28 December 2009

Fox, Time Warner Face Off Over Fees

USA Today

Millions of TV viewers eager to watch American Idol and 24 or football games featuring the New York Giants could be in for a shock beginning New Year's Day.

They might be unavailable on Time Warner Cable systems in cities including New York and Los Angeles if the No. 2 cable operator can't reach an agreement to carry stations owned by the Fox broadcast network.

The current contract expires Thursday. It also covers some of parent company News Corp.'s regional sports networks, FX, Speed and Fox Reality Channel. The companies are locked in a bitter and potentially precedent-setting dispute over renewal terms from Fox that Time Warner Cable warns also could result in higher monthly rates for consumers.

"What consumers are saying is, 'Why can't I buy less?' " says Melinda Witmer, chief programming officer at Time Warner Cable.

There's "a high likelihood that programming will get dropped (or) pulled," says Pali Research analyst Richard Greenfield.

If that happens, Fox would lose revenue from advertisers, because ads would reach fewer viewers. And Time Warner Cable might see some customers switch to another service.

To avoid all that, Sen. John Kerry, D-Mass., urged the companies last week to get an arbitrator to help.

At issue is Fox's effort to get cable operators to pay its local stations a monthly fee, widely believed to be about $1 a month for each cable subscriber. Fox declined to comment.

With minor exceptions, operators don't pay cash to carry local stations. Instead, they've compensated broadcasters by paying for cable channels they've created: For example, Disney, which owns ABC, launched ESPN2. Fox created FX.

Now Fox says it wants payments for its local stations. "We need to have a business model that enables us to compete" with basic cable, News Corp. COO Chase Carey said this month. Time Warner Cable, with 13 million subscribers, says that it has to draw the line on price increases.

(No. 1 cable operator Comcast is not in a good position to lead this fight. It has a deal to buy a controlling stake in NBC Universal. That company sides with Fox on this issue.)

Time Warner Cable also is challenging the value of network TV. It says that Fox and others have hurt themselves by offering shows for free at websites such as Hulu.

The company's threatening to escalate the fight by giving consumers more flexibility to buy the networks they want. That could doom expensive or low-rated channels.

"What consumers are saying is, 'Why can't I buy less?' " says Melinda Witmer, chief programming officer at Time Warner Cable.

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