Small cable networks could get pushed into deals

Tue Sep 28, 2010 3:38pm EDT
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By Yinka Adegoke

NEW YORK (Reuters) - Small independent cable networks could be forced to sell themselves to larger media conglomerates in the next 12 months as their profits are squeezed by pay TV operators looking to cut programing costs.

The lifeblood of networks are the fees that cable, phone and satellite operators pay for the right to televise their programs. Such programing fees are often the largest costs to the operators.

Programing costs are expected to rise 7 percent this year due to pressure from large media groups that own broadcast networks. These media titans -- Walt Disney Co, News Corp, NBC Universal -- are demanding cash for the right to carry the big broadcast networks, ABC, CBS, Fox and NBC.

Standalone cable networks, such as Outdoor Channel, Hallmark Channel or even a mid-sized group like Scripps Networks, are likely to suffer because they lack the leverage of Walt Disney, which can negotiate higher fees for its cable networks in tandem with the threat that it will withhold its ABC network from an operator's subscribers.

Disney did exactly that when it threatened to pull ABC from Cablevision Systems Corp just before the Oscars broadcast began.

Scripps Networks Interactive Inc saw the writing on the wall last year when it took over Travel Channel in a deal that valued the network at nearly $1 billion, nearly 40 percent higher than the most optimistic estimate.

The deal allowed Scripps to bulk up in the face of tougher negotiations with operators.

Scripps CEO Ken Lowe told Reuters there is a possibility of consolidation due to the more difficult negotiating environment. "If you look at the Comcast/NBC deal you realize there is going to be safety in numbers. It's going to be very difficult to be a standalone network," he said.   Continued...