Negotiators for Time Warner Cable and Fox Broadcasting were expected to be working late into the night Dec. 31, trying to hammer out a deal that would allow the cable operator to continue carrying popular Fox shows like American Idol, 24 and House into the New Year and give the programmer the compensation it claims it sorely deserves.
Aside from a phalanx of e-mail messages and phone calls, negotiating teams have been holed up in Fox offices in Los Angeles since Dec. 28 trying to pound out a deal. They are expected to arrive at a compromise.
“They are here. We are seriously negotiating,” said a Fox executive who declined to be named. “Hopefully we can come to a positive resolution.”
As of press time on Dec. 30, no deal had been struck.
In a separate dispute, Mediacom Communications continued its battle with Sinclair Broadcast Group, involving more than 700,000 cable subscribers in 12 states. On Dec. 30, Mediacom vice president of legal and public affairs Tom Larsen said he was “always optimistic that an agreement can be reached. But time is running out.”
In a memo to employees late Dec. 30, News Corp, deputy chairman Chase Carey expressed doubt that a deal could be reached by Dec. 31 .
“At this time, it looks like we will not reach an agreement and our channels may very well go off the air in Time Warner Cable systems at midnight tomorrow, Dec. 31,” Carey wrote in the memo. “We deeply regret that millions of Fox customers will be deprived of our programming, but we need to receive fair compensation from Time Warner Cable to go forward with them.”
He added that Fox would not offer to extend the MSO's existing agreement while it negotiates because “further extensions simply extend the period of time that Time Warner profits from our marquee programming without fairly compensating Fox for it.”
In an interview with Reuters Dec. 29, Fox Networks Group CEO Tony Vinciquerra said that negotiations are likely to come down to the last minute. “The only way you walk away from the table getting as much as you can is by facing it down at the last moment,” he told Reuters.
The history of such carriage negotiations bears out that view. For example, last year, TWC's much publicized carriage dispute with Viacom (complete with ads depicting a crying Dora the Explorer, one of kids' network Nickelodeon's most-popular characters) was settled within an hour of the midnight deadline.
The latest dispute has had similar elements — print, TV and Web ads from both cable operator and broadcaster accusing the other of not playing fair, Web sites (www.keepfoxon.com and www.rolloverorgettough.com) aimed at getting their respective messages to consumers and playing to customers fears of lost programming (Fox) and the possibility of rising monthly rates (Time Warner).
While both sides have made harsh accusations and reached for higher moral ground, failure to reach an agreement can have serious consequences. Fox risks losing advertising revenue from the two largest media markets in the country (New York and Los Angeles) for an extended period of time. Time Warner Cable risks losing subscribers to alternative providers — Fox has recommended that irate customers switch to telco or satellite TV companies. Dish Network has already taken up the gauntlet, advertising an offering of 120 channels for $24.99 per month, free HBO and Showtime and free installation in several Time Warner markets.
At the heart of the matter is Fox's request for cash to retransmit its owned and operated networks, possibly extending to its affiliates throughout the country. While neither side has revealed how large a carriage fee Fox is asking for, it could be as much as $1 per month, per subscriber.
Time Warner has repeatedly said it is willing to pay Fox for retrans consent, but that the amount is exorbitant, especially in these economic times.
Two prominent cable analysts — Pali Research's Richard Greenfield and Miller Tabak's David Joyce — have said they believe Fox and Time Warner will probably settle on a price somewhere in the middle.
“They [Time Warner Cable] are not going to agree to a dollar,” Joyce said. “I think it ends up getting done at maybe 60 cents.”
Fox currently owns stations in three Time Warner Cable markets — New York, Los Angeles and Dallas — covering about 3.9 million customers. Also affected are Bright House Networks subscribers in suburban Detroit, Orlando and Tampa, Fla., with about 2 million customers. Bright House, created after the dissolution of a partnership between Time Warner Inc. and Advance/Newhouse Communications in 2002, retains an affiliation with TWC for programming and equipment purchases.
Also in danger of going dark on TWC and Bright House systems totaling more than 15 million customers are Fox cable channels FX, Speed, Fuel TV, Fox Movie Channel, Fox Reality Channel, Fox Soccer Channel, Fox Sports en Espanol, and nine regional Fox Sports networks (FS Arizona, Florida, Houston, Midwest, Southwest, West, Prime Ticket, SportsSouth and Sun Sports).
The fate of the Dallas Fox channel appears to be in limbo, with TWC claiming the station failed to notify it in a timely manner of its intention to seek retransmission consent and Fox claiming that it has met the necessary criteria. Failure to make the proper notifications would make the station a “must-carry” property, which would allow the MSO to carry it without a retransmission agreement.
The dispute also has drawn some high-profile government officials into the fray. Sen. John Kerry (D-Mass.) has asked that the two parties to submit to binding arbitration, which Time Warner Cable has said it is willing to do. In the absence of arbitration, the cable operator also has asked Fox to extend its agreement or otherwise allow the stations to be carried past the deadline while a deal is hammered out.
In a Dec. 30 letter to Kerry, Carey politely declined arbitration, adding that it “all too often looks to the past, not to the future. … We respectfully believe these discussions do not belong in the hands of a third party.”
A deal under Fox's terms could also have some serious financial implications for the rest of the industry. Joyce estimated that a $1 retrans fee would cost Time Warner Cable about $44.8 million per year. But a similar deal for all cable, telco and satellite TV service providers, it could mean an additional $472 million in retrans costs just for the Fox Broadcasting network alone.
“Once things are phased in over the next few years, it's an extra couple of billion dollars a year that cable companies are going to pay, that essentially the consumers will have to pay,” Joyce said.
Other programming deals were also set to expire on Dec. 31, though without public threats of lost carriage. Among them: Scripps Networks Interactive's Food Network and Great American Country deals with most major MSOs (except Comcast) and Rainbow Media and MSG Networks deals with DirecTV.