Television Blackouts in U.S. Reach Decade High Over Fee Fights

Bloomberg

 

TV blackouts in the U.S. have reached the highest level in a decade and may climb as pay-TV operators fight higher fees sought by content providers.

Disputes over fees have caused five blackouts this year, the most since 2000. They have affected about 19 million pay-TV subscribers, leaving some viewers without access to the Oscars and New York Knicks games. Dish Network Corp., Cablevision Systems Corp. and AT&T Inc. all lost programming while haggling over costs.

Feuds will escalate as pay-TV companies resist the increased fees they typically try to pass on to subscribers in the form of higher cable bills, said Rich Greenfield, an analyst at BTIG LLC in New York.

“There is increasing pressure for distributors to push back on rate hikes in a tough economy where the consumer is struggling,” Greenfield said in an interview. “As programming costs continue to rise, these battles are becoming bigger and higher profile.”

Content expenses, which total about half of pay-TV companies’ operating costs, have increased about 10 percent in the past year, putting pressure on profit margins. Cable bills climbed about 8 percent on average for the year ended in June, according to researcher SNL Kagan.

‘American Idol’

Cablevision and Dish are currently negotiating with News Corp. over fees for Fox, the home of shows such as “Glee” and “American Idol.” Cablevision’s contract with News Corp. ends on Oct. 15, and Dish’s expires on Nov. 1. If agreements can’t be made by then, Fox could go dark on both carriers.

“It would be terrible business practice to allow any distributor to secure a signal without a valid contract,” Fox said in a statement. “If a provider were to decide to pass on a reasonable offer -- one that was consistent with our other distribution agreements -- then legally they could not re-sell our signal to their subscribers.”

High unemployment and stagnating wages are threatening the consumer’s willingness to pay steeper prices for television services, especially when there’s cheaper alternatives such as Web video and movie-rental provider Netflix Inc., said Chris Marangi, an analyst at Gabelli & Co. in Rye, New York.

“Cable and satellite operators are losing their pricing power,” Marangi said in an interview. “To the extent that there are cheaper alternatives and the economy remains weak, it gets harder and harder to pass along these price increases.”

Premium Prices

Content providers, including Burbank, California-based Walt Disney Co., are further aggravating pay-TV companies by offering shows for free on competitive platforms such as Hulu.com, while making distributors pay premium prices for the same programming.

“The idea that the programmers, who are charging more for their programming, are then taking that programming and making it free on the Internet -- that really pushes the envelope,” Jim Dolan, chief executive officer of Bethpage, New York-based Cablevision, said at an investor conference Sept. 16.

This month, News Corp.’s Fox cut its broadcast signal of 19 local sports channels, FX and National Geographic, to Dish subscribers because of a dispute over rate increases. Disney’s WABC-TV pulled its signal to Cablevision customers in March, leaving 3 million homes in the New York without access to the first 13 minutes of the Academy Awards telecast.

“In tough economic times we need to take a tougher stance against programmers to be able to provide the best prices out there for our customers,” Dave Shull, senior vice president of programming for Englewood, Colorado-based Dish, said in an interview. “The DNA of our company is low prices -- we can’t let these costs continue to escalate.”

A La Carte Pricing

The public, high-profile disputes don’t serve the industry well because they can backfire and prompt discussions in Washington about potential a la carte pricing, according to David Joyce, an analyst at Miller Tabak & Co. in New York.

A la carte pricing is a concept that allows consumers to pay for channels individually. Studies show that such a model would limit choices and raise prices, not benefiting the television operator, content provider, or consumer, Joyce said in an interview.

Still, cable companies and satellite distributors are trying to push programmers to allow them to cobble together smaller, cheaper options for their customers. Time Warner Cable Inc., the second-largest cable operator, has been championing the idea to sell less costly packages of fewer channels to lure economically strapped consumers.

Broad Distribution

“We’ve expressed an interest in having smaller packages,” Rob Marcus, Time Warner Cable’s chief financial officer, said at an investor conference on Sept. 16. “The reality is that our programming vendors have a different interest, which is having the broadest possible carriers they can.”

