Media companies reap benefits of higher network fees

Time Warner Inc., Viacom Inc. and Comcast Corp. all saw growth in their cable network businesses this quarter

Topics: Associated Press, Time Warner Inc., Viacom Inc., Comcast Corp., comedy central, TBS, , ,

NEW YORK (AP) — Media companies benefited from higher fees for cable television networks such as TBS, Comedy Central and CNBC in the first three months of the year.

Time Warner Inc., Viacom Inc. and Comcast Corp. all saw growth in their cable network businesses, thanks to distribution fees they charge cable and satellite TV service providers for rights to carry their channels on subscribers’ lineups. Those fees get passed on to customers of cable and satellite service.

The boost in television helped make up for weakness at two of the three movie studios that reported results Wednesday.

The trends show how important such fees have become to the television industry. Revenue at Time Warner’s television business grew, even with a decrease in ad revenue. Even broadcast networks such as CBS are increasingly relying on distribution fees to ride out fluctuations in the ad market.

The fees have become so vital that broadcasters are worried about the threat posed by a Barry Diller-backed startup called Aereo. The company sends over-the-air broadcasts over the Internet and bypasses traditional cable and satellite operators. Disputes over the fees have also led to high-profile blackouts of channels on cable and satellite lineups.

Time Warner, which owns channels such as TBS, TNT and HBO, credited the television division for a 24 percent growth in first-quarter net income to $720 million, despite a tiny drop in revenue to $6.9 billion that resulted from declines at the Warner Bros. studio and Time Inc. magazine businesses.

Revenue at Time Warner’s television networks grew 3 percent to $3.7 billion. Network subscription revenue – which includes the distribution fees – grew 5 percent. Advertising revenue at the networks fell 1 percent despite higher ad rates, in part because of weakness at CNN and the shutdown of channels in India and Turkey.

Viacom’s media networks unit, which includes MTV, Comedy Central and Nickelodeon, had a 2 percent increase in revenue to $2.2 billion. Digital licensing revenue fell because of the timing of available shows. Excluding that, domestic affiliate revenue – primarily distribution fees – saw percentage growth in the low double digits. Advertising rebounded as worldwide revenue grew 2 percent, compared with a 6 percent decline in the previous quarter.

The increases in television didn’t fully offset weakness at the Paramount Pictures movie studio, though. Viacom’s net income fell 18 percent to $478 million in the fiscal second quarter, as revenue fell 6 percent to $3.1 billion. Still, the earnings beat expectations. Viacom’s main class of stock briefly hit an all-time high after the results came out.

At Comcast’s cable networks, which include CNBC, MSNBC, Bravo and SyFy, revenue grew nearly 5 percent to $2.2 billion, largely because distribution fees went up nearly 9 percent. Ad revenue also went up, by 2.5 percent, because of higher rates, though that was offset by lower ratings and reductions in content licensing revenue.

Although Comcast’s cable networks business benefits from higher distribution fees, those fees mean higher costs for Comcast because the company is also the nation’s largest provider of cable-TV services to homes. But companies such as Comcast make up for that by charging consumers more on monthly bills. Comcast’s cable TV subscribers paid an average of $3.40 more per month in the first quarter compared with the same period last year. Some of that increase is from upgrades to more expensive packages. Overall, net income rose 17 percent to $1.4 billion.

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The quarter was mixed for studio production.

Time Warner said the studio division was successful with television productions, including hits such as “Revolution” on NBC and “The Following” on Fox. But revenue at the studio fell 4 percent to $2.7 billion. Time Warner said “Gangster Squad” and “Jack the Giant Slayer” fell short of expectations in theaters and the company had fewer TV shows available for licensing abroad. Time Warner did benefit from the home releases of “Argo” and “The Hobbit: An Unexpected Journey” and from a new studio tour in London tied to the “Harry Potter” franchise.

Revenue at Viacom’s Paramount Pictures studio business fell 20 percent to $941 million, largely because it’s compared with a 2012 quarter that included proceeds from “Mission Impossible – Ghost Protocol.”

Comcast’s movie unit did well. Revenue at the Universal Pictures studio increased 2 percent to $1.2 billion, thanks to “Les Miserables,” “Identity Thief” and “Mama.”

In broadcast television, Comcast’s revenue fell more than 18 percent to $1.5 billion because the quarter last year included the Super Bowl on NBC. Excluding the Super Bowl, which was on CBS this year, revenue fell 5 percent. Comcast blamed lower prime-time ratings at NBC and lower revenue from content licensing.

CBS Corp. was scheduled to report its results later Wednesday. ABC and ESPN owner Walt Disney Co. and Fox owner News Corp. are scheduled to report results next week.

Revenue at Time Warner’s magazine business fell 5 percent to $737 million, as subscription revenue fell 11 percent. Time Warner plans to spin off the Time Inc. business into a separate publicly traded company by the end of the year.

During a conference call with analysts, Time Warner CEO Jeff Bewkes said the spin-off should leave the company stronger as “the leading pure-play video content company in the world.” Without Time Inc., he said, the company will get about 90 percent of profits from television – the cable networks and television production at Warner Bros.

With video consumption, subscriptions and rates all growing worldwide, Bewkes said, “we think that’s a very good place to be.”

Time Warner expects further growth in distribution revenue next year as the Turner channels – including TBS, TNT and TruTV – benefit from new deals with higher rates.

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