Analysts Weigh In On Fox-Time Warner Cable Retrans Pact


The guessing games have begun regarding how much Time Warner Cable agreed to pay Fox Broadcasting for the right to carry the latter's broadcast stations, with several analysts weighing in with their own estimates on Monday.

After trading barbs through print, TV and Internet ads over their retransmission-consent dispute in the days leading up to the New Year, Fox and Time Warner Cable agreed on Jan. 1 to end their battle, with the operator paying an undisclosed amount for the stations. The extension and the ultimate deal resulted in no lost programming for the Time Warner Cable systems (and about 2 million Bright House Networks customers in Florida and Detroit).
In a research note Monday, Miller Tabak media analyst David Joyce stuck to his previous estimate that TWC probably paid between 40 cents and 60 cents per subscriber per month for the Fox stations, short of the $1 per month per customer it was reportedly requesting. But he cautioned that "there are many moving parts to the deal - values received by both sides - that make any one data point fairly irrelevant."
He added that the 40 cents to 60 cents estimate makes sense, but other factors -- the possibility that Fox gets more HDTV channel capacity, VOD content revenue sharing and that TWC gets access to that programming, revenue sharing and advertising time -- could skew that number.
Collins Stewart media analyst Tom Eagan wrote in a note Monday that it is unlikely that Fox received $1 per subscriber per month for the broadcast stations alone (it was also negotiating for carriage of several cable networks, including FX, Speed, Fox Movie Channel and several regional sports networks). And the analyst believes that just how much was agreed upon will be determined by how each company allocates the payment. He noted that while some reports have indicated that a 50-cent bar was set last year in retrans deals with CBS stations, "that number was an internal allocation that CBS applied to the broadcast stations as part of an overall deal involving Showtime."
No matter how the fees are allocated, Eagan wrote that it will have a negligible impact on TWC. He estimated that a fee of 25 cents to 75 cents per subscriber per month would reduce TWC's 2010 cash flow by $12.6 million to $37.8 million, or 0.19% to 0.56%, if none of the additional cost is passed on to customers.
"More likely, TWC will pass on some of the increase to its subscribers," Eagan wrote, adding that passing on 50% of the cost would lessen the cash flow impact to $6.3 million to $18.9 million.
Pali Research media analyst Richard Greenfield said in a blog posting Monday that while the deal likely has many moving parts (including VOD rights) he suspects both sides compromised.

"Our best guess is that Fox was willing to reduce its demands for cable network distribution and sub fee growth at FX and the RSNs, in return for cash retrans for the Fox network that likely averages out to north of $0.50/sub/month over a 4-6 year term (with fees below $0.50 in 2010)," Greenfield wrote. "In the end, we doubt [News Corp., Fox's parent] was able to reach its $1.00/sub/month goal without going dark (and pulling its signals from TWC), however, the final year of its deal with TWC may approach $0.75/sub/month."