Time Warner Cable Shares Take Another Hit

Analyst Warns of Operator/Univision Retransmission-Consent Battle

By Mike Farrell -- Multichannel News, 7/25/2008 2:27:00 PM

Pali Research media analyst Rich Greenfield kept the pressure on Time Warner Cable, issuing a note Friday morning that warned of an impending retransmission-consent battle with the nation’s largest Spanish-language broadcaster.

The report sent Time Warner Cable shares down about 2% (48 cents each) Friday to $26.34 per share. It was the end of what had been a rough week for the country’s second-largest MSO – shares were down about 6% ($1.57 each) between Monday and Friday.

It was Greenfield’s second note on TWC in a week – he downgraded the stock to “sell” on July 21, citing concerns about the cable operator’s ability to compete effectively versus Verizon Communications in New York City.

In his Friday note, Greenfield warned that Univision Communications – the largest Spanish-language broadcaster in the country – could significantly increase TWC’s costs in key markets with large Hispanic populations like Los Angeles, New York, Dallas, Austin and San Antonio, Texas by pushing for high retransmission-consent fees.

Los Angeles, with 1.7 million subscribers, is TWC’s largest single market, followed by New York with 1.4 million customers. The three Texas cities have about 1 million TWC subscribers combined.

Greenfield estimated that Hispanic households represent about 14% (1.8 million homes) of TWC’s 13.3-million-subscriber footprint.

Univision and its sister network Telefutura are highly watched. According to Greenfield’s report, more adults 18 to 34 watch the two networks on a nightly basis in Los Angeles than watch ABC, CBS and NBC combined. In New York, the same demo watches Univision and Telefutura together than any other broadcast network.

That leads the analyst to believe that teh MSO will have a hard time resisting Univision’s demands.

 “We believe TWC will be forced to absorb significant incremental costs in 2009 and/or lose a significant number of subscribers,” Greenfield wrote.

According to Greenfield, about 25% of TWC’s homes passed are Hispanic households. Since going private last year, Univision has been making noise that it would seek as much as $1 per month per subscriber for retransmission consent.

Greenfield wrote that even if the broadcaster were able to extract half that amount – 50 cents – the impact on TWC’s cash flow in 2009 would be about $80 million.

“We suspect Univision’s leverage will generate monthly fees well in excess of $0.50/sub/month,” Greenfield wrote.

Univision started the ball rolling in June when it elected to end its must-carry status for its owned-and-operated stations in the U.S. as of the end of this year. By now, letters should have reached the in-boxes of most of the major television distributors notifying them of Univision’s quest for retransmission consent cash.

A Univision spokeswoman said that the network is negotiating with all of its distribution partners, including TWC.

Operarator officials could not be reached by press time.

In his report, Greenfield wrote that operators shouldn’t question Univision’s resolve in insisting on cash payments for retrans consent, adding that when the company went private retrans fees were a key component of the long-term upside for the company.

“While Univision has high leverage (which has some investors speculating that Univision will take whatever it can get out of the cable industry), it is only going to get one chance (to reset the bar and) generate on-going retrans fees, implying that it simply cannot ‘fold,’” Greenfield wrote.