Negotiating the Value of Programming

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Q&A
With Melinda Witmer, Senior VP and Chief Programming Officer, Time Warner Cable

More than six months after taking over Time Warner Cable’s programming reins from the now-retired Fred Dressler, senior vice president and chief programming officer Melinda Witmer has already established herself as a successful negotiator in her own right. Having secured major distribution deals with The Walt Disney Co. and Sinclair Broadcast Group, Witmer has set her sights on combing through the operator’s current cable network carriage deals to make sure that Time Warner is getting the most value for itself and its subscribers. Multichannel News programming editor R. Thomas Umstead and programming writer Linda Moss recently sat down with Witmer to discuss the programmer’s negotiation strategies, particularly regarding high-priced sports networks like NFL Network and The Big Ten Network. An edited transcript follows:

MCN: Six months into your position as head of Time Warner’s programming operations, have you accomplished any of the goals you set for 2007?

BW: Unquestionably, I have to say that I had a couple of goals, including trying to get some deals done that had been lingering, which we have accomplished. Most important was to get the right team in place. And I really didn’t know how long that would take. I feel I got incredibly lucky, because we were able to get a new team in place in really just a few months. So I would say that was my No. 1 goal, and, yes, we have accomplished it.

MCN: You mentioned a number of deals that you had to work on. How difficult has it been so far in your tenure to complete deals and negotiate with the networks?

BW: We had a number of deals that were a little bit bottlenecked. We had a busy year last year, and we had a much smaller team. And so one of my goals coming into taking over the department was to really try to eliminate some of the inefficiencies.

What I heard when I started out talking to programmers about how we could make our business together work better was that it just takes too long to do deals — it just takes far too long to get from start to finish. And it didn’t just happen at Time Warner; it happens at Comcast and it happens at DirecTV. But it felt so inefficient in an environment that is so dynamic now and where the business seems like it’s changing constantly. So it was important to me to get the people in place so that we could really get focused and get deals done.

We had a couple of big deals done. You know we closed the [The Walt] Disney [Co.] deal in March that had been lingering for some time, and finished our Sinclair [Broadcast Group] deal the first of the year. And we have a lot of other things that have been in process. But we’re really able to focus on a broader spectrum of work, as well as to start to really focus in on our local business, which is something we just didn’t have the resources to really spend the time on before.

MCN: You mentioned the Sinclair deal. As has been well-documented, Sinclair was in a huge battle with Mediacom Communications that turned into a very nasty situation. You managed to close a deal with them without having that disastrous situation of having stations dropped. How were you able to close that deal while avoiding confrontation?

BW: I think from our perspective, and in every conversation I had with our senior management team going into how that deal was going to progress, everyone was unified in their focus on our consumers and the recognition that Sinclair is a large provider of programming for us. So in recognition that network programming is very important to our customers, we were focused on how we could find a way to get to a win-win place and keep consistency, while letting our customers see us as a consistent and sturdy provider of content to them.

One of the things that I think doesn’t do any of us in the industry a service is the sense of volatility and the fisticuffs between providers and operators on an ongoing basis. And that seems to drag consumers into the middle of our marketplace commercial transactions.

So the way we approached the Sinclair deal was to say, “What is important to us? What is important to you?” And I think actually one of the things — because they said this to us on a number of occasions — that set a tone for those conversations was we never questioned the value of the product that they were delivering.

MCN: You think that made a difference?

BW: Yes. We came to them and said, “Look, network programming is important to our customers, and you are the seller of network programming in our markets.” So I think it was important because they kept saying, “Well, you know, one thing I’ll give you credit for, you never pound the table and say 'There’s no value here!’ ” And so I think that really set the tone.

And we provide a lot of value back. That was something else that I think was recognized very openly by them is that [some of our] consumers actually watch broadcast television off the air now. So it’s a recognition that they like to DVR the content.

