Analysts address carriage fee disputes

Financial details of recent deals undisclosed

NEW YORK -- Several media and entertainment analysts returned to work Monday and shared their thoughts on cable carriage fee disputes that rang in the new year.

News Corp. and Time Warner Cable avoided a loss of Fox stations and various News Corp. cable networks in systems operated by the second-largest U.S. cable firm with a new carriage agreement that included retransmission fee payments for the Fox network. But with both firms having remained mum on financial details, analysts argued the math is largely up to each side.

"We expect the companies negotiated a multi-channel, multi-platform agreement which included the Fox broadcast network, and several cable channels," said Collins Stewart analyst Thomas Eagan in a note to investors, adding that the deal likely also included digital rights and possibly even the relinquishing of several minutes of advertising time by Fox.

Addressing reports of a 50 cents-plus per subscriber per month fee for Fox in the News Corp. deal that observers based on reported details of a similar arrangement with CBS Corp. for the CBS network, Eagan suggested a different take.

"We expect it is up to Fox to determine how much of the overall carriage fee will be allocated to the Fox broadcast network," he said. " Actually, we expect this $0.50 represents an internal allocation CBS applied to the broadcast stations as part of an overall deal including Showtime."

Miller Tabak analyst David Joyce pointed out that retransmission fee deals have typically run three years and argued that monthly per-subscriber fees for Fox are difficult to pinpoint. "There are many moving parts -- values received by both sides -- that make any one data point fairly irrelevant," he argued. "Something in the $0.40-$0.60 range might make sense, but again, Fox also gets more HD channel capacity and VOD (non-linear) content revenue sharing; TWC gets access to that programming, revenue sharing and advertising time etc."

Eagan said that should the overall agreement translate to an increase in program fees per TWC subscriber of 25 cents-75 cents, TWC's 2010 operating cash flow would take a $12.6 million-$37.8 million hit if none of the increase were passed on to subscribers. "More likely, TWC will pass on some of the increase to its subscribers," he said.

Sanford C. Bernstein analyst Craig Moffett pointed out in a new report Monday though that higher video programming costs could also be offset by cable operators' recent announcements of high-speed Internet access price increases for 2010.

For News Corp., the TWC deal will add a new source of revenue and profit, with UBS analyst Michael Morris estimating it will generate "at least $38 million in incremental revenue."

Meanwhile, Cablevision Systems has played hardball with Scripps Networks, dropping the Food Network and HGTV as of year's end amid a carriage fee dispute.

"While Cablevision may avoid extra costs by not carrying channels, doing so may come at the price of additional subscriber losses to Verizon's FiOS," warned Eagan.

But Pali Research analyst Rich Greenfield lauded the firm's tough stance. "While fighting Scripps is unexpected at first glance, as it has relatively inexpensive channels (even after the increases it was asking for), we suspect Cablevision is simply trying to draw a line in the sand, as it knows that retrans fees for broadcast will upwardly bias programming costs going forward," he said in a blog post Monday. "In turn, slowing cable network programming fee growth is critical for Cablevision, as well as its multichannel industry peers."

He suspects that Cablevision believes it is in a stronger position to fight price increases due to its higher-than- industry peer triple-play penetration of about 65%.

"If a consumer has video/voice/data from Cablevision, switching multichannel providers simply because you lost Food Network and HGTV is a major pain/inconvenience," he argued.