Programming Costs

Dogs bite men — and cable programming costs rise.

Not news, in other words. But it’s a reality programmers grapple with daily as they try to gain, or improve, carriage of their services on cable and satellite distributors.

Comcast and Time Warner Cable reported healthy first-quarter earnings last week, with Comcast nearly doubling its free cash flow and Time Warner Cable adding 36,000 basic subs when compared with year-ago figures.  Yet both reported significant growth on the expense side for programming.

TWC, on April 29, said programming expenses rose about 8% on year-to-year basis in the first quarter. Comcast, on April 30, said its programming costs rose 9.6%.

Their chief financial officers addressed the increases, which were higher than what was being seen in recent prior quarters.

TWC CFO Rob Marcus, according to a call transcript on seekingalpha.com, responded to a question about it thusly:

“Yes, programming costs were up about 8% in the quarter. That is higher than we experienced last year where for the full year we were up about 6% and I think it is consistent with what we articulated on the fourth quarter call. I do expect that over the course of the year our programming costs will be higher. I think you know the things that are driving that. It is a combination of new networks in particular, a full year of [Big 10 Network] and MLB Network. There are some resets in there. A couple of the Fox services in particular that sort of have a step up function impact. Then we have more [retrans] costs certainly this year than we did in the past. You couple that with normal contractual rate increases and that drives the cost growth higher than last year and higher than the first quarter.
“I don’t actually see a material change to the relationship with programmers that is going to affect this year’s numbers. The dye to some extent is cast. We are always negotiating but this year’s programming costs are kind of taking shape.”

Comcast CFO Michael Angelakis had this take, per the call transcript:

“… on the Programming side, total we experienced over 9% increase in Programming for the quarter. Obviously that’s not a heartwarming number and I think that we are working really hard to bring that number down. In addition, we are growing revenues on the video side; we’re having certainly more digital penetration and so forth. So I think that the number we’re looking at this quarter is abnormally high. We don’t think that’s a normalized number in terms of 9.6%.”

Overall, through “expense management,” Comcast’s total expenses rose only 0.4% year to year despite adding 2.2 million subscribers to various services, Angelakis said. So money going out for programming outlays has to be made up from savings elsewhere.

CableOne also said its overall expenses were up somewhat due to programming cost hikes.

No wonder a senior executive at a cable programmer told me recently that program negotiators at the MSOs’ top priority is to reduce programming costs.

Just sayin’.