News Corp. said it’s not likely to reach an agreement with Time Warner Cable Inc. and expects to pull Fox broadcasting from the cable system when their deal expires tomorrow.
“We deeply regret that millions of Fox customers will be deprived of our programming,” Chief Operating Officer Chase Carey said today in a memo to employees. “We need to receive fair compensation from Time Warner Cable to go forward.”
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The two sides have been unable to come to terms since midyear, Carey said. Time Warner Cable would accept federal mediation, Chief Executive Officer Glenn Britt wrote in a letter to U.S. Senator John Kerry of Massachusetts, a proposal News Corp. rejected. Both sides will continue to negotiate up to the deadline, Carey said.
“Fox isn’t looking for fair compensation and we too are prepared to be without the Fox signal,” Alex Dudley, a Time Warner Cable spokesman, said in an interview. “We hope Fox doesn’t punish our customers, but that decision is up to them.”
The dispute centers on the price News Corp. wants New York- based Time Warner Cable, the second biggest U.S. cable operator, to pay for Fox programs including college and National Football League games and “American Idol,” the most-watched U.S. TV series. Fox has attracted the biggest 18-to-49 age audience, a group that advertisers target, since 2004, Carey said.
Fox can’t continue to operate at the same level with only advertising revenue, Carey said.
“It’s mutually assured destruction if they don’t reach an agreement,” Matthew Harrigan, an analyst at Wunderlich Securities in Denver, said in an interview. “This is a real face-off and these guys aren’t posturing.”
As an alternative to arbitration, Time Warner Cable would like to enter into an interim agreement to continue carrying Fox programs including football games on New Year’s Day and beyond, Britt wrote. Carey ruled out an extension in the memo.
“Time Warner Cable welcomes your proposal to submit the dispute to binding arbitration,” Britt wrote to Kerry, a Democrat. Arbitration before the U.S. Federal Communications Commission can begin “immediately,” Britt said. A copy of the letter, dated Dec. 29 and released today by Time Warner Cable, was sent to Carey.
Scott Grogin, a spokesman for Fox, had no comment on the arbitration offer. Jen Howard, an FCC spokeswoman, declined to comment on whether the agency may mediate the dispute.
News Corp., the New York-based media company controlled by Chairman and CEO Rupert Murdoch, fell 6 cents to $13.91 at 4 p.m. New York time in Nasdaq Stock Market trading. Time Warner Cable dropped 60 cents to $41.83 in New York Stock Exchange composite trading.
News Corp. has asked Time Warner Cable to pay as much as $1 a month per subscriber for rights to Fox, home of “The Simpsons,” two people with knowledge of the matter said yesterday. Time Warner Cable favored about 20 cents, said one of the people, who declined to be identified because the talks are private.
“Fox, to ensure the long-term health of the broadcast business, needs to get more compensation,” said Harrigan, who recommends buying shares of both companies. “From Time Warner Cable’s vantage point, there’s not a lot of growth on the revenue side because there’s more competition, and programming costs keep going up more than the cost of inflation.”
Time Warner Cable may have to pay Fox at least 50 cents a month in retransmission fees, Rich Greenfield, an analyst at Pali Capital LLC in New York, wrote last week in a note.
In January, Time Warner Cable signed a new five-year agreement to pay for CBS Corp.’s flagship television network through 2013.
