Content

Top Programmers Forecast Rise in Affiliate Revenue

8/06/2012 12:01 AM Eastern

Affiliate fee increases were on the minds of two top
programmers last week, with Time Warner Inc. chairman
and CEO Jeff Bewkes vowing that subscription
revenue will rise by double-digit percentages over the
next four years and
Discovery Communications
CEO David
Zaslav sounding bullish
about new “TV
Everywhere” agreements.

During Time Warner’s second-quarter earnings call,
Bewkes said the company’s networks are entering one of
their biggest affiliate renewal cycles in years. Almost every
network’s deal with almost every distributor is up between
2013 and 2016.

That, Bewkes said, presents an opportunity to reverse
what he called a disparity between the value the company’s
networks receive from distributors and the value the
networks provide their distribution partners.

“We’re focused on correcting that in the next cycle,”
Bewkes said on the call. “We have every confidence that
Turner will grow domestic subscription revenue at a doubledigit
pace annually between 2013 and 2016.”

Turner’s networks include TNT, TBS, CNN, Cartoon
Network, HLN and truTV.

Bewkes’ comments seemed to overshadow what was
essentially a disappointing quarter: Total revenue was
down 4% to $6.7 billion, and operating income fell 16% to
$1.1 billion. At the networks, revenue increased 4% to $3.6
billion, and operating income was up 9% to $1.1 billion.

Advertising revenue grew just 2% in the period, driven
by increases at the Turner entertainment channels but off -
set by weakness at CNN.

Time Warner said it expects the ad market to be sluggish
in the third quarter but to pick up in the fourth quarter.

Sanford Bernstein media analyst Todd Juenger wrote in
a research note that ad market demand appears healthy,
but that scatter pricing appears hampered by the Olympics.
Still, he appeared confident that Time Warner’s Turner
networks will fare better.

“Ratings volatility and advertising cyclicality aside,
Turner revenues should be expected to grow faster,”
Juenger wrote.

At Discovery Communications, CEO David Zaslav
said the company’s next affi liate renewal cycle should
reap increased value, but he declined to quantify it.

Discovery had a much stronger quarter to talk about
than Time Warner. At the U.S. networks, revenue increased
6% to $700 million, and adjusted operating income
rose 8% to $426 million.

Domestic ad sales rose 7% in the quarter and would have
risen 9% but for some non-recurring revenue items in the
second quarter of last year. Distribution revenue rose 8%.

Discovery predicted third-quarter growth would be in
the mid-single digits, mainly because of a limited number
of premiere hours until “Shark Week” later in August.
Zaslav predicted ad sales should return to normal in the
fourth quarter.

“We feel very good about [the] fourth quarter, and I
think you can expect to see some strong numbers on the
advertising side, assuming that the market stays as is,”
Zaslav said on the company’s earnings call.

Discovery distribution deals come due over the next
four to five years, Zaslav said. He said he was open to negotiating
deals earlier, especially those that include a TV
Everywhere component.
Discovery has recently begun to allow some of its content
online, notably via a three-year deal with Netflix involving
shows that are at least 18 months old.

“There are a number of other players that are looking
for content in that window and in a nearer-term
window with TV Everywhere,” Zaslav said. “And I think
that’s one of the reasons why it’s such a good time to be
in the content business right now if you own your content.
Every one of those windows provides additional
consideration for us.”

TAKEAWAY

With numbers for one up and
the other down, two major
programmers look to affiliate
renewal cycles for growth.