Not only subscribers, but also the investors of Walt Disney
Disney wants more money for its channels, including ESPN, while Time Warner Cable wants to avoid passing on higher costs to customers. Both started their own ad campaigns over the issue.
Channels are hiking carriage fees as one of their major revenue generator -- the advertising market -- has been hit hard during the financial crisis, hence they are trying to bridge the gap through other avenues, like carriage fees.
Interestingly, whoever wins, the customer is the loser. If Disney wins, customers have to shell out more for their monthly cable bill, and if TWC wins, subscribers will miss out on their favorite programs until Disney finds another operator.
If the parties do not reach a deal by Sept. 2, over 14 million subscribers of Time Warner Cable in 28 states may miss popular shows like "Modern Family," "Hannah Montana" and "SportsCenter."
If ESPN goes off the air, it will definitely hurt Time Warner as ESPN commands huge viewership.
According to a survey by Deutsche Bank, 84 percent of homes have a sports fan, 71 percent of them watch ESPN weekly, and 81 percent of them would pay from $2 per month to $30 per month for the channel (averaging $5.11).
The survey also showed that 21 percent indicated they would definitely switch Pay TV providers if ESPN was taken off the air, while another 32 percent indicated they would be very likely to switch.
However, one issue lies with Disney. If it raises ESPN's carriage fees in double-digits, it could invite regulatory scrutiny since ESPN is the most expensive basic-cable channel, charging over $4 per month per subscriber.
"Our break-even analysis indicates that ESPN could price as high as a 17-percent per annum increase on a 5-year deal. We believe price increases in the 8 percent to 10 percent per annum range are rational for ESPN in this renewal cycle," Deutsche Bank analyst Doug Mitchelson said in a note to clients.
Impact on Disney
For Disney, these cable wars are not new. The media giant had earlier threatened to pull the signal off its New York ABC affiliate from more than 3 million Cablevision customers. But the issue was sorted out after U.S. lawmakers threatened to intervene.
However, the renewal of the Time Warner deal is crucial for Disney as it sets the pace for ESPN's renewal cycle in fiscal 2012/13, and sets the benchmark rate they can charge from other operators such as Comcast, DirecTV and DISH.
Impact on Time Warner Cable
In January, the No. 2 cable provider Time Warner Cable had settled with Fox Networks Group, an operating unit of News Corp., over rights fees. If Time Warner continues carriage of ESPN, it could raise the cable rates higher than the market expectations.
"Our TWC model (as well as all of our Pay TV models) already accommodates an 8.5% avg price increase for ESPN plus $0.50/mo for ABC. To the extent pricing is above that level, we believe TWC will raise its video prices faster than our 3.7% per annum expectation," analyst Mitchelson said.
On the other hand, if Time Warner doesn't carry ESPN, it would hit its subscriber growth, which will have a direct impact on its top line.
"If TWC allows ESPN to be dropped for a meaningful length of time, we would likely have to lower our subscriber forecasts and target," Mitchelson said.
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