Dec. 31 (Bloomberg) -- Viacom Inc., owner of MTV, Comedy Central and Nickelodeon, rejected Time Warner Cable Inc.’s request to extend talks on a new contract to carry the channels ahead of a threatened cutoff at midnight tonight.

The second-biggest U.S. cable operator sought the extension “late last night,” Time Warner Cable spokesman Alex Dudley said today in an e-mail.

Viacom is seeking a 15 percent increase in fees to carry the 19 channels in its MTV Networks unit, to about $299 million a year, according to the cable company. New York-based Viacom said it’s seeking a 12 percent gain and plans to pull the channels off Time Warner Cable systems in the U.S. if a new agreement isn’t reached by midnight.

“We would have granted an extension if we thought we were having good-faith negotiations,” Viacom spokeswoman Kelly McAndrew said today in an e-mail. Chief Executive Officer “Philippe Dauman is in his office today and ready to engage.”

Viacom, controlled by Sumner Redstone, rose 85 cents, or 4.7 percent, to $19.06 at 4:02 p.m. in New York Stock Exchange composite trading. The Class B shares have dropped 57 percent this year. Time Warner Cable, also based in New York, fell 31 cents to $21.45. The shares have fallen 22 percent.

“We sympathize with the fact that Viacom’s advertising business is suffering and that their networks’ ratings have largely been declining,” Time Warner Cable Chief Executive Glenn Britt said today in a statement. “Demanding that our customers pay so much more for these few networks would be unreasonable in any economy, but it is particularly outrageous given the current economic conditions.”

Affiliate Fees

The fees are a crucial source of revenue for cable programmers such as Viacom. The company, which also owns Paramount Pictures, reported a 12 percent increase in revenue from affiliates to $660 million in the third quarter, accounting for 19 percent of total sales.

Rising affiliate fees have helped counter falling cable advertising sales. Ad revenue at Viacom cable networks dropped 3 percent in the U.S. in the third quarter, the company said on Nov. 3. Cable channels contributed 97 percent of Viacom’s operating income last year.

Viacom’s cable channels collectively account for 25 percent of total cable network viewers on a daily basis and 20 percent in prime time, the most of any cable network owner, Sanford C. Bernstein & Co. analyst Michael Nathanson said today in a note to investors.

Under-Priced?

“Viacom’s cable networks are materially under-priced relative to their peers, which we believe represents an opportunity for Viacom,” Nathanson said in the report. He has a buy rating on the stock and doesn’t own it.

Time Warner Cable is the second-largest U.S. provider behind Comcast Corp., with 13.3 million basic video subscribers. It is 84 percent owned by Time Warner Inc., which is disposing of its stake in the pay-television service.

Viacom announced plans to cut 850 jobs, or 7 percent of its workforce, on Dec. 4 and will write down the value of some assets in response to falling ad sales and viewership.

The company’s shows include “The Daily Show with Jon Stewart,” “The Colbert Report,” “Dora the Explorer” and “SpongeBob SquarePants.”

The dispute with Time Warner Cable comes as Viacom’s controlling shareholder, Sumner Redstone, is seeking to renegotiate bank loans at his family holding company, National Amusements Inc. A drop in the shares of Viacom and CBS Corp., another Redstone investment, led to a violation of covenants at the holding company.

To contact the reporter on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net

Last Updated: December 31, 2008 16:05 EST