Time Warner Cable Threatens to Drop Low-Rated Channels

By SHALINI RAMACHANDRAN and CHRISTOPHER S. STEWART

Time Warner Cable Inc. Chief Executive Glenn Britt on Monday warned entertainment companies that he plans to take a "hard look" at programming contracts and may drop TV channels that "cost too much relative to the value of the service."

Speaking at a UBS -sponsored investor conference, Mr. Britt said TV channels that receive "hashmark ratings"—very low audiences—are going to experience a "different kind of conversation" when their contracts are up with Time Warner Cable "than we had with them five, six or 10 years ago."

GLENN BRITT

The company, like several other pay-TV distributors, has recently complained vocally about the rising fees that entertainment companies, especially those with valuable sports programming, are charging to carry their channels.

Mr. Britt noted that since 2008, Time Warner Cable's programming costs have gone up more than 30%, while the prices it charges video customers have only increased 15%. He said the rising cost of cable TV is behind the softness in the video business that the cable industry as a whole has been grappling with.

"We've accumulated networks that hardly anybody watches," Mr. Britt said. "We can't keep carrying these giant packages…with the services that don't carry their weight."

Mr. Britt also expressed frustration at programmers who think that full distribution across cable platforms is a "birthright."

"This stuff is just starting to cost too much. If we as a broader industry want to keep this going we need to get the prices of packages lower," he said. Some channels that don't draw a big audience could be put onto a tier that isn't the most widely available, for instance, or they could be dropped entirely, he said.

Mr. Britt and another executive presenting at the conference, CBS Corp.'s chief research officer, David Poltrack, also acknowledged the reality of "cord-cutting"—the phenomenon of people disconnecting their pay-TV subscriptions.

Mr. Poltrack said that the trend "appears to be very real," referring as well to people who have never signed up for cable.

He said that a significant number of people are watching TV shows on online-video outlets but aren't being measured for advertising purposes. Mr. Poltrack noted that the fall TV season had experienced a "chaotic start," with soft ratings for many networks, although he attributed that to the elections and superstorm Sandy.

Mr. Poltrack argued that it was important to measure audience watching on different platforms, including online streaming. Current ratings measures only track viewership for a TV show up to seven days after it aired, on a digital video recorder. "It is clear that streaming is providing incremental viewing to these shows," he said, citing CBS's drama "Elementary" as an example.

He estimated that the show's reported audience increases by about 9% if those viewers past the seven-day mark on various outlets are included.

Viacom Inc. Chief Executive Philippe Dauman expressed a similar sentiment at the conference, saying there is "a lot of additional consumption on other platforms and that's not officially measured or monetized right now." Nielsen, the primary source of TV-ratings data, needed to adjust the way it measures viewing, he added. "They have to catch up with reality of the situation."

Nielsen didn't immediately respond to a request for comment.

Mr. Britt said that a more threatening issue than cord-cutting was that cable-TV rates are rising even while the economy hasn't improved significantly.

The economy is "still bouncing along the bottom," he said, though he added that he is seeing "a little bit" of new household formation.

Formation of new households is important for cable-TV operators' ability to sell their services.