Updated: Cablevision, Scripps Nets Still Worlds Apart

Three days after Scripps Networks Interactive pulled HGTV and Food Network from the Cablevision menu, the programmer and cable operator have yet to return to the negotiating table. Instead, both parties on Sunday evening issued conflicting statements limning the origins of the stalemate, an exchange that offered little comfort to the 3.1 million subscribers directly affected by the dispute.

Cablevision fired the first shot, issuing a release condemning Scripps Nets for refusing to agree to an extension of their carriage agreement, which expired midnight, Jan. 1. The statement said that Scripps rebuffed Cablevision’s invitation to continue to negotiate through the deadline, as is standard practice.

Such an extension has allowed Time Warner Cable to continue to carry Food Network and GAC while the nation’s #2 cable operator works out a new affiliate deal with Scripps Nets.

As Cablevision has it, once the contract expired, Scripps “took the extraordinary step of flipping a switch and removing its channels from Cablevision––effectively holding their own viewers hostage in order to pursue a more than 200 percent fee increase.”

Cablevision added that the move came “with virtually no warning.”

Shortly after the MSO’s release hit the wires, SNI returned fire. “Cablevision simply is not telling the truth,” the programmer’s response read. “Scripps Networks Interactive has been trying to have productive negotiations with Cablevision for more than six months, but to no avail. Repeated requests to sit down together to discuss a fair market price for our networks have been rejected––even as recently as Sunday afternoon [Jan. 3].”

While SNI did not address the specific dollar amount it was looking to secure from Cablevision, the company revealed that under the terms of its expired contract, the operator paid 25 cents per month per sub for the combined networks. A 200 percent increase would bring the fee to 75 cents per sub, which would effectively raise Cablevision’s monthly payment from $775,000 to $2.33 million.


“Cablevision is trying to characterize our rate increases as exorbitant and our negotiating strategies as unusual or unethical,” the SNI statement continued, adding that the old quarter-per-sub rate is “substantially lower than rates earned by other, individual top 10 cable networks and considerably less than rates Cablevision pays itself for less popular networks that it owns.”

The dig at the Cablevision-owned networks––these include AMC, WE tv, IFC and Sundance Channel––isn’t entirely accurate. Per industry estimates, AMC is Cablevision’s biggest earner in terms of the sub fees it commands. On average, carriers pay nearly 25 cents per sub for the right to carry AMC. WE tv commands a proportionately lower rate, between 8 cents and 10 cents.

While both parties remain worlds apart, fans of Food Network and HGTV may find some solace in the tail end of the operator’s statement. On Jan. 1, Cablevision intimated that it would not likely return the two networks to its lineup; on Sunday, the company seemed to be inviting Food and HGTV back to the fold.

“[The] channels where HGTV and Food Network appeared on Cablevision remain available, and if Scripps really cared about their viewers, they could put their programming back while we negotiate a new agreement,” the operator said. “We believe it was irresponsible for Scripps to take the channels off, and it is irresponsible for them not to put the channels back on.”

Scripps didn’t bite. “We regret deeply the interruption of service for Cablevision customers who rely on us for quality programming, but we hope and trust that they understand that Cablevision can’t get something for nothing,” the SNI statement read. “Let’s be clear, we have been and remain ready and willing to negotiate. But until they will step forward in good faith, it’s Cablevision that’s holding their customers hostage.”

The going rate for Food Network carriage appears to be the bone of contention, as the channel is coming off a record ratings year. Per Nielsen data, Food in 2009 averaged 1.12 million total prime time viewers, making it the 16th most-watched channel on ad-supported cable. That represents a 26 percent improvement from its year-ago deliveries.

Food also finished 13th among adults 18-49, drawing 558,000, up 27 percent versus 2008. That said, as a standalone network, Food commands a relatively small sub fee, averaging between 8 cents and 10 cents a head, per industry estimates.
 
While it’s anyone’s guess how long the Cablevision-SNI standoff will continue, at least one analyst has suggested that the operator has the upper hand. In a note to investors, Pali Research media analyst Richard Greenfield said it appears that Cablevision believes it has more leverage, given that 65 percent of its subs (about 2 million) are triple-play customers.
 
“If a customer has video/voice/data from Cablevision, switching multichannel providers simply because you lost Food Network and HGTV is a major pain/inconvenience,” Greenfield said. “Assuming the programming battle lasts for an extended period of time (meaning weeks), we suspect Cablevision’s basic/digital sub losses could be modestly higher than expected in Q1 2010, albeit programming costs should benefit; whereas Scripps will suffer a drop in subscription and advertising fees (lower advertising due to a loss of distribution in the #1 DMA).”
 
As the standoff continues, Greenfield reminded Cablevision watchers to expect the unexpected, as the operator looks to hold the line on programming costs. “Cablevision and its management team simply do not follow the playbook of their peers, and its behavior does not always appear rational to outsiders,” the analyst wrote. “We suspect CVC is simply trying to draw a line in the sand, as it knows that retrans fees for broadcast will upwardly bias programming costs going forward.”