Wall St. Unfazed by a la Carte

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The hubbub over the potential threat of a la carte pricing drew a collective yawn from cable investors Wednesday, with most MSO stocks holding their own.

Just three of the six publicly traded MSOs showed declines in their stock prices Wednesday, the biggest being Cablevision Systems Corp., which closed the day at $23.66 per share, down 57 cents.

Other MSOs showed smaller losses -- Comcast Corp. was down 35 cents to $26 per share and Mediacom Communications Corp. was down 2 cents each to $5.21. Charter Communications Inc. and Insight Communications Co. Inc. were unchanged, at $1.19 and $11.64 per share, respectively. Time Warner Inc. was the only cable stock to show an increase -- 11 cents per share to $17.98.

The investor indifference to Federal Communications Commission chairman Kevin Martin’s comments at a Senate hearing Tuesday, where he said a la carte was feasible, mirrored the sentiments of several Wall Street analysts.

In research reports in the past two days, several analysts said the possibility of forced a la carte pricing for cable networks was highly unlikely, with most adding that Martin’s comments could be a political ploy to push through his longtime desire for a family-friendly tier at most MSOs.

“Mandating a la carte would be a tremendously complex, controversial and likely litigious process with unclear consumer benefits and numerous potential unintended consequences,” Banc of America Securities LLC media analyst Doug Shapiro wrote in a research note.

“We think any change in stance by the FCC on a la carte is actually aimed at persuading the pay TV industry to offer a ‘family-friendly’ tier, as chairman Martin has long supported,” he added. “This would have far less potential adverse impact than pure a la carte.”

Merrill Lynch & Co. media analyst Jessica Reif Cohen said the lobbying power of cable operators and content companies also reduces the likelihood of forced a la carte.

“There also remain significant questions regarding whether the courts would uphold any likely legislation, the potential pricing for a la carte, potential renegotiation of affiliate contracts (often five-year to seven-year terms) and how long this would take to implement (probably more than five years),” Reif Cohen wrote.

The Goldman Sachs Group Inc. cable analyst Lale Topcuoglu wrote that a la carte could be beneficial for MSOs if it allows them to use their bandwidth more efficiently. But she added that the disadvantage would be in the increased marketing efforts a la carte would necessitate.

“Cable has recently adopted the premise that ‘simple is better,’ and a la carte programming marketed alongside ‘all-you-can-eat packages’ could create consumer confusion and further complicate marketing of bundles,” Topcuoglu wrote.

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