Comcast Heft Blurs Future for Smaller Pay-TV Networks

The networks behind hit shows like “Mad Men” and “House Hunters” have little to celebrate over Comcast Corp.’s planned takeover of Time Warner Cable Inc.

The $45.2 billion deal, which combines the two biggest U.S. cable operators, increases the clout of pay-TV providers and makes it harder for independent programmers like AMC Networks Inc., where “Mad Men” runs, and HGTV owner Scripps Networks Interactive Inc., to demand more money for their shows.

While bigger media companies such as CBS Corp. and Walt Disney Co. say they aren’t worried, small and midsize programmers like AMC and Scripps may seek partners to bolster their positions, according to Michael Nathanson, an analyst at MoffettNathanson Research in New York.

“The pressure from programming costs is a big reason why cable operators and station operators are merging,” said Robin Flynn, research director at the media advisory company SNL Kagan. “Everyone’s trying to get a stronger position at the bargaining table.”

Philadelphia-based Comcast, already the largest U.S. pay-TV provider, would become the industry’s unchallenged king, with about 30 million subscribers, compared with more than 20 million at No. 2 DirecTV. The combined company expects to save $1.5 billion a year in costs over the long term, with Nathanson estimating $500 million less for broadcast and cable networks.

Programming costs are a logical source of savings. Spending on shows at the largest cable-TV companies, including Comcast and Time Warner Cable, increased 10 percent per subscriber in the third quarter from a year earlier, while customers’ bills grew 5.7 percent, according to SNL Kagan.

Who’s Worried

CBS, owner of the most-watched television network and home of popular shows like “NCIS,” recently concluded a new programming agreement with Time Warner Cable after negotiations that included a monthlong blackout. CBS won a fee increase that led Time Warner Cable’s then-CEO Glenn Britt to call for federal action to settle retransmission disputes.

Leslie Moonves, chief executive officer of CBS, said in an interview on CNBC yesterday that Comcast, as owner of the NBC broadcast network, isn’t likely to be as contentious.

“They are a company that believes in content and they believe in paying fairly for content,” Moonves said. “Comcast thinks about it obviously in an entirely different way.”

Crucial Content

Disney Chairman and CEO Robert Iger also professed little concern over cable industry consolidation in an interview last week with Bloomberg Television.

“You can’t go after the multichannel subscriber without offering them our product, so it doesn’t really mean that much to us,” Iger said after Burbank, California-based Disney, owner of ESPN, reported a 33 percent increase in quarterly profit.

The result has been much different for the Weather Channel, the independent cable network jointly owned by Blackstone Group LP and Bain Capital Partners LLC, with Comcast’s NBC Universal a passive investor. The Weather Channel has taken a beating in fee talks with El Segundo, California-based DirecTV and was kicked off the satellite-TV service last month, as some fans of shows like “Storm Chasers” already know.

Consolidation has held back growth at NuvoTV, a closely held 10-year-old cable network that offers English-language programming to Latinos and reaches 33 million homes, according to Michael Schwimmer, chief executive officer of the Glendale, California-based company.

“It’s about being able to get programming into peoples’ homes, past the gatekeepers,” Schwimmer said in a telephone interview. “It’s an uphill battle. This is just one more step in that direction.”

Possible Challenge

Schwimmer declined to say if he would challenge the Comcast-Time Warner Cable merger when it’s reviewed by federal regulators. The Weather Channel, based in Atlanta, didn’t respond to a request for comment. Neither did AMC Networks Inc. in New York.

“When you put out quality content you’re going to always get a fair price,” Kenneth Lowe, chairman and chief executive officer of Knoxville, Tennessee-based Scripps Networks Interactive, said today on a conference call. “But right now, nothing really changes in our game plan, we’re focused on the three incredible categories in home, food and travel.”

Smaller, family-friendly networks like the Hallmark Channel, home to “I Love Lucy” reruns and original movies like “Finding Christmas,” already face an uneven playing field, said Tim Winter, president of the Parents Television Council, a Los Angeles-based nonprofit that opposes the merger.

“When anyone tries to negotiate, they get squeezed,” Winter said.

Family Channels

Annie Howell, a spokeswoman for Hallmark’s parent, Studio City, California-based Crown Media Holdings Inc., declined to comment.

Owners of local TV stations could also face pressure from the merger, according to Nathanson. They’ve grown in recent years by getting cable and satellite services to pay for rights to carry their channels, or so-called retransmission fees, and the deal could reduce their leverage, he said.

E.W. Scripps Co., owner of 21 stations including pending deals, expects $50 million in retransmission fees this year and almost double that sum in 2015, before its agreements with the Time Warner and Comcast pay TV systems start to expire.

“We’ll have to assess the longer-term impact when the details are more clear,” Rich Boehne, Scripps’s chairman, president and CEO, said in a statement.

A strong lineup of channels and programming provide the best leverage, David Zaslav, president and CEO of Discovery Communications Inc., said yesterday on a conference call.

The company, which operates Animal Planet along with its namesake network, has created seven U.S. brands in five years, in part to strengthen its hand.

“If you have strong brands and great shows, we think that could be more growth and more opportunity,” Zaslav said. “If your content isn’t strong enough, consolidation in Europe, consolidation around the world, could be a challenge.”

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