Network Fees in Sharp Focus

Affiliate-fee growth was a hot topic for programmers and distributors at the “other” industry get-together in Las Vegas last week, with Time Warner Inc. chief financial officer John Martin predicting a double-digit increase in programming fees over the next four years.

Speaking at the Citigroup Global Internet, Media and Telecommunications conference, Martin said that Time Warner Inc.’s affiliate deals begin to expire in the middle of this year and that by the end of 2016 it would be out of contract with all of its distributors.

The company’s goal, he said, is to accelerate affiliate fee growth by double digits over the next three years. “We fully intend to do that.”

Martin’s comments come as distributors grapple with whether to jettison underperforming networks.


Time Warner Cable has been especially aggressive on this front — it recently dropped arts channel Ovation, in part because ratings did not jibe with the fee it was charging the MSO.

Time Warner Inc. networks have been consistent ratings juggernauts — the TNT and TBS networks were two of the top four cable networks in primetime last year, and premium channel HBO is having one of its strongest periods in several years, Martin said.

In general, most networks shouldn’t find it that hard to get to double-digit fee increases, assuming the midto- high-single-digit escalators embedded in their existing distribution contracts, Pivotal Research Group media analyst Brian Wieser said. Digital rights fees should provide the boost to push most networks into the low doubledigit range, he said.

“So long as the likes of Amazon, Netflix and others are around, they will pay up for programmers’ content and those revenues will generally show up in the affiliate-fee line item,” Wieser said.

Sports content, which Time Warner Inc. has pursued aggressively, could be the big differentiator between its Turner Broadcasting System unit and other cable programmers, Wieser added.

Turner’s TNT and TBS are among the costliest general-entertainment networks, charging $1.24 and 59 cents per subscriber per month, respectively, according to SNL Kagan.

Kagan predicted that by 2016 Turner would increase charges for TNT by about 29%, to $1.60 per subscriber, and for TBS by 40.7%, to 83 cents per sub. TruTv will increase the most, doubling its fees from 12 cents per subscriber to 24 cents by 2016, according to Kagan.


At independent Scripps Networks Interactive, parent of the Food Networks and HGTV, the focus was more on TV Everywhere-like agreements, which chairman and CEO Ken Lowe said could lead to higher ratings.

Scripps in July signed a comprehensive carriage deal with Comcast — including TV Everywhere rights — and Lowe said the programmer has similar deals with about 60% of its distributors. He expects more TV Everywherelike agreements in the next 18 to 24 months, adding that Scripps channels, especially Food Network, can benefit from such authentication deals because they allow viewers to take their tablets or smartphones with them as they move about their homes, including into the kitchen to cook.

“We’re very positive about the future of TV Everywhere,” Lowe said. “But I do think it is incumbent on the industry — we have got to get the measurement right as quickly as possible.”

While Nielsen has said consistently that it can accurately measure TV Everywhere ratings, Lowe said the disconnect centers on pricing and technical issues with ratings companies, programmers and distributors.

DirecTV chairman and CEO Mike White was also focused on affiliate fees, particularly how to off set high-cost sports programming.

The satellite-TV provider in August began implementing a $3-per-month surcharge for new customers in markets with multiple RSNs, such as Los Angeles and New York. White said DirecTV would expand the practice in 2013, but only in areas deemed to have “out-of-control” sports programming costs.

“The average RSN, for most of America, is probably $3 or $4 in the bill and it’s not a big issue,” White said. “But there are metropolitan areas where it’s $18 or $20 [of a customer’s bill] because of the number of RSNs that you have to carry. Our view is you can’t price the same nationally; you have to be smarter about it.”