http://money.cnn.com/news/newsfeeds/art ... RTUNE5.htmThe battle brewing over carriage fees paid to television networks by cable providers picked up steam Wednesday with Viacom Inc. (VIA) saying its popular networks such as Comedy Central, MTV and Nickelodeon will go dark on Time Warner Cable Inc. (TWC) after midnight unless the two sides reach an agreement.
Under pressure to boost its revenue amid an advertising slump and threats to its business model posed by the rise of the Internet, Viacom is seeking fee increases of between 22% and 36% per channel from Time Warner Cable, which is the fourth-largest video distributor in the U.S. after Comcast Corp. (CMCSA), DirecTV Group Inc. (DTV) and DISH Network Corp. (DISH).
Cable companies are fending off similar bids from broadcast and cable networks throughout the industry. Stations owned by broadcaster LIN TV Corp. (TVL) went dark on Time Warner Cable for four weeks in October as the two sides wrangled over fees, and Univision Communications Inc., CBS Corp. (CBS), NBC Universal, Hearst-Argyle Television Inc. (HTV) and Sinclair Broadcast Group Inc. (SBGI) all are engaged in similar negotiations.
"As advertising dollars continue to shift to the Web and DVR viewing increases, both broadcasters and cable network owners need the contractual flow of affiliate fee revenues to be an increasing contributor to the business model, " said Sanford C. Bernstein analyst Michael Nathanson. "Viacom's cable networks are materially underpriced relative to their peers, which we believe represents an opportunity for Viacom in the future."
Shares of Viacom closed Tuesday at $19.26, down 56% for 2008, while Time Warner Cable shares were down 21% for the year at $21.76. The two sides were holding high-level negotiations on New Year's Eve in an attempt to head off a threatened service disruption after midnight.
Viacom's bid to get higher fees from Time Warner Cable is perhaps the highest- profile negotiation yet, since its networks are among the most popular on cable television, with shows like "SpongeBob SquarePants" and "The Daily Show with Jon Stewart". According to Nathanson, its cable networks account for 25% of total cable network viewers every day and 20% in prime time.
Both sides in the dispute are accusing the other of acting at the expense of the viewing public, and Viacom is launching a marketing blitz featuring animated characters like SpongeBob aimed at demonizing Time Warner Cable.
"[Viacom is] asking for huge increases, and we don't know how we are supposed to sell this to our customers in this economy," said Alex Dudley, a spokesman for Time Warner Cable. "Their content is no more valuable on the first of January than it is today, especially because they are putting most of their top- rated content on the Web for free."
Meanwhile, Viacom spokeswoman Kelly McAndrew said Time Warner Cable is overreaching in a bid to prop up its profitability, and viewers will find the company's behavior "outrageous."
"The renewal we are seeking is reasonable and modest relative to the profits Time Warner Cable enjoys from our networks," said McAndrew. "Throughout the country, we have negotiated equitable license agreement renewals, or are in the final stages of renewals, with virtually every cable and satellite carrier. Nevertheless, Time Warner Cable has dismissed our efforts at a fair compromise and has effectively chosen to deny its customers some of the most popular TV shows on the air."
Nathanson estimates that Time Warner Cable is paying Viacom about $300 million in annual license fees, which equals roughly 2% of Viacom's total revenue. The license fee represents 2.8% of video revenue for Time Warner Cable, or 1.7% of total revenue.
Profit margins for the cable company, which is a leading cable provider in major media markets like New York City and Los Angeles, are under pressure as it ramps up marketing expenses to compete with competitive threats from phone companies such as Verizon Inc. (VZ) and AT&T Inc. (T). Also, Time Warner Cable is about to shoulder a roughly $6 billion debt burden at a time when credit markets are nearly frozen in order to pay a one-time dividend of more than $10 billion in return for a completed separation from its corporate parent, media giant Time Warner Inc. (TWX)- a chief competitor to Viacom.
Nathanson said he expects "a settlement - terms undisclosed - in a relatively quick manner, as both sides may not want to see if this battle results in mutually assured destruction, as Viacom loses ad dollars and Time Warner Cable loses subscribers."
-By Nat Worden, Dow Jones Newswires
Anyone notice the tickers on the bottom of all Viacom channels today? It's really awful, I Love Lucy's final day on TV Land and it's being disrupted by it. I won't be affected by this, but I doubt those that are, really care...
Viacom can bite me.
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