Carey: Retrans Windfall Coming2/06/2010 2:00 AM Eastern
One month after a high-profile retransmission-consent battle with Time Warner Cable, News Corp. chief operating officer Chase Carey said the media giant is on the cusp of a windfall in retransmission-consent revenue that could ultimately fix the broken broadcasting model.
On a conference call with analysts to discuss News Corp.'s fiscal second-quarter results Feb. 2, Carey said the company's owned-and-operated stations have completed retransmission-consent deals with two of the top 10 distributors.
Fox reached a highly publicized last-minute agreement with Time Warner Cable on Jan. 1, involving stations in New York, Los Angeles and Dallas, among others. While neither side would disclose the ultimate price, sources in the affiliate-sales community have said Fox reached a six-year deal that escalates from 50 cents per subscriber per month initially to $1 per subscriber per month in the final year.
The identity of the second distributor has not been disclosed and News Corp. would not comment. But Carey's comments could mean that at least one and possibly several heated battles are on the horizon in the next 24 months.
“We should expect headlines (about retransmission fights) will continue,” said Miller Tabak media analyst David Joyce.
Carey wouldn't quantify how much retrans could mean to the company but said that the Time Warner Cable deal was clearly a “transformational event.”
Carey estimated that about half of News Corp.'s station deals will expire in the next two years, not including similar deals that will run out for its affiliate stations. News Corp. has expressed a desire to get involved in those negotiations too.
Asked if retransmission consent fixes the broken broadcast model, Carey said that was an overly simplistic view.
“It [retrans] puts us on a course where we can generate the profits we should if we run a good network,” Carey said. “Simplistically, you could say it fixes it. It certainly puts it in a competitive place where it has a dual revenue stream like successful cable networks do and those that it increasingly competes with.”
The broadcasting segment, which has been decimated in the advertising slump, has started to show new signs of life. In the fiscal second quarter, the television segment — which includes News Corp.'s owned-and-operated television stations and the Fox broadcast network — reported operating income of $29 million in the period, compared to negative $2 million in the prior year.
In a conference call with analysts, chief financial officer David DeVoe said that after six straight quarters of declines, revenue at the stations rose 6% in the fiscal second quarter. Operating income at the stations increased about 19%, DeVoe said.
Overall, revenue for the media giant rose 10% to $8.7 billion and operating income soared 44% to $1.2 billion, fueled by strong gains at its Filmed Entertainment and Cable Networks units. Operating income at the movie studios nearly tripled to $324 million in the period, followed by a 35% gain at the networks.
In the past, Carey has argued that cable networks with smaller viewership and lower ratings can attract carriage fees of $4 to $5 per subscriber per month. He steered clear of that number on the conference call, adding that the company is mindful of its relationships with distributors.
“We want to get fair value for our content, but in all honesty, we tried to approach this constructively,” Carey said. “We built businesses with them; we built valuable cable channels. We have enormous value in the Fox network. We felt the right thing to do was to take a big step forward and get the value of the Fox network content recognized.
“Could you argue it's worth more? Sure. But there are a lot of issues involved.”
News Corp. chairman and CEO Rupert Murdoch was a bit more blunt in his assessment of the situation, noting that cable operators can afford the added costs.
“The big cable companies are making really great operating profits,” Murdoch said. “What we're asking for — and even if our network competitors ask for the same and get the same — it certainly is not going to kill the cable companies; maybe 10% of their operating profits, which they will have two or three years to pass through.”
AT A GLANCE
News Corp. ($ in millions)
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|SOURCE: News Corp.