Less popular channels are often carried by a distributor because they have been tied-in as part of deal with a more popular network. That way, both channels can get broad distribution and produce higher advertising revenue for the programmer. The distributor must carry the less-watched channel in order to get the popular station and can’t strip it out of their packages without losing both.

In addition to raising prices on cable channels, content owners are now also asking distributors to pay for broadcast channels that were previously free. Companies such as News Corp. used to provide their broadcast channels for free in order to gain distribution for new cable channels, like FX.

Lobbying Group

Chase Carey, the president and chief operating officer at New York-based News Corp., said this year that he thinks Fox is worth $5 a month given its sports programming and prime-time hits like “American Idol.” That would top the most expensive channel on the dial, Disney’s ESPN, which brings in $4.08 for each subscriber, according to SNL Kagan.

The dispute has made its way to Washington. Many of the country’s biggest pay-TV operators, including Time Warner Cable, have signed a petition to the U.S. Federal Communications Commission for the government to require, among other things, stations to keep sending a signal as long as the negotiations continue in good faith. They have also formed a lobbying group called the American Television Alliance to push for Congressional action.

Broadcasters say Washington shouldn’t intervene.

Nearly all carriage negotiations conclude without service disruptions, “and despite the overheated rhetoric coming from pay TV providers, there is no reason to believe that won’t be the case going forward,” Dennis Wharton, spokesman for the National Association of Broadcasters, said in an e-mail.

“Pay-TV operators will have less incentive to engage in meaningful talks for carriage of broadcast TV stations if government regulators inject themselves into these marketplace discussions,” Wharton said.

Cable Focuses on Internet while Satellite TV Grows

Reuters

 

U.S. cable television companies wooed home Internet users from rivals in the second quarter, helping offset a trend that has seen their television customers flee to top satellite player DirecTV Group.

Time Warner Cable Inc and Cablevision Systems Corp reported on Thursday, like Comcast Corp last week, that they successfully added Internet subscribers in what is now a key focus for companies that were originally built on the back of cable TV programming.

Time Warner Cable Chief Executive Glenn Britt said on a conference call that successfully marketing Internet access is as important, if not more so, as selling bundles of TV shows.

"Broadband is still growing nicely and becoming a more important part of people's every day lives and we're seeing tangible evidence the consumers are willing to pay more for the speed and reliability," Britt said.

Time Warner Cable added 85,000 broadband subscribers during the quarter, while Cablevision added 27,000. Comcast, the No.1 U.S. cable company added 118,000.

With rising programming costs in their video businesses, cable companies see broadband, with its relatively fixed costs, as a more profitable business to grow.

Cablevision for instance said it plans to offer more video applications to customers who use Internet-enabled devices at home and free Wi-Fi connections to its customers around major spots in its local area.

"Broadband is increasingly important for cable companies," said Collins Stewart analyst Thomas Eagan. "It has become the strategic focus, with TV following."

The top two cable companies both lost video subscribers during the quarter: Comcast lost 265,000, while Time Warner Cable lost 111,000. Cablevision which has been competing aggressively with Verizon Communications in its New York area managed to buck that trend in the quarter by adding 2,900.

DirecTV Group added 100,000 U.S. subscribers, beating the forecasts of most analysts, some of which had worried the company might lose customers due to the slow economy and competition from cable and newcomers to the pay-TV market like Verizon's FiOS and AT&T Inc's U-Verse.

"For years, questions have swirled about DirecTV's ability to sustain subscriber growth in the U.S. Not to worry. Today's results suggest that subscriber growth is just fine, thank you," said Bernstein Research analyst Craig Moffett in a client note.

PROFITS

Both Time Warner Cable and Cablevision posted financial results ahead or in line with expectations.

Time Warner Cable's net income rose to 95 cents a share, beating average Wall Street forecasts for 93 cents. While its revenue rose 5.8 percent to $4.73 billion, ahead of average forecasts of $4.68 billion, according to Thomson Reuters.

"Overall they struck a good balance between customer and financial growth," said Eagan of Collins Stewart.

