Time Warner Cable Spinoff: Content Divorces Distribution

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Washington--These days, vertical integration — the marriage of content and distribution — isn’t necessarily a key ingredient in running a media empire.

News Corp. has divested its controlling interest in DirecTV, and last week Time Warner Inc. and Time Warner Cable agreed to separate, with content going in one direction and distribution in the other.

The separation of Time Warner would represent an almost totally clean break. Time Warner Cable will retain ownership of eight regional news channels, including New York 1 News and R News in Rochester, N.Y. Time Warner Inc. is expected to retain control of 28 national cable programming services, including HBO, CNN, and Turner Network Television.

On Friday, Federal Communications Commission chairman Kevin Martin welcomed the split, especially if it led to lower cable rates.

“I do not know whether this will help address that are not. To the extent that it does, I’d certainly be supportive and think that would end being a good thing,” Martin told reporters at FCC headquarters.

A Time Warner Inc. spokesman said the transaction would need FCC approval and separate approvals by local franchising authorities.

Because Time Warner Cable will have a financial interest in only one satellite-delivered cable network, and because Time Warner Inc. will not have a financial interest in any cable system, neither corporate entity will be subject to the FCC’s program-access rules in a comprehensive way.

Generally, the program-access rules require vertically integrated satellite cable programmers to sell to unaffiliated pay TV distributors, such as DirecTV and Dish Network.

It’s possible that when the FCC has the split under review, outside parties could ask the agency to impose program-access conditions.

The number of cable networks subject to the rules has been shrinking on a percentage basis for many years.

In 2006, the FCC found that at least one cable operator had a financial interest in 116 of 531 national cable programming networks, putting cable vertical integration at about 22%, down from about 50% in 1993, when the agency first began to monitor the issue annually.

After approval of the Time Warner transaction, vertical integration in cable should decline to 17%.

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