Comprehensive Peace

Time Warner Cable Pacts With Disney Without Service Outage

By Mike Reynolds -- Multichannel News, 9/6/2010 12:01:00 AM

Highlighted by the launch of broadband service ESPN3.com and other advanced media applications, Disney/ABC Television Group, ESPN and Time Warner Cable reached a comprehensive, long-term carriage deal last Thursday.

The pact, covering retransmission- consent for ABC-owned stations, as well as renewals for a host of cable networks, was announced in late afternoon on Sept. 2, about 17^1⁄2 hours after the expiration of the parties’ existing contract at midnight.

It also came after the nation’s No. 2 cable operator and the content giant declared the prior weekend that “significant progress” had been made in their long push toward a deal and their focus was on a “successful conclusion” to their contract negotiations. At that point, the parties pulled all their marketing messages, which had stated their respective positions in the public negotiating arena. There was never any service disruption throughout the process.

The Time Warner Cable-Disney negotiations were closely watched by members of the content, distribution and regulatory communities, because of the size of the players and the many products and services that were in play.

Financial terms (including the length of the deal, reported by some as five years) were not disclosed. The two sides said their new agreement encompasses the ABC Television Stations, as well as cable networks ABC Family, Disney Channel, Disney XD, ESPN, ESPN2, ESPNEWS, ESPNU, ESPN Classic, ESPN Deportes, and Soap- Net. It also includes the launch of a new college-football highlight service, ESPN Goal Line, and distribution of ESPN 3D.

The agreement also covers customers of Bright House Networks, whose programming negotiations are conducted by Time Warner Cable.

Miller Tabak analyst David Joyce estimated that parent The Walt Disney Co. derives $10.5 billion worth of subscription carriage revenue from its cable networks. With Time Warner Cable accounting for about 12% of U.S. pay TV households, Joyce concluded that the operator could be paying $1.28 billion to Disney.

Putting TWC’s estimated 2011 programming expenses at some $4.55 billion, the Disney properties would represent 28% of the MSO’s total programming outlays, “the most of any programmer.”

As with Disney’s last long-term contracts, the new deal gives TWC some measure of certainty over these costly services.

One of the more complex and contentious points of the negotiations, which were headed by Time Warner Cable chief programming officer Melinda Witmer, Ben Pyne, president, global distribution, Disney Media Networks, and Sean Bratches, executive vice president, sales and marketing at ESPN and ABC Sports and their teams, concerned broadband service ESPN3.com.

Many of the deals for ESPN3.com — which offers more than 3,500 live college and professional sporting events, and recently recorded record results with its coverage of the 2010 FIFA World Cup — have been constructed on a per-subscriber basis with Internet service providers, whether users access the service or not. Monthly subscriber fees have been reported to fall within the range of 7 to 10 cents.

VIDEO SUBS COUNTED
Under the Time Warner Cable agreement, the business model makes ESPN3.com available to all TWC and Bright House Networks video subscribers that receive ESPN, with attendant license fees evidently incorporated into the monthly programming cost for the sports network. Miller Tabak’s Joyce wrote that the costs for ESPN3.com could be rolled into the annual estimated 7% increases in ESPN carriage fees (which, at an estimated $4.50, means the incremental $0.40 or so could encompass ESPN3, ESPN 3D, local ESPN, and other new services).

This model opens ESPN3.com up to almost all of TWC’s 12.7 million and Bright House’s 2.4 million video customers, rather than the 9 million subscribers counted by the operator’s Road Runner Internet-service provider.

After ESPN3.com rolls out to the cable companies’ customers, its ranks will swell above 60 million broadband homes.

Some ESPN3.com fare will be accessible by TWC and Bright House on their respective sports tiers.

As for retransmission consent, the parties would not specify the terms for the five ABC owned-and-operated stations that transmit within TWC markets: New York (WABCTV), Los Angeles (KABC-TV), Raleigh- Durham, N.C. (WTVD-TV), as well as in Houston (KTRK-TV) and Toledo, Ohio (WTVG-TV). Time Warner Cable counts a relatively small number of subscribers in the latter two DMAs.

Sources and reports put the initial outlay at 40 cents to 60 cents per subscriber per month in retransmission fees, before escalating over the life of the deal.

Joyce pegged the monthly subscriber average at 50 cents, what he called “the recent industry norm for larger markets.”

He estimates that with Disney owning 10 ABC stations, the company “could be generating $144 million of retransmission consent revenue on a run-rate basis, but TWC might only be paying $22 million of that.”

