July 31, 2006 Adelphia Deal May Cut Time Warners Programming Costs, but Not Customers Bills By KEN BELSON NY Times
http://www.nytimes.com/2006/07/31/technology/31adelphia.html?ref=technology&pagewanted=print In the four years since Comcast bought AT&T Broadband to become the nations largest cable provider by a factor of two, company executives have liked to boast about how their extra heft has helped them negotiate more favorable rates from ESPN, TBS and other programmers. Time Warner Cable, which is about half of Comcasts size, may be able to make similar claims soon. As early as tomorrow, the companies pending purchase of Adelphia Communications worth about $17 billion could be completed, giving Time Warner Cable 3.5 million new cable customers and Comcast an extra 1.7 million subscribers. As part of the deal, the cable giants will also swap customers in Florida, Texas and elsewhere. With 21.7 million basic cable customers already, Comcast is unlikely to gain much more leverage over programmers since the extra subscribers will boost its total number by only 8 percent. But for Time Warner Cable, the extra customers represent a 29 percent increase and give it 14.5 million cable subscribers. The company, which already has a big position in New York, will also become the dominant cable provider in Los Angeles. Since key decision makers in the advertising and media worlds are concentrated in these cities, Time Warner Cable will become even more of a destination for programmers. You will reach the mind-share folks if your network is carried on Time Warner Cable, said Lowell Singer, an analyst at Cowen & Company. If youre a programmer, you have to be on there. Precisely how much of an advantage Time Warner Cable can gain in negotiations is unclear since contract details are rarely disclosed and each programming contract is different. But Comcast, which operates in 22 of the 25 largest television markets, has used its size to slow the growth rate in programming costs from the low teens a few years ago to the mid-single digits now. Time Warner expects programming costs to rise by around 12 percent for the remainder of the year. Longer term, it may not receive the same windfall as Comcast has seen since it will get moderately larger, whereas Comcasts purchase of AT&T Broadband more than doubled the company. And since programming deals are often multiyear affairs, Time Warner will have to wait years for its existing contracts to expire before renegotiating them. Still, when Adelphia is sold, its programming contracts will lapse and Time Warners agreements will be applied, to the dismay of many programmers who stand to earn less money, network executives say. Time Warners rates are roughly 10 percent lower than Adelphias, said Derek Baine, senior analyst at Kagan Research. Time Warner may win larger discounts from networks that were only on Adelphias systems, since Time Warner would be under no obligation to carry them and could therefore drive a better bargain. Not all networks are created equal, though. Companies like Disney and Viacom that control many leading networks can better resist pressure from cable providers. By contrast, smaller networks may feel the need to make concessions because they do not want to risk losing access to Time Warner or Comcasts customers. Lets face it, Comcast can make or break a cable network, said Robert Routh, an analyst at Jefferies & Company. They can drop a cable network and if its not one of the bigger ones, they can put them out of the business. Whatever Time Warner saves on programming is unlikely to make its way into the pockets of consumers, at least not directly. The company is likely to use the money to offer new services that produce revenue, like digital phones and video-on-demand. Consumers get discounts for buying bundles of services, but they also spend more money. Consumers will look at it and say, Gee, you save money on programming, why dont I get it?, said Glenn A. Britt, the chief executive of Time Warner Cable. But he said the company is going to use the savings to upgrade networks and introduce new products. Down the road, prices for cable television are bound to rise if cable companies continue to pass along some of the increases in programming costs. Since 2000, spending on cable television has risen 43 percent, according to TNS Telecoms. The popularity of more expensive digital cable services is behind part of that increase. But programming costs have risen nearly twice as fast. In 2006 alone, sports channels are expected to win 18 percent increases in affiliate fees, according to Kagan Research. Though cable companies are not passing along all of the higher programming fees, the steady rise in cable television prices has led advocates to question executives who claim that their mergers save money for consumers. What mergers demonstrate is that there is not competitive pressure to pass along savings to customers even with the Bells getting into the television market, said Gene Kimmelman, director of the Consumers Union. If people think the transaction will lead to lower prices, theres no data to support it. Still, trying to reduce programming costs is only one of several justifications Time Warner Cable and Comcast have given for buying Adelphia. They also expect to use their larger sizes to win bigger discounts from equipment vendors and introduce new products more quickly. And with denser concentrations of customers in places like Ohio, South Florida and New England, the companies hope to lower their marketing costs. ================================ George Antunes, Political Science Dept University of Houston; Houston, TX 77204 Voice: 713-743-3923 Fax: 713-743-3927 antunes at uh dot edu Reply with a "Thank you" if you liked this post. _____________________________ MEDIANEWS mailing list [email protected] To unsubscribe send an email to: [EMAIL PROTECTED]
