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Why Comcast and Time Warner Expect Higher Programming Costs

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Feb. 9 2017, Updated 7:36 a.m. ET

Time Warner’s rise in programming costs

Time Warner (TWX) has always maintained that it would strive to maintain Turner’s growth rate for programming costs in the “high-single digits.” However, this year, it expects its programming costs to rise in “double-digits,” as its licensing of sports programming contracts comes up for renewal.

However, Time Warner stated at its fiscal 3Q16 earnings call that it doesn’t expect that the increase in programming costs would be a sustained trend and expects the rise in costs to moderate over time.

In fiscal 4Q16, Time Warner (TWX) expects its programming costs to go up. One of the reasons for the higher programming costs is because of Time Warner’s deal with the NBA (National Basketball Association).

Time Warner’s Turner division is going to pay higher licensing fees to the NBA for using its licensed programming starting in fiscal 4Q16. Time Warner’s Turner has a licensing agreement with the NBA to broadcast NBA games through 2025.

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Comcast’s programming costs

In fiscal 2017, Comcast (CMCSA) expects its programming costs growth to be around 13%, mainly driven by programming contract renewals that began in 2H16 and are likely to continue in 1Q17. In its fiscal 4Q16 earnings call, the company reiterated that it expects its programming costs to stabilize beyond 2017. Comcast also expects its Comcast Cable operating margin to “be flat to down 50 basis points” in fiscal 2017.

At the Wells Fargo Securities 2016 Technology, Media & Telecom Conference, the company pointed out that, as it integrates more services such as Netflix (NFLX) on its X1 set-top box, it reduces its dependency on any one content provider.

It added that it was getting a better understanding of the price it pays for its content and the value its customers get by subscribing to its pay-TV service. The company could likely use this insight when negotiating programming contracts with content providers.

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