The fear for a lot of investors is that Madison Square Garden Chairman Jim Dolan has too many agendas that will lead him to avoid compromising with Time Warner Cable in their dispute over payments for channels including regional sports powers MSG and MSG+. Madison Square Garden shares fell 1.4% today — a contrast to the overall market which was up about 1.6% — after Dolan yanked the services from Time Warner Cable on New Year’s Day when their carriage contract expired. The companies remain far apart on terms, and don’t even have plans to resume negotiations. That’s a big risk for MSG: Time Warner Cable accounts for about 2.5M MSG subscribers, about a third of its total. The $112M that the cable company pays annually for the channels amounts to about half of Madison Square Garden’s estimated cash flow for its current fiscal year. But execs close to both companies say that Dolan is determined to show that he’s no pushover. The part time blues guitarist knows he’d probably have to kiss MSG’s music channel Fuse goodbye if he allows Time Warner Cable to drop it — something the pay TV company says it wants to do because so few people watch it. Dolan’s main job as CEO of Cablevision gives him an additional incentive to show his moxie. Time Warner Cable has long pined to
Big Media 3Q Corporate Earnings Roundup: Are CEOs Really Worried About Recession? Or Just Looking For Convenient Excuse?
Three months ago, when Big Media CEOs wrapped up their 2Q earnings, they were still relentlessly upbeat about the business. Any worries about the economy? Not then. But the messages they delivered over the past few weeks, as they discussed 3Q, were different. Although they’re still optimistic — remember, they’re paid to be salesmen — now and then you could hear expressions of concern about where things are headed. It stood out when Viacom CEO Philippe Dauman noted that “ad sales growth will face some headwinds.” Other CEOs who are known for speaking bluntly warned that other shocks may bedevil the business. For example, Dish Network Chairman Charlie Ergen said that his satellite company — and others in pay TV — have to fight harder against rising programming costs because “there’s a limit to the price increases that could be passed on to consumers.” Time Warner Cable CEO Glenn Britt warned that premium channels such as HBO, Showtime and Starz “are clearly impacted by the economy as consumers try to cut back.” Either they’re genuinely worried, or they want a scapegoat to blame for things that are going bad, or may soon do so. Whatever the case, we can expect to hear a lot more about the economy when it’s time for the post-mortem on the all-important 4Q earnings.
As for industry performance matters, parents of movie studios had their usual mixed results to brag about or explain away: Time Warner benefitted from Harry Potter And The Deathly Hallows Part 2. Viacom was up on Transformers: Dark Of The Moon. And News Corp beat its chest about Rise Of The Planet Of The Apes and X-Men: First Class. But Disney’s Cars 2 was no match for last year’s Toy Story 3. Comcast’s Universal Pictures had nothing to compare to last year’s Despicable Me. Lionsgate suffered from Conan The Barbarian and Warrior. And DreamWorks Animation’s Kung Fu Panda 2 didn’t contribute as much in the quarter as Shrek Forever After did in the same period last year.
Over at the TV networks, Comcast’s NBC underperformed the Street’s already modest expectations. Execs at almost all the companies were eager to talk about the cash they expect to collect soon from political ads — as well as their favorite new ATM machines: retransmission consent deals and digital streamers including Amazon, Hulu, and Netflix. Speaking of Netflix, CEO Reed Hastings once again tried to reassure investors that he’s focused on “building back our reputation and brand strength” after his decision in July to slap a 60% price increase on customers who wanted to continue to rent DVDs and stream videos. In 3Q Netflix lost 57.7% of its market value and 800,000 subscribers. And since that customer loss was bigger than projected, Netflix shares continued to fall — they’re now down 67.3% since July 1.
Here are some other themes from the latest earnings reports:
Ad sales: They’s good, but for how long? Most television networks report that scatter prices are comfortably above the upfront market from this past summer. CBS chief Les Moonves says prices in 4Q are up by “mid-teens” on a percentage basis, while Discovery says it sees least high single digit percentages. But Disney’s Bob Iger noted that scatter prices have “slowed slightly these last few weeks.” Kurt Hall of National CineMedia — the leading seller of ads in movie theaters — was far more direct when he spoke to analysts after ratcheting down his company’s financial forecasts. “I’m sure that the broadcast and cable guys are sitting there now counting their lucky stars they got their upfront done before August,” he told analysts. “There’s a lot of uncertainty.”
UPDATE: The question about whether Apple devices can show UltraViolet films is complicated, it seems. The folks at Warner Bros say that iPhones and iPads can handle them – but not through the traditional channel, the iTunes Store. Users must download an app to also register with Flixster, a site that Time Warner owns. Movies can be streamed, but not downloaded yet. Sony’s likely to have a similar work-around for its Dec. 2 release of UltraViolet-enabled Blu-ray discs for Friends With Benefits and The Smurfs.
PREVIOUS, 10:50 AM: There’s still a fair amount of skepticism about the entertainment industry’s long-awaited UltraViolet program today as it kicks off with Warner Bros’ home video release of Horrible Bosses — to be followed on Friday by The Green Lantern. The DVD and Blu-ray versions of Bosses will be first that make it possible for buyers to watch it on mobile devices from UltraViolet’s Internet cloud. Studios and consumer electronics companies have a lot at stake in promoting the “buy once, play anywhere” concept. It’s part of a process to slow the stomach-churning decline in home video sales. Consumers will spend about $16.9B on home video this year, down from $24.4B in 2004, SNL Kagan says. If UltraViolet catches on, then it also could give studios a lot of flexibility to control the way their films are presented and handled as consumers begin to abandon discs and just rely on digital streams and downloads.
