Viacom, Time Warner Cable Battle Over Fees

The battle brewing over carriage fees paid to television networks by cable providers picked up steam Wednesday with Viacom Inc. (VIA) saying its popular networks such as Comedy Central, MTV and Nickelodeon will go dark on Time Warner Cable Inc. (TWC) after midnight unless the two sides reach an agreement.

Under pressure to boost its revenue amid an advertising slump and threats to its business model posed by the rise of the Internet, Viacom is seeking fee increases of between 22% and 36% per channel from Time Warner Cable, which is the fourth-largest video distributor in the U.S. after Comcast Corp. (CMCSA), DirecTV Group Inc. (DTV) and DISH Network Corp. (DISH).

Cable companies are fending off similar bids from broadcast and cable networks throughout the industry. Stations owned by broadcaster LIN TV Corp. (TVL) went dark on Time Warner Cable for four weeks in October as the two sides wrangled over fees, and Univision Communications Inc., CBS Corp. (CBS), NBC Universal, Hearst-Argyle Television Inc. (HTV) and Sinclair Broadcast Group Inc. (SBGI) all are engaged in similar negotiations.

“As advertising dollars continue to shift to the Web and DVR viewing increases, both broadcasters and cable network owners need the contractual flow of affiliate fee revenues to be an increasing contributor to the business model, ” said Sanford C. Bernstein analyst Michael Nathanson. “Viacom’s cable networks are materially underpriced relative to their peers, which we believe represents an opportunity for Viacom in the future.”

Shares of Viacom closed Tuesday at $19.26, down 56% for 2008, while Time Warner Cable shares were down 21% for the year at $21.76. The two sides were holding high-level negotiations on New Year’s Eve in an attempt to head off a threatened service disruption after midnight.

Viacom’s bid to get higher fees from Time Warner Cable is perhaps the highest- profile negotiation yet, since its networks are among the most popular on cable television, with shows like “SpongeBob SquarePants” and “The Daily Show with Jon Stewart”. According to Nathanson, its cable networks account for 25% of total cable network viewers every day and 20% in prime time.

press release from Viacom:

NEW YORK, Dec. 30 /PRNewswire-FirstCall/ — The move by Time Warner Cable to force such channels as Nickelodeon, COMEDY CENTRAL and MTV off the air is another example of a cable company overreaching for profit at the expense of its viewers.

The renewal we are seeking is reasonable and modest relative to the profits TWC enjoys from our networks. We have asked for an increase of less than 25 cents per month, per subscriber, which adds up to less than a penny per day for all 19 of MTV Networks’ channels.

We make this request because TWC has so greatly undervalued our channels for so long. Americans spend more than 20% of their TV viewing time watching our networks, yet our fees amount to less than 2.5% of what Time Warner generates from their average customer.

Throughout the country, we have negotiated equitable license agreement renewals, or are in the final stages of renewals, with virtually every cable and satellite carrier. Nevertheless, Time Warner Cable has dismissed our efforts at a fair compromise and has effectively chosen to deny its customers some of the most popular TV shows on the air.

As a result, we are sorry to say that for Time Warner Cable customers our networks will go dark as of 12:01 on January 1st, denying Time Warner customers shows like Dora the Explorer, SpongeBob SquarePants, The Daily Show with Jon Stewart, The Colbert Report, and The Hills.

Ultimately, however, if Nickelodeon, COMEDY CENTRAL, MTV and the rest of our programming is discontinued — over less than a penny per day — we believe viewers will see this behavior by their cable company as outrageous. Time Warner Cable subscribers who are being handed a January 1st $3 monthly increase in Raleigh, Orange County, Los Angeles, and New York City are simultaneously facing the removal of beloved shows across 19 channels.

We find it a shame that Time Warner Cable remains unreasonable at this time. We hope its leadership will have a change of heart and will seek to negotiate a fair renewal agreement.

statement from TWC:

MTV Networks may pull its channels from your lineup on January 1st.

• MTV Networks wants our customers to pay millions more.  They are currently demanding price increases that are nearly triple the rate of increase under our current agreement. These increases would be excessive even in a strong economy, but given the current conditions, it’s simply not fair to our customers.

• MTV’s demands are outrageous and would force our customers to pay millions of dollars more per year. MTV’s networks are not worth so much more today than they were yesterday, especially given the fact that their ratings are mostly declining in recent years.

• Much of their popular programming is also available for free online. In this economy, we don’t believe it’s appropriate to ask our customers to pay so much more for programming with declined ratings or that’s available for free.

• We’ve successfully negotiated hundreds of programming agreements with other cable networks, many within the last few months. Our hope is that we will come to an agreement with MTV Networks that is fair to our customers.

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~ by spyaokid on December 31, 2008.

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