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Emerging Stability in TV Network and Cable and Satellite Business Models?

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Programming disputes and cord-cutting fears feed concerns, but long-term deals are being struck that add stability and visibility for programmers and distributors.

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While Wall Street has bid up shares of national TV network owners and cable companies, worries about the television business model have remained high. Concerns fall mostly into two buckets. First, there are rising programming expenses for cable and satellite operators as retransmission and affiliate fees increase rapidly. Second, cord-cutting concerns remain, partly driven by rising cable and satellite bills due to higher programming costs. Related to cord cutting is the risk that new services and devices provide an opportunity to bypass cable and satellite with a sufficient package of program choices.

The stream of non-stop affiliate fee disputes between networks owners and multichannel pay TV distributors gets a lot of attention and heightens these concerns. What gets less notice is that these disputes are usually quickly resolved with long-term deals. Also getting less attention are the long-term deals struck without dispute and threat of or actual lost signals.

In the past week, three large deals were struck. Gannett (NYSE:GCI) and Dish Network (NASDAQ:DISH) agreed to a long-term carriage agreement for Gannett's stable of local TV stations after a several hour blackout and a series of aggressively worded press releases. Getting less attention was an agreement between Disney (NYSE:DIS) and Cablevision (NYSE:CVC) on a long-term deal. Today, CBS (NYSE:CBS) and DirecTV (NASDAQ:DTV) announced a long-term deal.

Besides locking in traditional terms related to affiliate and retransmission fees, recent deals have two other important components: The contracts are long-term , often stretching five to ten years, and the deals include digital rights related to TV Everywhere. Taken together, what is emerging is greater stability in revenues and expenses throughout the television business model with the added benefit of helping TV Everywhere improve the competitive position of cable and satellite multichannel subscriptions. This second factor is important since TV Everywhere creates both a firewall against cord cutting and increases the value of a multichannel subscription to current subscribers.
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Entermedia is a long/short equity hedge fund focused on media, communic= ations, and related technologies. Steve Birenberg is co-portfolio manager o= f Entermedia, owns a stake in the Funds' investment management compan= y, and has personal monies invested in the Funds. CBS and Discovery Communi= cations are widely held by Northlake Capital Management, LLC, including in = Steve Birenberg's personal accounts. Steve is sole proprietor of Nort= hlake, a long only registered investment advisor.

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