Analysts: Fox 'Wins' in Carriage Disputes

Nomura's Nathanson says entertainment giant had all the leverage: "Fox is too large, Cablevision is too small, and Fox's sports programming is too indispensable"

By Georg Szalai
NEW YORK - Wall Street analysts Monday morning analyzed the weekend’s resolution of the News Corp./Fox-Cablevision and Dish Network program fee showdowns, highlighting the entertainment giant’s leverage and guesstimating that the cable operator likely lost a few thousand subscribers in the worst case scenario.
Nomura Securities analyst Michael Nathanson started off the new week with a report about News Corp. entitled: “The broadcast stick wins again.”

Updating his financial projections for the new broadcast retransmission consent and cable network carriage deals with Cablevision and Dish, Nathanson estimated that News Corp. could see an additional cent per share of profit from them.

“These two agreements are consistent with our...thesis that broadcast networks will take share of affiliate fees going forward,” he said. “For those without a broadcast stick or other must-have mass-reach content, these recent battles should be a source of worry.”

However, Nathanson warned of the potential longer-term fallout from the high-profile programming disputes, saying: “The only negative for broadcast is the potential for future political intervention to rewrite retrans rules.”

Sanford C. Bernstein analyst Craig Moffett summarized the big two-week showdown as a battle between David and Goliath. “There was never any ambiguity about who had all the financial leverage in the negotiation. Fox is too large, Cablevision is too small, and Fox's sports programming is too indispensable,” he said. “Once Dish had settled with Fox on Friday night, the probability of regulatory intervention dropped dramatically, and Cablevision was out of options.”

To him, the key question now is how many subscribers Cablevision lost during the standoff.

“We are in uncharted territory. There simply hasn't been a major broadcast blackout of this duration in a major city before,” Moffett said before adding: “We suspect that installation capacity constraints among competitors and a footprint that skews to apartment buildings, where satellite is often not an option, will limit Cablevision's losses to a much more modest number than intuition might suggest.”

The analyst estimated that the gain of Verizon’s FiOS TV service wasn't “likely to be much more than about 500 subs per day.” Over the dispute’s 16-day period, “you're still in the range of 8,000 subscribers or so,” Moffett said. “In other words, barely big enough to notice.” Cablevision has more than 3 million subscribers. 
But given that most customers likely waited a bit for a settlement, the actual the impact will likely have been even smaller, he suggested.

AT&T’s U-verse video service, which competes with Cablevision in Connecticut where some subscribers still had Fox access through another affiliate, is likely to have faced similar challenges.

Plus, satellite TV firms may have also been impeded in any attempts to win customers from Cablevision, according to Moffett. Dish was also in a standoff with Fox, and DirecTV may not have made big inroads either. “After all, he estimates that nearly half of Cablevision subs live in apartment buildings where satellite TV is sometimes no option.

Meanwhile, Seattle-based online video provider Ivi Inc. claimed a victory thanks to the Cablevision-Fox dispute, saying Monday it saw a 323% increase in new subscribers throughout the Fox programming blackout. It didn’t provide actual numbers for new subscribers.

Major broadcasters recently filed a lawsuit against Ivi, claiming that the startup is infringing copyrights by retransmitting over-the-air broadcast signals online.
The company has argued it operates under a legal loophole that allows cable and satellite companies to retransmit over-the-air broadcast content as long as they pay semi-annual fees to the U.S. Copyright Office.