We are still in the midst of 4Q earnings: Cablevision, Charter and DISH have yet to announce their financials. However, among the MVPDs that have already reported, a common theme is the expectation of higher programming expenses and therefore higher rates in the coming quarters. Meanwhile, 4Q was a good quarter for major programmers like Time Warner, Discovery and Scripps, all of which saw decent revenue improvements. Moving forward, the nets are looking to expand original programming.

The MVPDs

Wall St wasn’t happy when Time Warner Cable’s 4Q earnings report came in. Though the MSO reported higher revenue (a figure that the Lakers RSN helped), it gave soft guidance for the year of $6.33-$6.61, below Street expectations of $6.88. CEO Glenn Britt said on the earnings call that programming costs have risen at more than 3x the rate of inflation and again warned that each net would be closely examined as contracts expire. Still, watching the bottom line doesn’t mean not adding programming that "yields real value to our customers," said pres/COO Rob Marcus.

Comcast execs are banking on “modest rate adjustments” to offset the expected increase in programming costs due to expansion of rights to multiple platforms, additional channel launches, higher sports costs, retrans fee increases and step-ups for recently completed long-term agreements. The op went all in on NBCUniversal, buying out GE’s 49% stake for some $16.7bln.

The highlight of DirecTV’s 4Q earnings conference call last week came when the issue of RSN costs came up. For seemingly the 200th time, CEO Mike White slammed rising sports rights fees while noting the only solution is through a surcharge. The company started charging new subs a $3 monthly surcharge in markets like LA and NY last year to justify sports costs. Beginning this spring, the company will charge existing subs in those markets. Nonetheless, the surcharge doesn’t "even come close to covering the total costs for sports in those markets," White said on the earnings call.

The Programmers

Higher domestic rates and an increase in domestic subs at HBO powered the increase in subscription revenues at Time Warner while ad revenues benefited primarily from growth at Turner nets. Going forward, investing in originals is a core strategy, according to chief exec Jeff Bewkes.

At Scripps, cost of services, of which programming expenses are the majority, are expected to increase 12% to 14% as the company continues to invest in original content to drive viewership at all nets, said CEO Ken Lowe. Scripps’ 4Q income jumped an impressive 93% YOY to $344mln with total revenue rising 9.2% to $605mln.

Thanks to 4% YOY growth at US networks and 15% YOY growth at international networks, Discovery Communications’ 4Q revenue of $1.2bln was up 8% YOY. However, due to higher tax charges, income fell to $224mln from $336mln a year ago.

Disney reported a profit of $1.38bln, down from $1.46bln a year earlier, largely due to declines in its studio business. However, its media networks segment, the company’s most profitable division, reported a 1.8% improvement in operating income and 6.7% increase in revenue. 
 

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