Comcast-Time Warner Merger Butt Slaps Content Kings

Comcast and Time Warner

CBS and Viacom’s majority shareholder, Sumner Redstone, coined the phrase “content is king.” And the 90-year-old mogul has put his money where his mouth is by outrageously overpaying his content-producing kings Les Moonves , CEO of CBS, and Philippe Dauman, CEO of Viacom.

Moonves and Dauman’s compensation in 2012 (2013 figures haven’t been released as of the date of writing this post) were $62.3 million and $37.43 million respectively. These two content kings are outrageously overpaid if you look at the ratio of CEO compensation to the market cap of their companies in the rank-order list below (the higher the number, the worse the deal is for stockholders):

  1. Les Moonves , CEO CBS ($62.3 m) – 0016
  2. Philippe Dauman, CEO Viacom ($37.2 m) – 001
  3. Jeff Bewkes, CEO Time Warner ($25.9 m) – 00046
  4. Chase Carey, CEO 21st Century Fox ($24.7 m) – 000335
  5. Robert Iger, CEO Disney ($34.3 m) – 000247
  6. Robert Marcus, CEO Time Warner Cable ($9.9 m) – 00024
  7. Brian Roberts, CEO Comcast ($29.1 m) – 0002

Moonves’s ratio of compensation to market cap is 800 times greater than Roberts’s, so you could say that Roberts is 800 times more valuable to shareholders. But, at any rate, Moonves is clearly the worst value and Roberts the best value.

The ratio list indicates that the content guys (media companies don’t overpay women) make more than the distribution guys.

But Roberts is about to balance the content-distribution teeter-totter by attempting to consolidate the distribution business. Comcast’s profit-focused strategy is a three-legged stool:

  1. Pay less for content.
  2. Charge more for broadband.
  3. Invest whatever it takes to influence regulation.

Pay Less for Content

This means having more leverage in retransmission negotiations with local TV stations. The merger will give cable distribution monopolies in 19 of the 20 largest markets. Retransmission payments do not go to the broadcast networks, but instead to their owned-and-operated TV stations. CBS owns 16 local TV stations that are affiliated with CBS, which carries the NFL games of the AFC conference. FOX owns 18 local stations affiliated with FOX, which carries the NFL games of the NFC conference. NBC owns 10 local stations affiliated with NBC, which carries NFL “Sunday Night Football,” the highest rated of the NFL games. ABC (owned by Disney) owns only eight local TV stations, and doesn’t carry any NFL games. I mention NFL games because they are the highest-demand programming and, thus, the biggest bargaining chips the local TV stations have in negotiating retransmission fees.

For the big-four broadcast networks, their owned-and-operated TV stations are by far their biggest profit centers, in no small part because of the increases over the past few years in retransmission payments from cable companies.

The overpaid Les Moonves has been the most vocal content king about how wonderful and profitable retransmission receipts have been, so Brian Roberts’s butt slap might be, unconsciously of course, aimed at him.

Charge More for Broadband

Roberts (obviously) sees that broadband is the future of distribution. The rise of Netflix, Hulu and, especially, YouTube and the chord cutting driven by the wide availability of video on the web has made broadband Internet access a household necessity, and, of course, where the profits are. Margins on broadband for Comcast and Time Warner Cable are up to 100 percent.

Invest Whatever it Takes to Influence Regulation

Susan Crawford’s excellent book, “Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age,” exposes in exquisite detail Comcast’s multi-million-dollar lobbying expenditures, which mostly go to Democrats. Comcast’s head lobbyist, David Cohen, has greased the skids with Comcast’s money to ensure favorable treatment by the Democratic-controlled FCC and the Obama administration.

The Justice Department’s Antitrust Division could throw a monkey wrench into the works, but if you’re a betting person, give long odds on the deal going through. Money talks in Washington.

The best thing we can hope for (“we” because I’m a Time Warner Cable subscriber) is that the FCC and/or Justice Department will put some conditions on the merger that will require Comcast to upgrade its broadband speed by, let’s say, 500 percent, which might get us about even with Romania.

And the regulators will probably smile as they approve the deal, knowing that the outrageously overpaid content king Les Moonves, for one, is getting butt-slapped by distribution king Brian Roberts and Comcast.

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Author:

Charles Warner

Charles Warner teaches in the Media Management Program at The New School and NYU’s Stern School of Business, and is the Goldenson Chair Emeritus at the University of Missouri School of Journalism. Until he retired in 2002, he was Vice President of AOL’s Interactive Marketing division. Charlie’s book Media Selling, 4th Edition is an update of Broadcast and Cable Selling and is the most widely used sales textbook in the field. He has also written a companion book to Media Selling titled Media Sales Management that is available free on www.mediaselling.us.

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