“I’m sorry Ovation, you’ve been chopped,” could be a familiar refrain for other less popular channels going forward as Time Warner Cable CEO Glenn Britt said on this morning’s earnings conference call that the nation’s second-largest cable operator would continue to take a hard look at channels that don’t add value to its video packages.
Time Warner Cable cut the arts and entertainment channel Ovation from its lineup last month.
“Our programming cost has grown 32 percent in the last four years,” Britt explained. “Over that same period, the consumer price index has risen by 9 percent, so the math is pretty simple. Programming costs have been rising at more than three times the rate of inflation. Our residential video ARPU increased 16 percent over that same period, so we’ve effectively raised pricing a little faster than inflation, but only half as fast as programming costs have risen.
“This situation is caused by a complicated set of structural imbalances within the video entertainment industry. It’s clear that this is not in the best interests of the consumer, and it’s also clear that it can’t continue forever. What is less clear is what will happen to change the situation, or when. For our part, we will examine each network with an expiring contract and attempt to drop or reposition those that in our judgment do not add to the price value relationship of our packages.”
To offset those increased programming costs, Time Warner Cable has invested heavily in sports networks, including exclusive deals to carry Los Angeles Lakers and Los Angeles Dodgers games. Earlier this week, Time Warner Cable announced it had completed a deal to carry Dodgers games over the next 20 years at a cost of between $7 billion and $8 billion, according to published reports.
Time Warner Cable bought the rights to Los Angeles Lakers games in 2011, paying an estimated $3 billion for 20 years, and launched regional sports networks covering them last year.
“In the case of sports, we’ve taken some steps toward managing and stabilizing costs through our Lakers and Dodgers deals,” Britt said. “That doesn’t mean these deals are inexpensive, but we do think they’re better than the alternatives.”
Time Warner Cable was able to cut down on the high cost of sports programming by eliminating the middleman, which was Fox Sports when it came to the Lakers and Dodgers deals. Critics of Time Warner Cable have said that while Britt is preaching against increased programming costs on the one hand, the company has become part of the problem on the other by asking other video service providers, such as DirecTV, to pay more for sports programming that their customers demand to see.
On the conference call, Time Warner Cable President and COO Rob Marcus noted that the company was able to offer more value to its video subscribers with the addition of key sports programming from the NFL Network and NFL RedZone, as well as the Pac 12 network.
“Glenn noted that we are becoming increasingly vigilant about ensuring that the money we spend on programming yields real value to our customers, but that doesn’t mean we’re not interested in carrying new networks that enhance the value of our video product,” Marcus said.
Marcus said the Southern California system led the company in subscriber performance in the fourth quarter, which he attributed to the company’s new sports programming, as well as efficient operations.