Battle With Time Warner Cable Underscores Bigger Question: What’s Disney Worth?The carriage battle between Time Warner Cable and The Walt Disney Co. escalated last week as Disney launched its own “educational” website to present its side of the cost of programming argument.
Disney launched IHaveChoices. com last Monday, in response to Time Warner Cable restarting its RollOverorGetTough.com site the week before. The MSO’s site is also aimed at educating consumers about the high cost of programming.
On RollOverorGetTough — which TWC created in 2009 during its contentious retransmission-consent battle with Fox Broadcasting — the cable operator features a dollar bill cut into segments to show where each customer’s cable dollar goes (6% to TWC net income, 60% to operate the business and 40% to programmers).
But Disney, on the IHaveChoices site, calls Time Warner’s characterization of high programming costs misleading, adding that programming represents about one-third of the cable giant’s total costs.
Programming costs do not drive the rates charged by Time Warner Cable,” Disney states on the site. “Facts are that like most cable systems, programming costs represent less than a third of Time Warner Cable’s total costs.”
ESPN/ABC spokeswoman Katina Arnold said that the site was created to educate consumers as negotiations continue.
“We intend to negotiate our deal in the boardroom, not the living room,” Arnold said. “All viewers really want is straight information about their programs and their options.”
The arguments on both sides are largely a question of semantics. Disney’s argument is based on using Time Warner’s total costs of $14.5 billion in 2009 (making its $4 billion in programming expenses about 27% of total costs). Time Warner’s argument is based on cost of revenue (about $8.6 billion in 2009).
And Disney has argued that cable operators have skewed the numbers by not including revenue (and profits) from its highs-peed data and voice services in that mix.
But no matter how the numbers are sliced, one thing is certain — Time Warner Cable is paying Disney a lot.
Based on carriage-fee estimates from SNL Kagan, Time Warner Cable spent about $993.9 million on Disney programming alone in 2009, or 24.8% of its total programming budget. And that doesn’t include retransmission-consent fees to Disney’s ABC owned-and-operated stations, which are expected to be a big part of carriage negotiations.
Disney owns about 10 television stations across the country — three inside Time Warner Cable territory, representing about 3.8 million subscribers. If Disney were able to extract 50 cents per subscriber for those stations (about half of what it has asked in other disputes), that would add another $22.8 million per year to programming costs.
Disney has about 17 networks — including the priciest, sports network ESPN. According to SNL Kagan estimates, those 17 networks charged between $4.08 per subscriber per month (for ESPN) to about 2 cents per subscriber per month (for Disney’s 42% stake in Lifetime Real Women) in 2009.
Disney and Time Warner Cable won’t discuss the negotiations, only that both parties are in discussions and they hope a resolution will come before the Sept. 1 deadline. RBC Capital Markets media analyst David Bank said last week that retransmission-consent will be a key part of the negotiations, but that additional services like TV Everywhere or online service ESPN3 could soften the blow to the distributor.
“If you throw in a commitment to TV Everywhere in there, then everybody wins,” Bank said. “The cable properties get their affiliate fee ramp and the MSOs get to say they have a value-added service.”
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