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Disney Sets ‘Education’ Site

7/26/2010 12:16 PM Eastern

The carriage battle between
Time Warner Cable and
The Walt Disney Co. escalated
last week as Disney launched
its own “educational” website to
present its side of the cost of programming
argument.
Disney launched IHaveChoices.
com last Monday, in response to
Time Warner Cable restarting its
RollOverorGetTough.com site the
week before. The MSO’s site is also
aimed at educating consumers about
the high cost of programming.

On RollOverorGetTough —
which TWC created in 2009
during its contentious retransmission-consent battle with Fox
Broadcasting — the cable operator
features a dollar bill cut into
segments to show where each
customer’s cable dollar goes (6%
to TWC net income, 60% to operate
the business and 40% to programmers).

But Disney, on the IHaveChoices
site, calls Time Warner’s characterization
of high programming
costs misleading, adding that
programming represents about
one-third of the cable giant’s total
costs.

Programming costs do not
drive the rates charged by Time
Warner Cable,” Disney states
on the site. “Facts are that like
most cable systems, programming
costs represent less than a
third of Time Warner Cable’s total
costs.”

ESPN/ABC spokeswoman Katina
Arnold said that the site was
created to educate consumers as
negotiations continue.

“We intend to negotiate our
deal in the boardroom, not the
living room,” Arnold said. “All
viewers really want is straight information
about their programs
and their options.”

The arguments on both sides
are largely a question of semantics.
Disney’s argument is based
on using Time Warner’s total costs
of $14.5 billion in 2009 (making
its $4 billion in programming expenses
about 27% of total costs).
Time Warner’s argument is based
on cost of revenue (about $8.6 billion
in 2009).

And Disney has argued that
cable operators have skewed the
numbers by not including revenue
(and profits) from its highs-peed
data and voice services in
that mix.

But no matter how the numbers
are sliced, one thing is certain —
Time Warner Cable is paying Disney
a lot.

Based on carriage-fee estimates
from SNL Kagan, Time
Warner Cable spent about $993.9
million on Disney programming
alone in 2009, or 24.8% of its total
programming budget. And that
doesn’t include retransmission-consent
fees to Disney’s ABC
owned-and-operated stations,
which are expected to be a big
part of carriage negotiations.

Disney owns about 10 television
stations across the country
— three inside Time Warner Cable
territory, representing about
3.8 million subscribers. If Disney
were able to extract 50 cents
per subscriber for those stations
(about half of what it has asked in
other disputes), that would add
another $22.8 million per year to
programming costs.
Disney has about 17 networks
— including the priciest, sports
network ESPN. According to SNL
Kagan estimates, those 17 networks
charged between $4.08
per subscriber per month (for
ESPN) to about 2 cents per subscriber
per month (for Disney’s
42% stake in Lifetime Real Women)
in 2009.

Disney and Time Warner Cable
won’t discuss the negotiations,
only that both parties are in discussions
and they hope a resolution
will come before the Sept. 1
deadline.
RBC Capital Markets media
analyst David Bank said last
week that retransmission-consent
will be a key part of the negotiations,
but that additional
services like TV Everywhere
or online service ESPN3 could
soften the blow to the distributor.

“If you throw in a commitment
to TV Everywhere in there,
then everybody wins,” Bank
said. “The cable properties get
their affiliate fee ramp and the
MSOs get to say they have a value-added service.”

September