Cablevision's net income was 20 cents a share sharply missing an average Wall Street forecast of 40 cents, mainly due to the one-time loss on extinguishment of debt. Bernstein Research said excluding that loss, Cablevision's profit was in line with consensus.

Revenue rose 5.8 percent to $1.802 billion ahead a forecast of $1.769 billion, according to Thomson Reuters.

Bernstein's Moffett said Cablevision's second quarter had shown "almost no discernible weak points".

DirecTV, which also added 415,000 subscribers in Latin America, posted an adjusted profit of 60 cents a share, in line with expectations. Its revenue rose 12 percent to $5.85 billion.

Shares in Time Warner Cable and Cablevision have risen more than 40 percent and 30 percent respectively since the start of the year as investors have bet that cable will be a leader in future communications thanks to its broadband strength.

DirecTV, Cablevision Sales Rise as People Watch Television to Save Money

Bloomberg

DirecTV, Cablevision Systems Corp. and Time Warner Cable Inc. reported second-quarter sales that beat analysts’ estimates, signaling consumers are continuing to spend on pay-TV programming as the economic recovery sputters.

Each company added subscribers in the period ended in June and customers spent more on premium services such as high- definition set-top boxes and digital-video recorders.

Consumers may be putting more value on their time at home and curbing restaurant and cinema visits, benefiting the pay-TV providers, said Tom Eagan, an analyst at Collins Stewart LLC in New York. More Americans than projected filed applications for unemployment insurance last week, indicating firings remain elevated as the U.S. economic growth moderates.

“Cable and satellite has been relatively recession proof,” Eagan said. “Household spending is holding up because people in general see cable and satellite-TV being a relatively good deal versus other forms of entertainment.”

Time Warner Cable, the second-largest U.S. cable-television company, boosted sales 5.8 percent to $4.73 billion, beating the $4.68 billion analysts projected. DirecTV’s sales rose 12 percent to $5.85 billion, exceeding analysts’ $5.73 billion estimate. Cablevision’s sales rose 5.8 percent to $1.8 billion, compared with the $1.77 billion average projection.

DirecTV added $1, or 2.6 percent, to $38.90 at 2:23 p.m. New York time in Nasdaq Stock Market trading. Cablevision fell 2 cents to $27.52 on the New York Stock Exchange, and Time Warner Cable dropped 21 cents to $58.81. Contrary to analysts’ predictions, Time Warner Cable didn’t announce a stock buyback.

DVRs, Pay-Per-View

Cablevision, which competes against Verizon Communications Inc. for New York area TV, phone and Web subscribers, won 75,900 new customers last quarter, led by high-speed Internet users. Customers subscribing to more products helped the Bethpage, New York-based company boost the average monthly revenue per video customer 6.8 percent to $149.12.

“We’re holding up quite well and managing to continue to win back customers from our competitors,” Cablevision Chief Operating Officer Tom Rutledge said on a conference call today. He estimates that 40 percent of Cablevision’s customers who have left to try Verizon’s FiOS product return.

DirecTV’s average revenue per user gained 5.7 percent to $87.90, as the company equipped U.S. customers with advanced and expensive features, such as multiroom DVRs and pay-per-view movies. The El Segundo, California-based company gained a net 100,000 customers in the U.S. and 415,000 in Latin America, helped by World Cup soccer matches shown in high definition.

Premium Movies

“For the first time in several years, our year-over-year buy rates increased for premium movie channels,” said DirecTV’s Chief Financial Officer Patrick Doyle on the company’s conference call. “In addition to premiums, we also saw a solid year-over-year growth in pay-per-view movies.”

To maintain that growth, DirecTV plans to introduce more premium products by the end of the year. Those include an enhanced cinema selection, and an NFL Sunday Ticket “to go” service that will provide live video streams from games to mobile devices like the iPad or a computer for an extra $50.

Time Warner Cable, based in New York, added 110,000 new subscribers. Its subscription revenue rose 5.1 percent to $4.52 billion as more users selected higher-end services like digital video recorders and the company raised prices.

Weakness Ahead?

