A Comcast-Sinclair cash deal would set a major precedent

Contract extended to March 10

experts predict cable operator will pay

March 02, 2007|By Hanah Cho | Hanah Cho,Sun reporter

Some analysts say any deal between Sinclair Broadcast Group and Comcast Corp. to carry networks such as Fox on Comcast's cable systems would likely include cash payments for the television programming in what would mark a major precedent in this growing industry battle over fees.

Comcast, the nation's largest cable operator, and Hunt Valley-based Sinclair, one of the country's largest television station owners, extended yesterday their current contract hours before it was set to expire. The March 10 deadline allows Comcast to continue carrying popular shows such as American Idol in the Baltimore region and elsewhere while the two continue negotiations on a new deal.

Both companies said they are having "productive discussions," even though Sinclair had threatened to pull its stations from Comcast's lineup before the extension was granted early yesterday.

Philadelphia-based Comcast maintains it will not pay for programming that is available for free over the airwaves because it would mean higher rates for its customers. In turn, Sinclair has not backed away from its subscriber fee demands.

But analysts say a payment seems inevitable, considering the recent shift toward cash in such deals.

"Comcast is going to end up paying Sinclair some cash," said Marci Ryvicker, a senior analyst at Wachovia Capital Markets, who covers Sinclair. In doing so, Ryvicker said, Comcast would "set the precedent and open the gate for the rest of the industry" in establishing retransmission payments as the norm.

Barry M. Faber, Sinclair's vice president and general counsel, said yesterday that he was optimistic the two companies would strike a "mutually acceptable economic arrangement." But he declined to elaborate on those terms.

"We were able to find creative ways to bridge the gaps that existed between us," Faber said. "Based on the things we've been able to agree on, I'm confident that we will be able to put in place a long-term deal prior to the end of the extension."

Comcast agreed but insisted its position remains the same.

"We continue to pursue our priority to protect our customers from having to pay cash for retransmission consent," said spokeswoman Jenni Moyer.

30 stations involved

The dispute between the two companies involves 30 network-affiliated stations - including Baltimore's WBFF-Fox 45 and WNUV-CW 54 - from cable systems that reach 3.4 million customers in 23 markets from Tampa, Fla., to Pittsburgh to Flint, Mich.

For decades, cable providers picked up local broadcast signals without paying cash. In exchange, cable operators compensated broadcasters in other ways. For instance, cable operators agreed to pay to carry NBC Universal's new channels such as MSNBC while retransmitting NBC stations for free. Companies such as Sinclair typically received advertising slots and better channel locations on cable systems for the free signals.

"The cable operators felt that was fair because at least they were getting some benefit for their customers in the process," said Steve Effros, a Washington-based cable industry analyst and consultant. "Now, the Sinclairs of the world are saying, `We don't care about giving you anymore benefits.'"

Sinclair takes lead

Sinclair has been at the forefront of this growing industrywide battle. The company expects to double to $48 million this year the revenue it receives from cable operators and others who pay to retransmit its television signals.

Last month, it secured a cash deal from Mediacom Communications Corp. after pulling for almost four weeks more than 20 stations it owns in the Midwest and South from Mediacom's cable system.

In January, Sinclair cut a "mutually acceptable economic" agreement with Time Warner Cable, the nation's second-largest cable operator, for Sinclair's 35 stations. Terms weren't disclosed, but analysts estimate that the deal involved some cash.

Besides Sinclair, other station owners are looking for compensation, including CBS. Network Chief Executive Officer Leslie Moonves has said publicly that it would seek payments for its content.

With more cable operators giving in, analysts say the fight might not be about whether to pay or not, but about a price.

`How much'?"[Comcast] may not be adverse to paying something," said Craig E. Moffett, a senior analyst of U.S. cable and satellite broadcasting at Sanford C. Bernstein & Co. "What really matters is how much cash for retransmission. More important is how much relative to what their competitors are paying."

The prospect of not being able to watch Fox had left some Comcast subscribers on edge.

Without Sinclair's WBFF-Fox-45, Carl and Lora Hobbs of Mount Airy could not watch their favorite show, 24. They were prepared to use an old-fashioned antenna to pick up the station's signal, but they won't need it for at least a little while longer.

While pleased with the extension, Carl Hobbs said he believes customers are getting stuck in the middle of a fight between two corporate heavyweights.

"We'll have to deal with the consequences," he said. "It'll be where I have to use my antenna, or my [cable] price goes up. It's lose-lose for the customer."

hanah.cho@baltsun.com

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