News

Programmers to Ops: Higher Fees Coming

2/13/2010 12:00 AM Eastern

A handful of cable and broadcast programmers released their fourth-quarter results last week and while the results varied, all were tied together by a common thread: Higher retransmission-consent and affiliate fees are going to drive growth for the foreseeable future.

The Walt Disney Co. kicked off the earnings assault, reporting its fiscal first-quarter results on Feb. 9. On a conference call with analysts, CEO Bob Iger made no bones about retrans fees — Disney will fight for its piece of the pie for its ABC owned-and-operated stations, as well as affiliates.

“We run some of the best stations in the country,” Iger said on the conference call. “We think it’s time to recognize the value they provide to distributors and their importance to the local community and to our viewers in those communities. We believe it would be appropriate to seek cash for retransmission consent and we believe the same would be the case for our affiliates.”

Iger also stressed that while Disney would prefer not to pull its signal from an operator over a fee dispute, it wouldn’t be afraid to do so.

“We also believe we have an obligation to derive value from great investment we’ve made in these programs, whether they are local in nature or national in nature,” Iger said. “We have every intention to do just that.”

Iger said there’s even room for affiliate-fee growth at ESPN, which — at around $4.50 per subscriber per month, according to SNL Kagan — has the highest fees of any ad-supported cable network.

Although ESPN is not engaged in any major negotiations now — reports have estimated that its next deal expires in August with Time Warner Cable — Iger believes that operators recognize the value that the network delivers.

“We think our position going into a new round of negotiations is actually quite solid because of the value we are generating,” Iger said. “Distributors do quite well with ESPN, not just because of the overall value we deliver. The ads they sell on a local basis are worth a considerable amount. ESPN generates more advertising revenue than any other channel in the cable universe.”

Extracting value from distributors was the rampant theme throughout the week. And Disney was not alone. Scripps Networks Interactive, which recently ended a round of carriage renewals for its Food Network and HGTV channels, said those negotiations could lead to higher fees for its newest acquisition, the Travel Channel. And even Discovery Communications, which in the past has boasted that its carriage renewals have gone without a hitch over the past several years because it has sought reasonable increases, seems to be getting into the act. Last week during its fourth-quarter conference call with analysts, CEO David Zaslav said its newest network — OWN, the Oprah Winfrey Network — will attract higher fees.

OWN is expected to launch in 2011, basically a rebranding and recasting of Discovery Health, which is currently available in 75 million homes. Zaslav said he expects that footprint to expand to between 77 million and 80 million by launch time.

“We have a fantastic brand, and with Oprah behind us, we are looking to get more carriage for the channel and a different compensation structure over time,” Zaslav said. “Over time, distribution will grow and we will get meaningful fees for high-quality content.”

According to SNL Kagan, Discovery Health attracts carriage fees of about 12 cents per subscriber per month. It has been estimated that OWN could attract rates as high as 40 cents to 50 cents per subscriber.

Some analysts are speculating that all this tough talk from programmers might invite regulatory scrutiny, and possibly reopen the debate over a la carte sales of cable channels.

“If the rhetoric continues and translates into outages at some systems, Washington is going to get involved,” said Collins Stewart media analyst Tom Eagan. “That’s going to be bad for all parties involved.”

But perhaps there is a middle ground between full a la carte and full expanded lineups. Time Warner Cable chairman and CEO Glenn Britt suggested one alternative late last month during the MSO’s own fourth-quarter conference call. Britt said that consumers are asking for smaller programming packages and perhaps cable operators should investigate meeting that need.

“Mr. Britt was forward-thinking, in a way,” Eagan said. “I think he realizes Washington is going to start noticing this more and I think they are going to start making their own suggestions soon.”

September