MIXED REVIEWS
National Association of Broadcasters spokesman Dennis Wharton pointed to the agreement as a sign that the retransmission-consent process is working fine.

“Thousands of retransmissionconsent agreements have been reached over the years,” he said, “and this is just one more successful negotiation that serves to rebuke the pay TV campaigners who seek a solution to a non-existent problem.”

The American Cable Association didn’t share that sentiment. “Claiming the system works because a deal got done or because no one complained is akin to a con artist saying extortion works because no one called the police,” ACA president Matt Polka said. “Small and medium-sized cable operators are paying excessive fees for retransmission consent because broadcasters are able to exploit federal regulations to their advantage.”

The ACA was among a group of MSOs, satellite and telco companies and others that petitioned the FCC to reform the retransmission regime, including requiring outside arbitration for impasses and requiring signals to remain on the air past contract deadlines.

A “TV Everywhere” element for ESPN, ESPN2 and college network ESPNU will also be launched under the new deal. After registering under an authentication process, the operators’ video customers that also subscribe to broadband services will be able to watch the three networks on their computers, as well as Apple’s iPads and other mobile devices. While the parties have been working on the verification parameters, no immediate launch time frame, other than “ASAP,” was disclosed. Sources indicate the flagship ESPN will come online first, trailed by ESPN2 and the college network.

TWC and Bright House both committed to carrying preschool service Disney Junior, when it launches in place of SoapNet in 2012.

HEADED FOR ‘GOAL LINE’
More immediately, the two cable companies became the first affiliates for ESPN Goal Line, a new college football highlights service, which kicked off on Sept. 4.

Akin to DirecTV’s Red Zone and NFL Network’s NFL RedZone for pro football on Sunday afternoons (see related story in Coda), the ad hoc service, airing from noon (ET) until about 11:30 p.m. during each Saturday of the college-football season, will feature unlimited live cut-ins and highlights from numerous games to which ABC and ESPN properties hold the rights, as well as other top contests. It will also include up-to-the-minute commentary from ESPN analysts and experts. ESPNews anchor Anish Shroff will serve as the primary host, while Rod Gilmore is the main analyst.

ESPN officials indicated that Goal Line has been cleared in a number of Time Warner Cable and Bright House markets, while a spokeswoman for the No. 2 cable operator anticipated it would bow in the majority of its systems for last Saturday’s opener. The service will be available for sports tier customers at no additional charge. The sports programmer, which will tip off a similar service for college basketball, called Buzzer Beater, is moving toward inking deals with other distributors.

The operators will also launch ESPN 3D to Time Warner Cable and Bright House Networks’ systems. It was unclear at press time, if the service would be available for coverage of the service’s first college football game, Boise State-Virginia Tech on Labor Day at 8 p.m.

Moreover, ESPN Deportes HD will be added to Time Warner Cable’s larger footprint. The sports network and the cable operator will launch a Spanish-language Web site in Los Angeles. ESPN Radio feeds in New York, Los Angeles and Dallas will be made available to TWC video platform.

Video on demand also figures prominently in the new deal, with expanded services in many markets, notably, ABC On Demand, ABC’s fast forward-disabled service that currently features a selection of such primetime series as Castle, Grey’s Anatomy, Private Practice and Desperate Housewives, plus new shows No Ordinary Family and My Generation. Additionally, episodes of ABC News’s Good Morning America are available each week.

FAMILY SERVICE SLATED
There are also Disney-branded On Demand offerings for children. Refreshed each month, the Disney Channel VOD offering will include episodes from such series as Handy Manny, Mickey Mouse Clubhouse and Special Agent Oso for preschoolers, as well as variety of episodes from Wizards of Waverly Place, Hannah Montana, The Suite Life on Deck and Good Luck Charlie for older kids. Further, select installments will be available in multiple languages.

Disney XD On Demand sports a variety of episodes from such series as the Emmy Award-winning animated hit Phineas and Ferb and Kick Buttowski — Suburban Daredevil, as well as the upcoming sitcom Pair of Kings.

Subscription VOD service Disney Family Movies, showcasing a selection of classic and contemporary films and animated shorts from The Walt Disney Studios, and a new transactional VOD service for select content from the Disney/ABC Television Group are also in the mix. For its part, ESPN will make locally relevant sports content to TWC and Bright House markets in such markets as Los Angeles, New York, North and South Carolina, Tampa, Orlando, Texas and Ohio.

Disney Media Networks’ fare will also be integrated into Time Warner Cable’s and Bright House Networks Start Over and Look Back features.