Media companies’ programming costs
Media companies, including Comcast (CMCSA) and Time Warner (TWX), are expecting higher programming costs this year. Cable company Comcast (CMCSA) has high content costs, similar to the fixed costs incurred by media networks such as The Walt Disney Company (DIS) and Viacom (VIAB). However, as distributors, cable companies have additional infrastructure investments. Content costs account for much of a cable company’s operating costs.
For Comcast, the rise in programming costs has been mainly due to programming contract renewals, which began in 2H16 and are likely to continue in 1Q17. However, at the Deutsche Bank Media, Internet & Telecom Conference last month, the company stated that it expects its programming costs to moderate to “mid- to high-single-digit levels” over time. The company also pointed out that one of the main reasons for the rising programming costs has been higher spending on sports broadcasting rights and retransmission fees.
In fiscal 4Q16, Comcast’s programming expenses rose 12.2% YoY (year-over-year), driven by the renewal of programming contracts, higher retransmission consent fees, and rising costs for sports programming. Comcast’s non-programming costs rose to 4.8% YoY in fiscal 4Q16. The higher costs were mainly a result of the rollout of Comcast’s X1 set-top box.
Time Warner also expects a rise in programming costs
Time Warner expects its Turner business division’s programming costs to rise by double digits as a result of its NBA (National Basketball Association) deal. The NBA entered into a $24 billion sports programming deal with Time Warner’s Turner network and The Walt Disney Company’s ESPN in October 2014. The agreement came into effect in October 2016 and will last through 2025.