It perpetuates the popularity of the programming they distribute, but its also important to have a quality signal and to have access to things like DVRs that really make us more valuable to them.

And we’re both local businesses. That’s the other thing we really have in common with broadcast is we’re operating in the same community.

Certainly I won’t say it was an easy negotiation by any stretch. But there was a sense of a mutual respect at least for what both parties brought to the table.

MCN: Can you say as a cable company now is there a set policy in terms of negotiating with stations? You know the debates whether cable operators are paying cash, no cash, or whatever — is there a set policy at Time Warner now, or is it fluid?

BW: You know, there really is no set policy.

MCN: There also seems to be a debate as to what is defined as cash. Everyone defines cash as different. Is ad time cash? How do you define the value of what’s being exchanged in these deals?

BW: Every transaction is different. It would be a license fee for a programming service. You pay them, you cut them a check, but you’re still getting value in exchange. So I guess I don’t know that from my perspective — I’ve kind of sat back through that debate. I don’t really know that this question of what’s cash and what isn’t cash really matters as much as the question of, are you able to exchange value in such a way that you can reach agreement for us to continue to serve the customers in the best possible way? And that just continues to be a guiding principle for us.

And there are things that cable operators do that exchange value in favor of the stations. We’ve done all kinds of things to improve signal quality, even in instances where not every broadcast station has necessarily maintained more towers or necessarily done other things. What I’m saying is there is some recognition of the value that we bring to the table now. I’m not sure that’s always been the case.

MCN: Obviously that’s been a very a contentious issue for operators. Another contentious issue is the whole sports-content marketplace, and there are a number of sports networks that I’m sure are knocking on your door right now. One is the NFL Network and another is the Big Ten Network. How do you approach those types of negotiations? Sort of the same concept of “We have value, you have value … now let’s figure out a way to get this distributed?” Or are you saying flatly, “We want all of new sports networks on a sports tier as opposed to basic?”

BW: Not unlike where we started with Sinclair, it’s true for every programming service — whether it’s a renewal or whether it’s a new service — that we’re really focused on what the value proposition is to the consumer. We operate in an incredibly competitive environment. This is not the same cable industry that [former Time Warner Cable executive vice president of programming] Fred [Dressler] started in. It’s certainly not the same cable industry it was even 15 years ago. So we have real active competition everywhere we operate.

And so for us, the analysis is always what’s the product we’re going to deliver and how we can deliver the most compelling video product we possibly can for a reasonable price that consumers are willing to pay. So whether it’s the Big Ten Network, the NFL Network, MASN [Mid-Atlantic Sports Network], or whomever, the No. 1 consideration is, do our customers want this? How important is this content to these customers?

What we found with the NFL last year is that very few of our customers even complained, much less left us. I don’t know whether anyone knew for sure exactly how that would come out, but what we found going into it is that we weren’t really hearing from our customers that this was going to be a must-have for them.

We’ve had the [Major League Baseball Baltimore] Orioles games off the air since they left [Comcast SportsNet Mid-Atlantic] before they went to MASN. And we’re really not hearing anything from our customers in the Carolinas.

So for us in an incredibly competitive environment, what we want to do is go with the [networks] that we think we need to compete and to offer the most compelling product we can to our customers. So we’re making that analysis all the time. And we, as other operators, will have to make determinations in a competitive environment where price is also competitive to the consumer, that if a product comes along that is really more compelling than something else, we’re going to be making decisions about what we continue to carry, because the dollars are not unlimited.

Ultimately, we feel that we stand in the shoes of our consumers when we negotiate, so we represent their wallet at the table, as well as our own. And we have a strong sense that that isn’t an unlimited spending budget. So we have to make those decisions as to what we really need to compete and what they really want.

MCN: At this point, as you’re looking at both of those networks, do you see them as being sports-tiered networks in terms of their value? You mentioned that you’re not getting complaints with the NFL Network, but the Big Ten’s a little different. You have systems that represent markets where Big Ten schools are and there might be a great desire among those subscribers [to be able to watch] that network.