Still, a cooling economy means employers will resist taking on more staff, raising the risk consumer spending will weaken enough to impact pay-TV providers, too. Time Warner Cable said the sluggish economy limited its second-quarter subscriber gains, and said it saw such weakness continue into July.

“If you look at the key indicators in the economy, things like vacancy rates and unemployment rates - we’re still at exceptionally high levels,” Rob Marcus, Time Warner Cable’s chief financial officer, said on a conference call. “It shouldn’t be terribly surprising that we continue to see weakness in subscriber net adds.”

Initial jobless claims climbed by 19,000 to 479,000 in the week ended July 31, the most since April and exceeding the highest estimate of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington.

Weak housing starts have also affected subscriber growth numbers. Builders broke ground on fewest new homes in eight months in June after the expiration of a U.S. government tax incentive caused sales to slump.

“The market for housing is still terribly soft,” Cablevision’s Rutledge said. “There is virtually no construction of housing going on in our footprint and occupancy rates are still low. So you don’t have any of the wind at our back.”

Growth in the U.S. economy slowed to 2.4 percent in the second quarter from 3.7 percent pace of expansion in the first quarter. The world’s largest economy is recovering after shrinking 4.1 percent from the fourth quarter of 2007 to the second quarter of 2009.

Drifting Satellite Threatens U.S. Cable Programming

Associated Press

A TV communications satellite is drifting out of control thousands of miles above the Earth, threatening to wander into another satellite's orbit and interfere with cable programming across the United States, the satellites' owners said Tuesday.

Communications company Intelsat said it lost control of the Galaxy 15 satellite on April 5, possibly because the satellite's systems were knocked out by a solar storm. Intelsat cannot remotely steer the satellite to remain in its orbit, so Galaxy 15 is creeping toward the adjacent path of another TV communications satellite that serves U.S. cable companies.

Galaxy 15 continues to receive and transmit satellite signals, and they will probably overlap and interfere with signals from the second satellite, known as AMC 11, if Galaxy 15 drifts into its orbit as expected around May 23, according to the two satellite companies.

AMC 11 receives digital programming from cable television channels and transmits it to all U.S. cable systems from its orbit 22,000 miles (36,000 kilometers) above the equator, SES World Skies said. It operates on the same frequencies as Galaxy 15.

"That fact means that there is likely to be some kind of interference," Yves Feltes, a spokesman for AMC 11 owner SES World Skies, told The Associated Press. "Our aim is to bring any interference down to zero."

He would not name any of the cable television channels or providers that could be affected or say how long the interference could last.

DirecTV Inc., the largest US satellite TV company, said it will not be affected. Comcast Corp. said it was monitoring the situation.

Cox Communications Inc. said it could not immediately specify if its service would be affected and Dish Network Corp., Time Warner Cable Inc., Charter Communications Inc. and Cablevision Systems Corp. had no statements on the matter or did not return Associated Press calls seeking comment.

"We are confident that service disruptions will be minimized or avoided," said Dianne VanBeber, a spokeswoman for Intelsat.

Galaxy 15 is floating over the Pacific Ocean slightly to the east of Hawaii, said Emmet Fletcher, space surveillance and tracking manager for the Space Situational Awareness Programme at the European Space Agency, an 18-nation consortium.

He said Galaxy 15 was highly unusual because it continued to send out television signals, unlike other malfunctioning satellites that automatically went into complete shutdown when their navigational systems malfunctioned. A spokesman for the satellite's manufacturer, Orbital Sciences Corp., did not return a phone call seeking comment.

The dead satellites still are a threat to other satellites, but less of one than Galaxy 15 poses, Fletcher said.

"They'll just cruise around the geobelt, drifting wherever they go, potentially causing havoc, when you lose control of them," he said.

The geobelt is the relatively narrow band of space where satellites can move in orbits that allow them to appear stationary in the sky in relation to specific points on earth.

Feltes, the SES spokesman, said one option to prevent interference with U.S. television would be using AMC 11's propulsion system to shift that satellite about 60 miles (100 kilometers) away to an orbit that's still within its carefully prescribed "orbital box" but as far away as possible from Galaxy 15.

