Prickly Relations Becoming Norm

Sep 20, 2004  •  Post A Comment

“Hardball” isn’t just the name of a program hosted by Chris Matthews on MSNBC. It’s the new watchword for cable operator/programmer relations.

Business gets done, but the days of polite, clubby relations appear to be over. Consider the latest dispute to settle, after three months of contentious negotiations-Time Warner Cable and Comcast Cable’s G4techTV. Time Warner pulled the channel off some systems in the New York area after the merger of G4, a channel for video gamers, and TechTV, which began as a TV channel for those interested in all things high-tech.

Time Warner Cable took the position that the new G4techTV was a new service, which allowed TWC to break the contract. TWC said G4techTV would have to negotiate new rates.

A deal was finally made. Neither side would divulge details on the concessions it required. “We’re not getting into the particulars of the agreement,” said Keith Cocozza, a spokesperson for Time Warner Cable.

“We’re happy to be back on,” said Karen Raque, a spokesperson for G4techTV, adding, “Our agreement with Time Warner Cable does not permit disclosing details.”

The reticence on both sides is not surprising, since such imbroglios are becoming commonplace in the industry. Any concession made by a programmer to one operator could be followed by demands for concessions from others. Almost no one contacted for this story, across a wide swath of the industry, wished to go on the record.

While program and rights fee negotiations are not new, what has emerged in recent months is a wave of increasingly public disputes between programmers and operators, some of which have resulted in litigation. There has also been an increasing willingness among cable operators to criticize each other, something that rarely happened in years past, when major operators all knew each other and considered broadcasters the competition.

A variety of senior-level cable veterans said they can’t recall the industry ever being so combative. “It is pretty nasty right now,” observed former Comedy Central CEO Larry Divney. “As the industry consolidates, it is getting less congenial.”

“What is different today is that the disputes are going public,” observed Char Beales, CEO of CTAM.

A source close to Time Warner Cable agreed the industry has become more prone to public disputes. “Yes, arguments in the industry have become more public, possibly because of the competitive nature of the business now,” the source said.

In years past, said a veteran cable network executive, “They kept it in the family. We didn’t do business that way.” Another veteran network executive agreed heartily with the observation that the industry is becoming full of disagreement. “It’s right on,” he said.

Consider just how many intractable disputes have gone public in recent months:

w Time Warner and Cablevision’s MSG Network can’t agree on price. MSG, Fox Sports Net N.Y. and Rainbow’s Metro were dropped for 10 days this month from Time Warner systems. MSG blasts TWC’s “outrageous, anti-consumer actions.” The dispute centered around MSG’s demand for $4 per subscriber, while TWC had been paying about $2.90.

w Time Warner Cable and AMC battled over content issues, with TWC claiming that the new ad-supported AMC is not the network it agreed to carry. The dispute is now a lawsuit.

w In June at an investor conference, Cox Communications President Jim Robbins blamed “the mistakes of other cable operators” for the poor stock market showing of his and other cable stocks.

A top cable executive added, “A lot of this is about trying to contain sports and programming costs in general. The programmers and operators negotiated in private for years, but the only thing that worked was when Cox took on ESPN publicly.”

This executive was referring to a public dispute between Cox Communications and Disney’s ESPN that surfaced last year, when Mr. Robbins publicly challenged reported 20 percent rate hikes from the sports network. “We can’t keep going down this sports-rate escalation path. Everyone knows it,” a leading cable executive told TelevisionWeek last year. Now that the Rubicon has been crossed, not once but many times, as public disputes become commonplace in the industry.

These disputes have become so public, in fact, that consumers have noticed them, and in an age of blogs and webzines, have been vocal about some cable disputes. For instance, the G4techTV issue is the subject of hundreds of online forums. One such consumer, Michael Jonas, a New York-based G4techTV fan and Time Warner Cable customer, said in a recent interview, “When G4techTV was dropped from TWC I wrote to TWC’s New York director of customer service. To her credit, she passed my letter on to one of her staff, who got back to me within days to try and smooth things over. This individual told me the reasons for pulling the channel, which I found unsurprising. As a result, I believe that viewers are not at the top of the list of priorities when program distributors and cable operators get into contract negotiations. I think TWC-and G4 for that matter-misjudged the strength of feeling of a cross-section of their viewers.”

The current disputes are rising to the surface now because of outside pressure, observers noted. Cable stock prices are at historic lows. And “satellite is putting the squeeze on cable operators,” noted media analyst Porter Bibb. “DirecTV just reported 13 million subscribers, while Comcast reported it lost 95,000 subscribers. The fact is that cable is having to fight for every subscriber, and the cost of programming keeps going up for them.”

Nationally, in updated figures released last week, News Corp.’s DirecTV, the nation’s largest satellite TV provider, and EchoStar combined now reach 23.2 million subscribers, compared with 65.7 million for cable operators. The cable industry posted a net loss of 300,000 subscribers in the first half of the year, while satellite gained 1.6 million.

“Until [direct broadcast satellite] showed up, all this was a family affair, because cable operators and networks needed each other. But all the conviviality has gone the way of the convention party,” quipped Larry Gerbrandt, who heads the media and entertainment practice at AlixPartners in Los Angeles.

Comcast, which faces programming costs of $5 billion by 2006, a 25 percent increase, has battled with Time Warner’s HBO over 10 percent price hikes over the $6 per sub the No. 1 multiple system operator was paying. Some see TWC’s actions against Comcast’s G4techTV as being related to that dispute.

Bobby Amirshahi, a spokesperson for Cox Communications, said sports programming costs are at the heart of the matter and that, faced with 20 percent price hikes from sports nets, distributors have little choice but to take these disputes to the mat.

“With double-digit increases in sports programming, our margins were going down,” he said. “We have to have as our primary goal to answer to our shareholders, not just be collegial with the industry.”