Broadband Cable Association of Pennsylvania

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December 11, 2013

Time Warner Chief Executive Jeff Bewkes said pay-TV distributors need to step up their game when it comes to video-on-demand. Speaking at the UBS Global Media and Communications Conference in New York on Tuesday, Bewkes praised the potential video-on-demand has for the entertainment industry in that it makes it easier for consumers to catch up on shows they've missed and discover new content. But at the same time, he chastised distributors for not doing more to not only promote VOD but also for having complicated interfaces that frustrate customers. "This is a big deal ... I do want to give a speech," Bewkes said. "There is very spotty performance among the distributors on how these tremendous VOD rights are conveyed to you," he told attendees.

Bewkes praised Comcast and Verizon for their VOD platforms but then said, "frankly a lot of other distributors haven't moved fast enough or effectively enough to deliver." The risk distributors are taking by not embracing VOD, he said, is that other platforms will grow as threats to the status quo. "If we don't fill that need, then it is going to get filled by somebody else and it would be a missed opportunity," he said. There was a humorous moment during the session when an investor asked Bewkes how the company's regional sports networks in Los Angeles were doing. Those networks are owned by Time Warner Cable, which was spun off from Time Warner several years ago. Bewkes responded that he often gets emails from people complaining about their cable service. "They think I was the guy who missed the installation appointment," he said. Los Angeles Times

Discovery Communications Inc. is considering a bid for Food Network majority owner Scripps Networks Interactive Inc., said a person familiar with the matter, signaling that a consolidation wave among television channel owners may be on its way. Such a deal would combine two cable-channel owners that specialize in nonfiction television and which between them have a market capitalization of about $43 billion. Discovery owns the Discovery Channel, Animal Planet and TLC, while Scripps's channels include HGTV, Travel Channel and Cooking Channel, aside from its majority stake in the Food Network.

Discovery has yet to make a formal offer for Scripps, and it may decide not to proceed, the person said. Scripps has long been viewed as a takeover candidate, particularly since the Scripps family trust that controlled the company ended last year. Discovery has been regarded as a potential buyer. Scripps Networks Interactive spun off from newspaper publisher E.W. Scripps in 2008. News of Discovery's interest, first reported on Variety.com, sent Scripps's shares soaring nearly 17% in after-hours trading, lifting its market capitalization to about $13 billion. Discovery, whose shareholders include cable magnate John Malone and the Newhouse family, has a market capitalization of about $30 billion, according to S&P Capital IQ.

Helping fuel Discovery's interest in Scripps now is concern about the potential impact of a possible consolidation wave among the cable and satellite operators that sell subscription television, the person said. Cable and satellite operators have complained increasingly about programming fees charged by channel owners. Consolidation between cable and satellite operators could give the distributors more power to push back at channel owners. That could affect Scripps and Discovery more than some of the big entertainment companies. Neither company owns either broadcast networks or channels that carry live sports-both of which give their owners considerable leverage in pushing for higher fees.

Scripps and Discovery are each entering a round of carriage negotiations with pay-TV distributors, said MoffettNathanson LLC analyst Michael Nathanson, and could potentially gain leverage if they were combined and able to negotiate together. Mr. Nathanson said Discovery could help Scripps expand overseas, where its presence is small. Discovery, in contrast, has aggressively expanded overseas lately, acquiring ProSiebenSat.1 Media AG 's Nordic assets for $1.7 billion earlier this year and a 20% stake in France's TF1 Group sports network Eurosport for $221.6 million last December. Scripps's "path to international expansion doesn't look very clear," Mr. Nathanson said. "They are landlocked in the U.S."

Two years ago, Discovery approached Scripps about putting the companies together, but the Scripps family wasn't willing at the time to sell, according to people familiar with the matter. Scripps, which had received expressions of interest from other media companies, undertook a strategic review of its options. In the end, Scripps Networks' board authorized a $1 billion stock buyback instead of a sale. The end of the family trust may have eased the path to a sale somewhat. Through the trust, the family owned 28.4% of the company's Class A common shares and 93.5% of the voting shares, representing a 43% overall economic interest, according to a statement from the company. Those shares were distributed to descendants starting in March of this year.

Still, the family shareholders remain signatories to an agreement that governs how they and their descendants can transfer their shareholdings in the future. Signatories aren't allowed to sell voting shares without first offering them to other family members or the company, according to a summary of the family agreement in a securities filing. Those restrictions will be in place for 10 years from the termination of the trust and can be renewed for additional 10-year periods. The agreement also sets up a mechanism for family members to vote as a bloc. It provides for the company to call a meeting of the signatories during which they would decide, based on a majority vote, how to collectively vote on matters before the company at annual or special meetings.

Discovery faces risks in any deal. The company would be doubling down on U.S. cable programming at a time when growth in the pay TV market has slowed sharply, with nearly 90% of households with TV sets now subscribing to TV. And there are signs that some people are starting to disconnect in favor of cheaper online video options. Both company's stocks are relatively expensive compared with large media conglomerates. Discovery is the most expensive stock in its peer group-its enterprise value is 16.6 times earnings before interest, taxes, depreciation and amortization, according to S&P Capital IQ. That could give it a strong currency if it pursues a stock deal with Scripps, which trades at a multiple of 10.5 times Ebitda. Wall Street Journal

After more than a year of testing, a service that lets pay television subscribers watch and record shows online is launching for New Yorkers. NimbleTV, a start-up with 17 employees, is rolling out in the greater New York area, where customers can sign up to watch channels on Internet-connected devices including Apple's iOS smartphones and tablets, Roku boxes, Web-enabled TVs and browsers. Anand Subramanian, NimbleTV's founder and chief executive, said the company is responding to consumers' demand for a way to watch programming online whenever, wherever and however they want, something the pay TV industry - which refers to the concept as "TV Everywhere" - has long promised but not yet fully delivered. "The market has been ready for a service like this for a while, but the industry has not provided it yet," Subramanian said. "It's hard for an industry to change. You have to come in and make that happen."

People who already pay for a TV package can get NimbleTV for an extra $4 to $7 a month, depending on how many recording hours they want. (The higher tier allows 90 hours of programming a month.) NimbleTV said it supports Time Warner Cable, Cablevision, Verizon FiOS and RCN, though it doesn't have official deals with those distributors. When a new TV customer subscribes to NimbleTV, the start-up signs up those people for Dish Network's service. The service costs from $30 a month for around 30 channels to $80 a month for more than 130 channels and additional recording space.

NimbleTV, based in New York, started testing in the summer of 2012 and has been slow to expand. It hit a setback this year when Dish cut off service to NimbleTV's customers. At the time, Dish said it was concerned that users would think it had a formal deal with the start-up, which it does not. Subramanian said that issue has been resolved. The company has received financial backing from venture capital companies Greycroft Partners and Tribeca Venture Partners, along with the Tribune Co., the parent company of the Los Angeles Times. Although Aereo, a Web TV company, has encountered legal resistance to its service that streams channels to people who don't pay for a TV package, Subramanian said he doesn't expect lawsuits against NimbleTV. "We are making sure the industry is also kept whole," he said. "No one's getting harmed here. Everyone's getting paid." Los Angeles Times

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