the network’s revenue,” Baine wrote. “But maybe this is the only way for Al Jazeera America to gain a solid foothold in the U.S.”

Without Time Warner Cable, subscribers sink to 50 million, and the average license fee collected annually by Al Jazeera America will fall by one penny to 11 cents a month. Cash flow will drop from $29.3 million to just $3.8 million, Baine figures.

He also projects subscribers and license fees will continue falling through 2017, when the new network will have less than 41 million subscribers who generate 7 cents apiece in licensing fees each month. By then, revenue will have fallen to $91.3 million and total expenses will have risen to $112 million, amounting to nearly $21 million in negative cash flow annually.