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Kai Ryssdal: The corporate spat of this Tuesday is brought to us by Rupert Murdoch’s News Corp and Time Warner. More accurately Fox television and Time Warner Cable. Negotiations between the two over who’s going to pay how much for Fox programming like American Idol and the National Football League are coming down to the wire. Fox says that unless a deal is made by Friday it’s going to pull the plug on Time Warner subscribers in some cities. Sounds fairly straight-forward. But it’s really about changing business models in the media business. Marketplace’s Jeff Tyler reports.
JEFF TYLER: The profit margin for broadcast networks is fairly thin. In a good year, it’s around 10 percent.
Derek Baine is an analyst with SNL Kagen.
DEREK Baine: It’s just not a really good business model.
Cable networks have fatter profit margins — four to five times more lucrative.
With advertising revenue down and broadcasters paying millions to develop shows, Baine says the networks want cable companies to help foot the bill.
Baine: They’re trying to, you know, essentially shift the economics back to the broadcast network, which is providing the prime-time programming.
Fox is demanding about four times what it currently gets from Time Warner. That’s not out of character for Fox boss, Rupert Murdoch.
Michael Wolff wrote a biography of Murdoch called “The Man Who Owns the News.”
MICHAEL Wolff: He won’t capitulate. There’s a certain lack of reason about Murdoch. And certainly business reason. He can sustain more pain than anyone else, which is why he so often wins.
But analyst Derek Baine says cable providers risk alienating consumers if they raise rates.
Baine: You can’t pass it on to the consumer. So, you know, either the cable operator is going to have to eat that, which is going to go into their margin. Or they are going to have to refuse to carry it.
He expects Fox will ultimately secure higher rates, though less than it’s asking for. Whatever increase Fox negotiates, analysts say the other networks will want similar deals. So we can expect more standoffs in the future.
I’m Jeff Tyler for Marketplace.
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