He said SES had other strategies under consideration but declined to provide details.

"We have all of our technicians, all of our specialists on this case," he said.

Both companies said there was no risk of an actual collision between the two satellites in space.

Intelsat said it was analyzing signals from Galaxy 15 daily in order to predict its trajectory and was trying to figure out if it can shut down the satellite's transmission so it would not interfere with AMC 11.

VanBeber said cable companies could also adjust their equipment in order to minimize any interference.

She said satellites like Galaxy 15 today cost $250 million to build, launch and insure but it probably cost less when it was launched in 2005.

Feltes said the two companies, both based in Luxembourg, were cooperating closely.

"They have tried numerous things to regain control of the satellite or to have it finally shut down," he said. "It needs some collaboration to bring the impact of this failure to an absolute minimum."

Key Fact from Selected Cable and Satellite TV Industry Earnings Report

LA Times

Here is a summary of earnings reports for selected cable and satellite TV companies and what they reveal about the industry's prospects:

April 28: Comcast Corp. reported losing net 82,000 basic cable TV subscribers in the first quarter. Comcast had stronger growth with high-speed Internet customers, but growth in phone customers was slowing.

April 29: Time Warner Cable Inc. reported net loss of 42,000 basic cable subscribers. It continued to add Internet and phone subscribers, but gains were smaller than a year ago.

Thursday: Cablevision Systems Corp. reported net gain of 900 video subscribers. That's still 37,900 fewer than in the same period a year earlier. Cablevision had stronger growth with Internet service, while growth in phone business was slowing.

Charter Communications Inc. lost 23,400 basic cable customers.

Satellite TV provider DirecTV Inc., which has been gaining customers at the expense of cable TV rivals, added 100,000 video customers during the quarter. But that was the company's lowest ever, according to Sanford Bernstein analyst Craig Moffett.

John Malone Deals Himself Out At DirecTV

from Business Week

Sometimes even a wheeler-dealer like John Malone outsmarts himself. That’s seems to be the situation at DirectTV. (DTV), where the razor sharp media baron seems to have dealt himself out of installing his own choice as CEO of the satellite TV giant despite once owning 57% of the company’s stock. Instead, he controls 24% of the company’s votes, but seems to have been bottled up by a very independent DirecTV board.

Those are the details that are emerging from a recent SEC filing by DirecTV. The satellite company clearly wanted to stop Malone, who buys and sells companies faster than most people change socks, from exerting too much control over the company. So in what has to have been a wing ding of negotiations, the DirecTV board swapped the DirecTV stake that Malone’s Liberty Media (LMDIA) once held for shares in DirecTV that Liberty will distribute to its shareholders. In addition, DirecTV took a $2 billion loan off Liberty’s hands that it used to buy those shares in the first place, but took Liberty’s 65% stake in the Game Show network and three Fox Sports regional networks. Malone got super-voting shares that are capped at 24% of the company’s voting shares.

What motivated DirecTV’s board to do the deal? They were angling for “the elimination of a single shareholder …with the ability to veto change of control provisions,” the company said in its SEC filing. More important, the board wanted to “reduce the level of influence that Malone could exert,” they added. Anyone need more of a roadmap than that?


Why’d Malone do the deal? Mostly for tax reasons, which seem to drive much of what the media baron does. The stock-for-stock swap allows him to avoid a ton of taxes on the appreciation in DirecTV’s stock in 2006. DirecTV sweetened the deal by giving Liberty shareholders a 5.6% premium on top of that tax-free treatment. DirecTV’s shareholders will vote on the transaction on Nov. 12.

But in doing the deal Malone seems to have also dealt himself out of a potentially richer prize. He tried for months – and seems to have given up – the idea of installing his top lieutenant, Liberty CEO Greg Maffei, as DirecTV’s CEO. Maffei is a sharp operator, and a great dealmaker, and more than likely Malone would have wanted him to begin peddling DirecTV to AT&T (T) or some other buyer. I'm figuring the board wanted to keep Malone's imagination in check.

