Program Chiefs Sound Off on License Fees

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Los Angeles -- In what has become a familiar refrain and
gripe, programming chiefs at two top-five MSOs once again warned cable networks last week
that license fees can't continue to skyrocket out of control.

At a panel on cable-industry consolidation at the Western
Show here, Bob Wilson, vice president of programming for Cox Communications Inc.,
complained that his MSO has "a big problem in respect to license fees." Cox
loses one or two points of its profit margin per year to rising programming cost,
according to Wilson. To make up that difference, the MSO has to cut back on other areas,
he added.

Cox is currently tiering all new programming, but Wilson
said his systems often come to corporate headquarters looking to create new tiers made up
of networks they now carry. He added that contractually, this can't be done, and Cox
doesn't "want to submarine the existing produce we've got" in terms of hurting
networks' distribution and, therefore, their ad revenue.

For his part, Matt Bond, executive vice president of
programming for AT&T Broadband & Internet Services, said programmers must realize,
"We are really in an environment where there is economic scarcity to pay license
fees."

Added Bond, "We do not have an economic play to launch
new services and see if the [license fees] can be recouped from our customers."

Cable operators can't just pass program-cost increases onto
their subscribers because of the current competitive environment, the MSO executives said.

Bond in particular cited rising sports-programming costs --
programming that he said only a minority of customers really want, but that can't be
tiered because of contractual obligations. He added that ESPN and Fox Sports wouldn't be
bidding up the price of sports if they didn't feel that they could get that money back
from the front end -- from operators.

"I really don't know what the solution will be,"
Bond said, "but ultimately, there will be some kind of tiering strategy."

In terms of programming costs in general, Bond said he has
tried to offer programming giants a flat fee for all of their networks in exchange for
flexibility as to how and where AT&T Broadband carried them. But programmers wouldn't
go for that option, he added.

Wilson pointed out that Cox now offers 20 to 30 networks on
digital, yet there are many other new networks out in the market looking for carriage.
"I see a saturation of content right now," he said. "Do our subscribers
really value this stuff?"

In terms of MSO consolidation, Bond said it has "put a
premium on every deal" a programmer does. "There are only a half a dozen deals
that have to get done," he added.

Comedy Central president Larry Divney said that while
consolidation has put more pressure on individual deals, "I don't think it's a
problem."

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