The problem? UltraViolet movies won’t play on Apple gadgets such as the iPhone and iPad. The initiative also won’t include movies from Disney, which is preparing its own cloud-based system called Disney Studio All Access. “Not only is the ecosystem not fully launched, with a common downloadable file format a ways off, but there has been no consumer education on the technological transition from a pre-UV world to the new UV ecosystem,” BTIG analyst Rich Greenfield says.
Google To Become Mobile Handset Power With $12.5B Deal For Motorola Mobility
We can only imagine the look on Time Warner Cable CEO Glenn Britt’s face when he learned that Google agreed to pay $12.5B for Motorola Mobility. But I doubt it was a smile. The Google news didn’t simply bury TWC’s announcement today that it will pay $3B to buy Insight Communications, which includes 750,000 cable customers many of whom live in rural areas in Kentucky, Indiana, and Ohio. Executives at the highest levels of the business say that Britt reaffirmed his commitment to cable just as Google raised new questions about the prospects for pay TV. The Web giant is about to become a major force in the industry: Motorola Mobility and Cisco are pretty much a duopoly as suppliers of cable set top boxes and the software that operators use to serve them. And Google very much wants to mix Web video with traditional cable channels — a thought that petrifies many operators and programmers. The company is trying to blend the distribution channels in its Google TV service, which has mostly left consumers cold. But that could change. Credit Suisse analyst Spencer Wang says that Google has “a significant opportunity” to capitalize “not only (on) its Google TV platform, but also its ownership of YouTube.” No wonder Matthew Polka of the American Cable Association, a trade group that mostly serves small pay TV companies, says his members “will want assurances from Google that it is both committed to the cable business model and won’t use its market power to run roughshod over smaller cable operators.”
Time Warner Cable had been considered a logical buyer: It has systems near Insight’s, the No. 9 operator with 750,000 subscribers in Kentucky, Indiana, and Ohio. But the price was a sticking point. Based on Cablevision’s agreement last year to pay $1.37B for Bresnan Communications, Insight put itself up for auction in March hoping for as much as $4B. The company had taken on a lot of debt when The Carlyle Group took it private in 2005. But Insight has been struggling lately. It lost 4.4% of its cable TV customers in the year that ended in June. Several analysts who follow TWC say they like the terms: Credit Suisse’s Stefan Anninger calls the price, which includes debt, “not cheap, but not terribly expensive either.” And Wells Fargo Securities’ Marci Ryvicker says that “Insight is one way for TWC to improve operations and show growth, which has lagged its peers.” Here’s the release announcing the deal:
The message for the television industry at this year’s National Cable Show was clear: It’s all about broadband now. Programmers agreed that they have to focus on consumers who want to watch video on their smartphones and tablet computers. Meanwhile, cable operators know that they can make a lot of cash by enticing new customers to buy broadband now that the TV service business is mature. The big question is whether the Big Media companies can move fast enough to head off competitors such as Apple, Google, and Netflix. But we’ll let the moguls have the last word:
Viacom CEO Philippe Dauman
- “For the content owners there’s never been a better time.”
- “Netflix is primarily a service that provides library programming. … Netflix got involved in one show (House Of Cards) that was a pay television kind of project, but that isn’t their fundamental business.”
- “If we are ad supported, (then) we need to have a measurement system in place so the mobile device in the home can sell ads. … (Nielsen) is not measuring it now. That’s one of the obstacles [for TV Everywhere].”
- “Consumers are changing. … People don’t want to watch the 17th repeat of the same show.”
- “In a world of a lot of choices, Snookie still rules.”
News Corp COO Chase Carey
- “We have to do a better job of exciting consumers.”
Time Warner CEO Jeff Bewkes
- “Let’s all cheer up. This isn’t the music industry. It’s the cable industry. … It’s morning in the cable industry.”
- “We’re all sitting here at this convention at the cusp of putting all of [our programming] on demand. … We need to get [shows] on every device.”
- “Put the TV on all the Internet devices and don’t charge people to do it and allow them to [access] they way they’re accustomed to.”
Comcast CEO Brian Roberts
- “We are demonsrating a whole new level of (Internet) speed. … It’s where the future of broadband is headed.”
- “We need to make the television feel as relevant as all of these other products [such as smartphones and iPad tablet computers].”
Time Warner Cable CEO Glenn Britt
- “There’s no such thing as a TV anymore. There’s a video display device.”
- “I see Netflix as another programmer. But clearly if there is something that makes consumers not want to buy the big package (of programming) that we’re selling then that’s a threat to all of us.”
- “There clearly is a growing underclass of consumers that can’t afford [cable TV] and they want it. It would behoove all of us to have smaller packages… The economics make it difficult, but it would serve us well to worry about that group.”
Cox Communications President Pat Esser
- “You have to keep going back to the consumer and asking what they value. … Consumers wil reward you for doing that. And in some cases you won’t control all of it.”
Some of the top executives in cable fear that the anemic economy will soon take a bite out of an industry that has weathered previous downturns without a problem. At a panel this morning for the opening session of the National Cable & Telecommunications Association’s National Cable Show in Chicago, several members of the audience applauded when Time Warner Cable CEO Glenn Britt said operators should begin to offer a low-priced service with fewer channels than they have in their expanded basic cable packages. “There clearly is a growing underclass of consumers that can’t afford (cable service) and they want it,” Britt said. Even though “the economics make it difficult” for channels that would be left out, if Netflix’s low-priced package of TV reruns ”makes consumers not want to buy the big package that we’re selling, then that’s a threat to all of us.” Cox Communications President Pat Esser says he’s also concerned that the poorest 40% of the population barely has enough money to pay for cable, although he says it hasn’t resulted in much cord-cutting yet. But Viacom CEO Philippe Dauman seems unconvinced. He says the country “lived through the worst recession and the last thing people cut back on is TV.”