TWC Executives Lament Sports Costs, Discuss Dropping More Little-Watched Networks
Sports programming is expensive for pay-TV distributors, even when the distributor owns the regional sports network (RSN) carrying the most popular games. That’s a lesson Time Warner Cable (TWC) executives say they're learning in Los Angeles, where the company has recently secured the long-term rights for both basketball’s Lakers and baseball’s Dodgers games through expensive contracts with the teams. “In both cases these rights were up for auction in a sense and they were going to be expensive no matter what,” CEO Glenn Britt told analysts Thursday during the company’s Q4 earnings teleconference. “We do not pretend these deals are inexpensive or cheap,” he said. “We think we've done the best of the alternatives,” he said.
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Both deals gave TWC long-term sports rights at what TWC would have paid to a third-party RSN, said Irene Esteves, TWC’s chief financial officer. And the experience TWC has had with the Lakers RSN so far gives it confidence the company made the right decisions, she said.
Sports and other popular programming are the main drivers of TWC’s programming cost increases, Britt said. The company expects those costs will rise about 10 percent this year and they have been increasing at twice the rate of inflation over the last three years. Britt said the company will continue to take a hard look at carrying little-watched networks. But dropping those networks probably won’t change the company’s programming cost trajectory much, he said.
In cable systems where it’s still distributing analog channels, TWC is slowly moving less popular networks off the analog tier and on to a digital tier, Chief Operating Officer Rob Marcus said. “We're starting, really, with the least-viewed networks and chipping away at the lineup and ceasing to deliver those networks in analog,” he said. When an analog customer who watched those networks calls to complain, then TWC offers a digital-to-analog converter, he said.
And in some cases, the least-watched networks may be removed entirely from TWC systems, Britt said. “These networks that keep hanging on and thinking they have a birth right to carriage, even though hardly anybody watches them, those are the one’s we're going to be taking a look at."
Q4 sales increased 10 percent from a year earlier to $5.4 billion, reflecting modest increases in TWC residential business, faster growth in its commercial business and a 71 percent jump in ad sales related to political advertising. Net income fell 8.8 percent from a year earlier to $513 million on higher costs. Shares closed down more than 11 percent in trading Thursday at $89.34. Analysts expected higher earnings results, Citi analyst Jason Bazinet wrote in a note to investors.