Nets Expect MSO to Want Fees Cut

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Programming executives expressed some consternation about Comcast Corp.'s plans to merge with AT&T Broadband, as they expect the merged company to lobby for much lower license fees.

Comcast Corp.'s proposed $72 billion merger with AT&T Corp.'s Broadband unit would create by far the largest MSO in the industry, serving more than 22 million subscribers.

As most network licensing deals hinge on volume discounts based on an MSO's subscriber count, some executives said they're worried that AT&T Comcast Corp. could render substantial financial losses for the networks.

"Obviously they could look for savings, and those networks who have not anticipated such mergers could be hurt significantly," said one network executive.

In the short term, it's unclear whether the merged entity would transfer AT&T Broadband's more operator-friendly programming agreements to the new AT&T Comcast.

"It's too early to tell," said Comcast cable unit president Steven Burke. "A lot of the programming contracts have confidentiality agreements. There are a lot of contracts we haven't seen, similarly there are a lot of contracts of ours that they haven't seen."

But Comcast executives conceded the merged entity would eventually look to save millions of dollars in licensing fees. At the same time, investments in system upgrades will provide a myriad of other opportunities for programmers.

"When you're looking at programming, the ability to rebuild the majority of the combined company's physical plant and aggressively launch digital is going to create a lot of opportunity for new channels," Burke said. "Value creation on the content side over the last couple of decades has really come from the cable industry's ability to provide capacity for new channels, and this will accelerate that."

Still, some executives worry that AT&T Comcast could have enormous control over the future of programming services.

"The new entity would have enormous say in the success of any network," one executive said. "If you're not on their systems, you could easily be out of business.

"Everybody wants to have healthy vendors, but if economics don't work well for the networks, it could cause a problem for the industry."

But some programming executives aren't fretting over the potential financial ramifications of the deal. Court TV executive vice president of affiliate relations Bob Rose said it was "too early" to speculate on how the merger would affect the network's licensing deals.

He added, "We congratulate Comcast and recognize that the deal is part of a new consolidated landscape that we've successfully lived and worked in for many years and will expect to do so for years to come."

Starz Encore Group CEO John Sie said he wasn't worried about how the size of AT&T Comcast would affect pricing with respect to the company's carriage deals.

"We have an affiliation agreement with both of them, so we're not concerned," Sie said. Asked if he thought Comcast would want to renegotiate its Starz Encore affiliation deal to account for the increased volume of subscribers, Sie responded, "If they give us more subs, sure."

Steve Donohue and Mike Farrell contributed to this story.

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