Instead, the DirecTV board, which has eight independent members (Malone is the company’s chairman and Maffei is a board members,) blocked Maffei, who now tells folks he is no longer interested. In August, the board created a search committee, which Malone heads. But the board has clearly no intention of allowing him to railroad them into taking his choice as CEO. “They gave him what he wanted with the stock swap,” says one source close to the dealmaker.” “And that’s about all they intend to give him.”

More than likely DirecTV will name its CEO sometime in late November or early December. The candidates include Bruce Churchill, who heads DirecTV’s Latin American unit, and Cablevision president Tom Rutledge. The search committee was created after DirecTV CEO Chase Carey’s resignation in June to become News Corp(NWS)president and chief operating officer. Larry Hunter, the satellite opeator’s excecutive vice-president for legal, human resources and administration, has been serving as interim CEO since Carey’s departure.

Ohio TV Tax Flawed, Say Legal Scholars

Reuters

Sixteen of the nation's top constitutional law scholars, including the Honorable Kenneth Starr, former U.S. Solicitor General and Washington D.C. Circuit Court Judge, and Erwin Chemerinski, the author of a leading constitutional law treatise, believe that an Ohio Court of Appeals ruling upholding a satellite TV tax would dramatically erode Constitutional protections from discriminatory state regulation.

In a "friend of the court" brief filed with the Ohio Supreme Court, the scholars firmly supported DIRECTV`s and DISH Network`s position that Ohio's discriminatory tax treatment of satellite TV violates the Commerce Clause of the Constitution of the United States. Each of the scholars has a particular expertise in the Commerce Clause - a provision of the Constitution designed to foster a vibrant national economy by prohibiting states from enacting protectionist measures that discriminate against interstate commerce.

Earlier this year, an intermediate Ohio appeals court ruled that a 5.5 percent state tax, which does not apply to consumers who choose cable TV service, does not violate the federal Constitution, overturning a 2007 ruling by the Ohio Court of Common Pleas that struck down the discriminatory tax as unconstitutional.

The scholars described the rule the Court of Appeals followed as "newly minted," and that it "unmoors the dormant Commerce Clause from its traditional roots, runs contrary to a multitude of Supreme Court cases, dramatically narrows the scope of the dormant Commerce Clause`s prohibition, and clears the way for the state to impose a variety of new state taxes that would not have passed muster under traditional dormant Commerce Clause principles."

Among those who also signed the brief, authored by former Ohio Solicitor Douglas Cole, are Norman Williams and Brannon Denning, two of the most prolific writers on Commerce Clause jurisprudence.

In a joint statement, the companies said, "The brief makes absolutely clear that the analysis adopted by the Court of Appeals in rejecting our claims was not only wrong, but if upheld, would dramatically erode the protections from discriminatory state regulation that the Constitution provides and on which our economy depends. We are pleased to have their support and confident that the Court will appreciate and consider the viewpoints of this distinguished group of scholars in its deliberations." 

Monthly Billers Have Weathered The Market

From the Economist

Subscriptions have succoured media firms during the recession. That may not last

VIACOM, a media conglomerate based in New York, has an unusual response to the downturn: it is launching a television channel. This month Epix will begin showing films from Paramount and MGM, as well as original programmes. It may get off to a slow start, since it has not yet signed up many cable and satellite distributors. But its creation points to one of the media business’s few bright spots.

Having fallen steeply after the collapse of Lehman Brothers in September 2008, the shares of all the big American media companies have outperformed the market since March. But recession has struck some parts of the industry much harder than others, changing its shape. As a rule, media products that are sold in shops—CDs, DVDs and magazines—have suffered. Advertising is showing only tentative signs of recovery. The kind of media for which people pay a monthly bill, in contrast, has not only held up better but has in some instances prospered through the downturn.

Cable and satellite television was a good business going into the recession and is now triumphant. In the year to June 30th Britain’s BSkyB added more subscribers, obtained more revenue from each customer and reported more profit than the year before. Discovery Communications, which derives almost all of its revenue from cable, notched up a 13% increase in profits in the second quarter. In the past year the fortunes of big media groups have depended largely on the proportion of their revenues coming from pay television.

