Comcast, Discovery Reach Carriage Deal

Jan 18, 2009  •  Post A Comment

Comcast Corp. and Discovery Communications have quietly agreed to a new long-term carriage agreement—proving that not all negotiations between cable operators and programmers have to result in the kind of fireworks that Time Warner Cable and Viacom produced late last year.
Like the Viacom-Time Warner Cable deal, Discovery’s pact with Comcast, the nation’s biggest cable operator, expired at year end and involved furious negotiations. But the Discovery-Comcast agreement prompted not even a press release.
A Comcast spokeswoman confirmed that a new deal had been reached, but provided no details. Discovery had no comment.
But people familiar with both companies said that, as part of the negotiations, the operator probably was able to get the day-after-air rights to video content that it has been seeking from programmers for its VOD service.
Comcast likely has agreed to carry several of Discovery’s high-definition networks. While Discovery originally put most of its HD programming on its HD Theater channel, last year it began creating separate HD channels for many of its networks.
In terms of pricing, one network affiliate relations executive said that in recent negotiations, cable operators have tried to peg price increases to changes in the Consumer Price Index, while setting minimums and maximums for how much rates can increase over the length of the agreement.
Toward the end of last year, however, there were big changes in the CPI. When gasoline was $4 a barrel, the CPI was registering 4% year-over-year increases, but in December, when gas prices dropped, the rate was closer to 1%.
But those fluctuations didn’t suddenly cause operators to seek smaller increases if financial terms had already been hashed out, the network executive said.
Revenue from cable operator subscription fees is very important to cable networks, particularly now, when advertising spending is in flux because of the economy.
In the third quarter Discovery’s U.S. cable networks registered $231 million in distribution revenue, compared with $249 million in revenue from advertising. For the quarter, distribution revenue was up 8% from the prior year. Ad revenue grew 5%.
For the first nine months of 2008, distribution revenue was $631 million, up 10% from 2007. Ad revenue for the same period was $710 million, up 9%.
Viacom and Time Warner Cable ended up reaching a tentative agreement just after midnight on Jan. 1. In the days before the deal, the two sides exchanged nasty statements. Time Warner Cable accused Viacom of trying to make up its shortfalls in ratings and ad revenues by trying to soak its subscribers. Viacom ran an on-air crawl warning that subscribers could lose favorites including “SpongeBob SquarePants,” “The Colbert Report” and “South Park” if an agreement wasn’t reached.
Analysts said neither side would be a winner if the channels were pulled, but that the cable operator facing a loss of subscribers might feel the pain more intensely and more quickly. Operators have no upside because at some point they will have to pay an increase, with the only question how big it will be.
Terms of the tentative agreement were never disclosed, but published reports said Viacom got an increase in its monthly license fee and Time Warner Cable got the right to include Viacom programming in some of its subscriber services.


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