Broadcaster LIN television has warned its viewers of a blackout of its transmissions from Time Warner Cable (NYSE:TWC) and Bright House Networks over the issue of re-transmission consent fee. LIN is asking for a 50% increase in the carriage fee, which Time Warner Cable does not agree with. If a deal is not reached by May 31st, Time Warner Cable will face a broadcast blackout in 14 markets. We believe that the network blackout is going to add to the problem of subscriber churn that Time Warner Cable has been recently facing.
The Dispute Over Retrans Fee
Cable operators and other multi-service operators (MSOs) usually pay retransmission (retrans) fee to the broadcasters for carrying their programming. LIN services 43 TV stations in 23 U.S. markets. The company’s retrans revenue and growth in the digital businesses has been recently offsetting declines in advertising.  LIN’s reliance on retrans fee has increased over the years and this is not the first time that Time Warner Cable is facing such dispute with LIN. Earlier in 2008, LIN’s TV stations blacked out Time Warner Cable network for 25 days over the same issue of retrans fee.
Time Warner Cable claims that LIN is demanding a more than 50% increase in retrans fee from the agreement negotiated two years ago to continue carrying the same programming that LIN delivers over the air for free. The company stated that it will continue to take a stand against unreasonable fee increases by local broadcast TV stations. LIN on the other hand states that the rates they are asking for are reasonable and less than what Time Warner Cable pays for many of its cable networks with far lower ratings. 
Time Warner Cable’s Market Share
Time Warner Cable has been recently facing huge subscriber losses in its pay-TV business as customers continue to move to satellite and telcos. Earlier this month, in its Q1 earnings, the company saw a loss of 119,000 residential pay-TV subscribers from the prior quarter.  If LIN TV pulls out of Time Warner Cable, it is going to add to the pressure of subscriber churn the company is facing. Time Warner Cable’s market share in the pay-TV business has already come down from 13% in 2008 to just over 11% in 2013. If LIN TV goes dark there would be a handful of popular stations at risk, including LIN TV‘s NBC, CW, and MyNetworkTV affiliates in Austin, CBS and CW stations in Buffalo, NBC and CW outlets in Dayton, and Fox and CW stations in Green Bay. Interestingly, Time Warner Cable and Bright House Networks together account for more then 20% of LIN’s viewership. ((Will LIN TV Stations Go Dark On Time Warner Cable?, Deadline, May 23, 2013)) LIN will also take into consideration such huge loss in viewership, as it is already facing decline in advertising revenues.
While the negotiations are going on between the cable operators and the broadcaster, it would be interesting to see if LIN really pulls out its networks. If it does, it is definitely not good news for Time Warner Cable, as it will impact its already declining market share in the pay-TV business.
Our price estimate for Time Warner Cable stands at $89 is roughly at 10% discount to the market price.Notes:
- LIN’s SEC Filings [↩]
- Time Warner Cable Faces Broadcast Blackout in 14 Markets, Variety, May 23, 2013 [↩]
- Time Warner Cable’s SEC Filings [↩]