Cable networks obtain about half of their revenues from advertising and half from carriage fees paid by the firms that distribute their channels, which in turn get paid by subscribers. In the past year increases in carriage fees have outpaced inflation, offsetting weakness in advertising. At Time Warner’s cable networks, for example, advertising fell by $30m in the second quarter compared with a year earlier. Income from distribution rose by $144m. “People would sooner unplug their refrigerators than their cable boxes,” says Craig Moffett, an analyst at Sanford Bernstein.

As pay television has soared and just about everything else has fallen, even the most diversified conglomerates’ accounts have been transformed (see chart). News Corporation’s cable channels are worth more than broadcast television, film and newspapers put together. Although an advertising recovery will rebalance such firms somewhat, the underlying trend is clear. Media firms are investing in pay-television markets in Latin America, eastern Europe and Asia, which can be expected to grow. The number of channels in emerging markets is rising so fast it is actually boosting the firms that own the satellites (see article). Viewers and creative verve are drifting steadily from broadcast to cable networks. On October 5th Disney appointed Rich Ross, who ran its cable channels worldwide, to head its film studio—an acknowledgment of their success in producing lucrative new content.


A steady stream

The strength of subscription television has encouraged media firms to try charging for other products. Disney recently began selling subscriptions to its large online library of children’s books. Viacom’s chief executive, Philippe Dauman, said last month that the company was exploring ways of getting people to subscribe to its popular online games based on characters such as Dora the Explorer. The firm’s controlling shareholder, Sumner Redstone, once observed that content is king. But at the moment, subscription is king.

There has also been much talk of creating new subscription models for newspapers and magazines. As far as their online offerings go, this is still mostly talk. The boldest conglomerate is News Corporation, which sells online subscriptions to the Wall Street Journal and will begin charging for the newspaper’s smart-phone applications. This week the firm announced plans to charge for membership of rewards schemes run by Britain’s Times and Sunday Times. More quietly, but just as profoundly, many newspapers and magazines are stepping up their home-delivery efforts as newsstand sales falter.

The best model in media has its limits, however. The fact that nearly all newspaper websites remain free suggests how hard it is to charge for content that has been commoditised. Successful subscription models for music have proved elusive for a similar reason. Spotify, a music-streaming service created by Swedish programmers that has grown at an astonishing rate, is trying to move from dependence on advertising to subscriptions. Whether it succeeds will depend partly on the record labels. At the moment they view such upstarts as a handy way of weaning customers from illegal file-sharing websites. If they come to view them as competition for CD sales and digital downloads, the music-streaming sites are in trouble.

Even the mighty pay-television business is showing signs of strain. Cable and satellite operators have tolerated the shrinking margins that come with higher carriage fees so far, but will not do so for ever. Yet they may find it hard to pass price increases on to customers. Mr Moffett reckons the finances of the poorest 40% of American households have been so stretched by the recession that they have little money left for entertainment. Unemployment in California has reached 12%; in Michigan it stands at 15%. It may be that people will have to unplug both their refrigerators and their cable boxes.

Then there is the looming threat of the internet, with its tendency to disintermediate content from carrier. Consumers can already obtain many broadcast-television programmes online, and the worry is that they will eventually drop their cable and satellite services. Jeff Bewkes, the head of Time Warner, is leading a charge to prevent that. He envisages an authentication system that could be used to restrict access to some online content to those who subscribe to multi-channel television. The fear of “cord-cutting” may also underlie Comcast’s ambitious and, given the dismal history of media mergers, risky attempt to acquire a controlling stake in NBC Universal, a content company now owned by General Electric and Vivendi.

For a glimpse of a brighter future look at Denmark, where the biggest cable company not only allows subscribers to watch some television on their computers but also allows non-subscribers to pay a monthly fee to watch some of its programmes online. YouSee offers 18 channels at present, including biggish ones like CNBC Europe and Nickelodeon, and the number is rising. So far there is no evidence that this is cannibalising YouSee’s cable business, according to Anders Blauenfeldt, its head of product development. Anyway, he says, “It is better to cannibalise yourself than to lose customers.”