BW: Well, I think that, again, it’s a real assessment as to what we think the value is that the content brings to our consumers. There’s no question that there are fans of the NFL, hockey, the Big Ten, tennis — there are fans of every sport you can find.

I think striking the right balance is the question. Of course, we’re in the business of providing video content, so the most compelling offering is going to be able to offer our consumers everything they could possibly want. If bandwidth were unlimited, we would do that at the right price, and let the right people pay for it that want to pay for it.

So I think that — particularly for sports programming where they’re looking for high payoff — we have to be responsible about figuring out who’s going to pay for that. And I don’t think that that burden should be borne by the breadth of customers.

Particularly, the Big Ten is an interesting one only because they’ve kind of cast themselves in a hybrid of a regional sports network and a national service. But you’d probably be hard-pressed to find a regional sports network with an eight-state core market. But we’re still evaluating, and we have an open door with respect to every programmer who wants to do business we us, so we’re talking to them and evaluating, and trying to determine where our customer sets are.

MCN: Are you doing a broad evaluation in general of all the services you’re carrying?

BW: Well, we are doing that, especially because we had a lot of subs to integrate into a number of places. We didn’t necessarily have exactly the same programming model that either Adelphia or Comcast did, so we’ve been doing a lot of evaluation of our lineups starting back with those acquisitions. But it’s an ongoing process.

MCN: With all those subs coming under your wing, don’t you have to go through that process of “Well, whose contract is that?” I mean, you have systems from Comcast, which is bigger than you, and Adelphia, which was smaller, so it stands to reason there’s different rates. So how do you come up with a rate that best serves everyone?

BW: Well, we bought assets, so, you know, you buy assets, they end up under your contract.

MCN: So that answers that.

BW: It’s not just our job to do deals. It’s really our job to facilitate providing the best video product we can to our field to sell to our consumers. So part of that is evaluating. We are spending more time talking to the creative people that work for these networks — bringing them in, bringing in the senior people from their teams, and not only presenting to them the opportunities for distribution but also those we have as we’re evolving our enhanced television platform. There’s a lot of interesting things we’re doing there.

You know, one of the questions I wanted to understand well coming into each negotiation is what is the holistic relationship that we have. We sell advertising, marketing, you know, we carry your products, we promote your products. What kind of a partnership do we really have in terms of what we provide? And I want to understand what you’re doing and what we’re doing. So we’ve been having much more ongoing dialogue that’s not necessarily related to doing deals or renewals.

MCN: You mentioned Mr. Dressler in your comments. Your style seems totally opposite of his — from what we’ve heard from networks, he was a very tough and aggressive negotiator. Because Fred was a bit more contentious in his negotiation style, was it your decision to proceed in a less-aggressive manner?

BW: Well, I haven’t at any point stopped and said, “Well, gee whiz. I think this is the way I think Fred was in his style, and I want to be this way.” For me, it’s been about seeing this business as an incredibly competitive business for us, and I feel that in a competitive environment, we have to try to find a way to be the first distributor that a programmer really wants to do business with.

And that’s hard. You’re going to have really difficult negotiations over what you carry, what you don’t carry and how you carry it. Those are really hard conversations and very difficult negotiations. Particularly with a lot of consolidation in the industry, there’s a sort of the clash of titans again and again and again. There are very few deals that are simple, and you kind of long for something that’s simple and easy, and they’re not all that way.

But I think that it is an imperative in a fast-paced, dynamic, competitive environment to have relationships with programmers where there is going to be a level of trust. They want to try things, and we need to be able to let them try things and know that there’s a trust relationship. They don’t want to undermine our business, we’re not going to undermine theirs.

So from my perspective, I felt that it was important for me to focus on how to maintain really good relationships and to communicate well where we can be helpful and where they can be helpful.

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