Tuesday, March 24, 2015

Time Warner Said to Take $1Billion Loss on Dodger Deal

Per a report this morning, via Claire Atkinson and Josh Kosman at the NY Post, Time Warner is expected to write down the value of the the Dodger RCN asset by $1Billion.  That's a whole lot of change lost in the couch, and based on the indicated report a necessary move in order to satisfy Comcast.
Sources told The Post that the market rate for the channel is more likely $3 per subscriber per month, meaning the charge will be almost $1 billion when adjusted over the life of the contract or in the region of $700 million in present-day terms.

“Comcast will be made whole,” said the source, suggesting this mess had to be cleaned up as a condition of Comcast’s proposed deal to acquire Time Warner Cable.

“Unless the deal closes, there will not be another [Dodgers] season shown outside of Time Warner Cable. I don’t believe they’ll get carriage,” a source told The Post.
That last bit should not be lost on Dodger fans.  If the merger between Comcast and Time Warner falls apart then you should not expect to see SportsNet LA in a majority of Los Angeles homes any time soon.  Should this happen, is bankruptcy the likely scenario?  Counter to what Rob McMillan has been saying on his 6-4-2 blog, I am not entirely certain. 

Per a 3rd Quarter conference call with TWC: (Robert Marcus - Chairman and CEO)
But I will say that L.A., of all of our markets, had the best year-over-year video performance in Q3 (2014). So draw whatever conclusions you want from that. Obviously, as we approach the new baseball season, we'll be back in the market trying to cut distribution deals that we weren't able to cut this year. I don't think there's a meaningful change in our view on the -- our relationship with third-party RSNs from our experience here. We know from our viewership data that our Dodgers network got meaningful viewership during the season -- both in terms of percentage of customers watching the network and the amount of time that they watched the network. So I don't think our view of the value of that network is in any way diminished as a result of the affiliate sales experience we've had in season one.
At the same time, TWC acknowledged that the Dodgers were the biggest driver of expenses: (Artie Minson-CFO)
Operating expenses were up $147 million or 4.2%, with total programming and content costs up $160 million or 9.6%. The biggest driver of the increase, as in Q2, was Dodgers costs. Programming cost per residential subscriber, including an intercompany charge for a market rate Dodgers deal, increased 11.1%.
So, yeah.  Mixed messages there.  They still like the RCN model, but the Dodger debacle is costing them - big time.

But could it cost them so much that bankruptcy is the only solution should the merger fail?

I dunno.  I think they should just bite the bullet (write-down), sign them up at a lower per subscriber rate and count on the Dodger growth exceeding their expectations.  Given enough time, I think they do well.  It's just that the short term prospects will be a struggle.

The more I research and think about it, the more I want to pull my hair out.  After all, it appears very likely a majority of fans will not be able to watch the Dodgers at home any time soon.

If anyone out there has any expertise in these matters I'd love to hear from you.

* Please follow on twitter @ernestreyes *
* Dodgers Blue Heaven home page *

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