TBS Chief: Broadly Popular Must-Have Shows and Loyal Fans Critical to Fee Increases
What gives a pay-TV network leverage to increase the rates it charges distributors? Two things, according to Turner Broadcasting System’s Chairman Philip Kent: “You have to be valuable to a lot of people enough times in the year where it really matters. And you have to be valuable to a certain hard-core fan base every single day,” he told investors at a Nomura investor conference. “If you have both it’s terrific.” That aim has driven the company’s investment in programming lately at networks such as CNN, TBS, TNT and Cartoon Network.
Sign up for a free preview to unlock the rest of this article
If your job depends on informed compliance, you need International Trade Today. Delivered every business day and available any time online, only International Trade Today helps you stay current on the increasingly complex international trade regulatory environment.
The most successful example of a pay-TV network executing that strategy is ESPN, Kent said. Live marquee sports events provide the broadly popular, must-have programming, while its SportsCenter program is popular with daily viewers, he said. That’s part of the reason Turner has invested in sports recently, Kent said. He pointed to Turner’s agreement with CBS to carry NCAA Men’s Basketball Championship Tournament games as well as original programming such as Conan O'Brien’s show which can cultivate a loyal following. CEO Bob Iger of ESPN owner Disney complained at an investor conference Wednesday of pay-TV distributors’ gripes over the cost of that channel, which SNL Kagan and others estimate to be the most expensive U.S. cable network (CD May 31 p7).
Combine those two elements and a network is “undroppable,” Kent said. “The mental calculation that goes on in the distributors’ minds is … ‘what is the cost of carrying the network and what is the cost to me of not carrying this thing,” he said. “Those are the things that really matter.” Time Warner owns Turner.
Ratings can affect those negotiations with distributors but only on the margins, Kent said. For instance, in recent carriage talks for CNN, the news network’s poor ratings performance this year were barely mentioned, he said. “CNN is a must-have, undroppable network."
Turner will continue to bid on sports rights as they become available, Kent said. The company’s deal with Major League Baseball expires after next season and Kent said he hopes it will be renewed. “I'm very confident that we will do it,” he said. Turner would also be interested in acquiring NFL rights if more games become available, he said. “It’s hypothetical now, because we don’t know what it’s going to be,” he said. “We think the NFL is great and … we'll take a really hard look at it."
Viacom CEO Philippe Dauman gave a similar response during a presentation at the same conference. “We are clearly an important group of networks with important constituencies,” Dauman said. We have brands that resonate and we're a part of our audience’s lives,” he said. “So everyone acknowledges we have very important brands.” But Viacom is not “one of those expensive programming groups that just keeps wanting more increases. We are a great value group of networks.” Viacom’s networks include Nickelodeon and MTV.
Carriage negotiations will never be easy, Dauman said. “No one wants to just hand out money,” he said. “When we go to the table, we want more money and the distributor wants to pay us as little money as possible. It’s a negotiation, but particularly with technological changes, we bring a lot to the table.”