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Comcast CFO warns that programming costs will continue to go up

September 15, 2010 |  8:56 am

Bad news for cable subscribers. Your bill isn't going to get any smaller anytime soon.

Speaking at the Bank of America/Merrill Lynch 2010 Media, Communications & Entertainment Conference in Newport Beach, the chief financial officer for Comcast, the nation's largest cable operator, said the cost of programming is not going down in the near future.

"This is a tough one," said Michael Angelakis, when asked by analyst Jessica Reif about increasing demands by programmers to be paid more.

"We're fighting every day in the trenches," Angelakis said, adding that he would like to see the fees that pay-TV distributors such as Comcast pay programmers be based a little more on how particular channels are performing.

"If programmers aren't performing, we'd like to see rates go down," he said.

Programmers will likely fight a move toward more incentive-based contracts. The way the deals typically work is that the fees distributors pay tend to go up annually regardless of how a channel is performing in the ratings.

Part of the reason for this is because the programming industry has become so consolidated that content creators are able to use a lot of leverage in cutting distribution deals for their channels. Often a weaker channel is carried by a distributor as part of a deal with a stronger network. Programmers who own multiple channels try to bundle their services rather than sell them on an individual basis. By doing so, they are able to protect the smaller or under-performing channels.

Consumers, of course, would much rather be able to pick the channels they want and not have to buy big packages. However, the industry has argued that a so-called a la carte approach to offering cable channels would not lower consumer costs. That's because if 90 million homes get TNT now at a price of about $1 per-subscriber, per-month, that price would go up if fewer homes carried it, or TNT would have to dramatically scale back what it spends on programming.

But basing programming deals on performance would seem to be an achievable goal. After all, why should a cable network be rewarded for having a bad year?

As for Comcast's deal to merge with NBC Universal, Angelakis said he is optimistic that it will get regulatory approval and close the deal by the end of the year. The Federal Communications Commission and the Justice Department, the two government agencies reviewing the deal, are still combing through the proposed marriage to determine what, if any, conditions should be put on a merger that combines the nation's biggest cable and broadband provider with a large supplier of broadcast and cable programming.

-- Joe Flint


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