Pay-TV Fees Lift Media Firms

Big media companies are relying more on growth in the fees they get from pay-TV distributors to offset a tepid and uncertain advertising market, a trend highlighted in their quarterly results.

• Time Warner, which reported a 23% increase in profit for the quarter ended March 31, said ad revenue at its television networks shrank 1%. By contrast, the "affiliate fees" it charges cable and satellite operators to carry its networks—such as TBS, TNT and premium channel HBO—grew 5.3%.
• Comcast’s NBCUniversal division said earnings growth at its cable networks, which include USA Network, MSNBC and Bravo, was driven by an 8.6% rise in affiliate fees, outstripping their 2.5% growth in ad revenue. Comcast's first-quarter earnings rose 17%, fueled by growth in its broadband and business-services units as well as NBCUniversal, which also owns the NBC broadcast network.

Cable networks have become the profit engine of the big media companies over the past decade because they generate two streams of revenue. While their ad revenue can fluctuate wildly depending on economic conditions, their affiliate fees, which come from multiyear deals in which pay-TV providers agree to share a portion of their subscriber revenue, are more predictable. But the networks' increased reliance on affiliate fees raises questions for the pay-TV industry, such as how cable and satellite operators will handle steadily rising content fees without robust subscriber growth.