New year greeting to MSOs: $100 mil in fees
NEW YORK — With a little more than three months to go before TBS converts to a basic cable network, the hard bargaining has started between cable operators and the superstation.
Ted Turner’s network is asking the operators to fork over — for the first time — upwards of $100 million a year in monthly per-subscriber license fees in exchange for benefits like two minutes an hour of advertising beginning Jan. 1, 1998.
Turner’s affiliate sales force faces a potential conflict over the two minutes. Turner claims the new ad time will be lucrative to the cable systems, but the operators aren’t so sure.
No cable operator has accepted the new TBS arrangement yet, other than Turner’s parent company, Time Warner Cable, and John Malone’s Tele-Communications Inc. TCI, which owns about 9% of Time Warner, agreed to the TBS contract a year ago as part of a larger overall deal giving TCI 20-year commitments to all of Turner’s networks at below-market prices.
‘Ad-sales road show’
As leader of the TBS delegations to many of the major multisystem cable operators (MSOs), Bill Grumbles, president of worldwide distribution for Turner Broadcasting Systems Inc., said, “We’re creating an ad-sales road show that will work with local cable systems to go after new advertising money,” namely the spot dollars funneled by ad agencies to local TV stations in the cable system’s market.
TBS started as an independent TV station based in Atlanta more than 20 years ago, and Grumbles’ argument is that its programming schedule —sitcom reruns, movies, National Geographic docus, Atlanta Braves baseball, National Basketball Assn. games — is similar to that of many local indie stations.
But Grumbles faces some tough negotiations. Bob Brennan, executive VP and USA media director of the Leo Burnett ad agency, said he’s skeptical that cable operators will be able to convince advertisers who buy spots on local TV stations to switch some of that money to TBS.
“The supply of local advertising time on cable networks,” Brennan said, “far exceeds the demand by advertisers.”
Ad rate fears
Brennan’s analysis matched the findings of some cable operators like Phil Laxar, senior VP of programming for Jones Intercable, a top 10 MSO. Laxar fears that two more local minutes, even on a relatively popular network like TBS, will only lower the rates Jones can charge for other general-entertainment networks like USA, TNT and Lifetime.
But if the cable system can tap into some new money for TBS that would normally go to the local TV station, Grumbles said that system would more than make up for the fairly stiff monthly fee of 25¢ a subscriber TBS is asking in the first year of a five-year contract. (The fee would go up 2¢ a year, ending up at 33¢ a sub by year five.)
Grumbles also pointed out that on Jan. 1, the cable systems will stop paying their current monthly fees to Southern Satellite, the company which transmits the superstation signal. And the systems won’t have to pay any more money to the Copyright Royalty Tribunal.
Depending on the size of the cable system and other factors, those two payments can add up to a monthly fee of between 9¢ and 13¢ a subscriber.
The negotiations between TBS and the MSOs were late in getting started because Turner didn’t get approval from Major League Baseball’s cable rights’ holders — ESPN and FX — to continue scheduling Atlanta Braves games until two months ago.
And Turner’s first rate card, which would have offered the MSOs only one minute of commercial time each hour instead of two minutes in 1998 and 1999, got shot down this summer after cable operators screamed bloody murder.
Turner’s willingness to rewrite the first rate card in the cable operators’ favor has generated optimism among many cable observers that on Jan. 1, TBS will be able to engineer its transformation with a minimum number of glitches.