Paul Allen, the billionaire who made his money as co-founder of Microsoft, might no longer be the largest individual owner of cable company Charter Communications after it emerges from bankruptcy by April 1.

According to a story broken by Reuters on Thursday private equity firm Apollo Group is planning to take economic ownership of Charter. Allen will retain a 35 percent voting control as had previously been announced. 

Under Allen’s watch as chairman, Charter spent billions of dollars acquiring smaller cable systems across the United States, running up a pile of crippling debt in the process. That debt load led to the company announcing last month that it has agreed a pre-packaged bankruptcy deal with senior creditors which will be filed any day now.

Allen has a spotty track record with his many investments, which range from middling NBA basketball team Portland Trail Blazers to online retailer Value America. But as this AP profile piece notes Charter may be his biggest disappointment.

Keep an eye on:

• Blockbuster swung to fourth-quarter net loss due to a  writedown (WSJ)
• Apple iTunes offers feature films in HD (Hollywood Reporter/Reuters)
• Samsung launches movies to mobiles service (Reuters)

(Photo: Reuters)

Safe haven. Two magical — and mysterious — words. Cable and satellite companies didn’t fit the safe haven bill in 2008, but 2009 just may be there year.

According to a Reuters story out today, “cable and satellite service providers now hold the promise of strong free cash flow growth as they retain old customers but spend less on deploying set-top boxes and digital video recorders due to a fall in new subscriber growth.”

Remember, however, that before the economy fell apart, a number of investors considered the pay TV industry “recession proof.” The argument went that even in the toughest of times, Americans would stay home and watch TV, saving money on trips to movies or out to dinner.

But this argument overlooked a number of factors that have really undermined the industry. For example, fewer people are moving into new homes, and those that do aren’t likely  to spend their savings on discretionary channels like HBO.

Before jumping on the bandwagon, however, it may be wise to take a look at some of the earnings coming up over the next couple weeks. Start with Time Warner Cable tomorrow, that should be a good gauge of whether these guys really can provide shelter from the storm.

Keep an eye on:

• The age of Obama dawned with a wake-up call to the U.S. television industry to get serious about Internet-based sources of revenue (Reuters)
• Barry Diller’s Internet media company IAC/InterActiveCorp posted a fourth-quarter profit on Tuesday after benefiting from the sale of a Japanese TV shopping channel last December (Reuters)
• Sirius XM Satellite Radio later this month will have to find a way to handle $174.6 million in debt that is coming due (Wall Street Journal)

(Photo: Reuters)

News Corp is many things to many people. Its latest incarnation? Pinata.

Everyone is taking a whack at Rupert Murdoch’s international media empire these days as its stock languishes and it gets ready to report second-quarter financial results on Thursday. Newspaper advertising revenue is falling, the movie season hasn’t looked so hot so far, MySpace is unlikely to friend Facebook, the euro and the pound are hurting European operations, DVDs are dying and cable networks revenue doesn’t look like it will be able to compensate.

On top of all that, people are beginning to wonder if the company will announce a writedown, and how soon. My story, which ran on Friday, says the newspaper business looks ripe for a writedown, and quotes Pali Capital analyst RIch Greenfield saying that part of the company’s problem is Murdoch’s sentimental attachment to old media:

If Murdoch wants to keep the business healthy, it is time to make “hard decisions” and prune older media like papers, Pali Capital analyst Rich Greenfield said.

… “It just feels like the legacy assets are weighing too heavily,” Greenfield added in an interview. “I think they’ve been the most aggressive in trying to develop businesses with long-term returns on capital … where others initially didn’t believe or thought the start-up costs were too high.”

Bloomberg’s story sees a writedown coming from a different angle:

Plunging DVD sales threaten to reduce profit for studio owners Time Warner Inc., Walt Disney Co., Viacom Inc. and News Corp., and may force them to write down the value of movies, analysts said. …

The decline is being fueled by viewer shifts toward rental services such as Netflix Inc., the U.S. recession and technology that makes it easier to stream Web videos to televisions.

“Making a movie just won’t be as profitable as it once was,” Barclays Capital analyst Anthony DiClemente in New York said in an interview. “There will be a complete bottoms-up reconstruction of the economics of the film business.”

Curiously enough, most of the Wall Street analysts who have been fueling the bad-news-about-News Corp trend are keeping their “buy” and “hold” recommendations on the stock. That acknowledges that News Corp is a bet for folks with a long-term point of view when it comes to media stocks. Murdoch has pulled the company from the brink before so perhaps there’s no reason that he couldn’t again.

After all the excitement, endless public service announcement ads and electronics retailers salivating over anticipated high-definition TV sales, it turns out that the United States might not be switching to digital television just yet.

President-elect Barack Obama is backing a move to delay a mandatory switch to digital TV signals on Feb. 17 because viewers might not be prepared. Also, the government has run out of $40 coupons to help pay for converter boxes.

The idea that as many as 8 million homes (according to Nielsen data) might lose TV reception in a few weeks is not the kind of headache a new White House administration wants to deal with so it’s perhaps not surprising talk of a delay, possibly up to four months, is gathering support.

Traditional over-the-air broadcasters, who already have a shrinking viewer base, will probably appreciate the breathing room, says  Wall Street analyst Thomas Eagan of Collins Stewart. But Eagan thinks that cable TV companies will be less pleased if the digital transition is delayed.

A delay of this length would be a slight negative for the cable operators as they stand to benefit from over-the-air viewers becoming cable subscribers with the transition. [This is because the digital transition would not affect cable subscribers, who would still be able to watch TV on their old sets. -- ed.]

Since we expect Comcast to be the biggest beneficiary of the transition (due to the high percentage of over-the-air viewers not having registered for a coupon in Comcast’s franchise areas), a delay could translate to a higher ratio of new subscribers foregone for Comcast.

It’s not all bad news for Comcast, Time Warner Cable and friends, watch out for more ads for cheaper entry level cable packages says Eagan:

That said, the cable operators could use any delay to more aggressively market their economy priced 2-play package (entry-level cable and telephone) to over-the air viewers.

Keep an eye on

• Microsoft chief Steve Ballmer has increased pressure on Yahoo to hand over control of its search business (Financial Times)
• Yahoo is in the final stretch of its search for a CEO to replace founder Jerry Yang and former Autodesk chief Carol Bartz is on the list of candidates. (WSJ)
• Watch out iPhone; here comes Palm’s Pre and it has multi-touch screen as well (New York Times)

(Photo: Reuters)

Viacom and Time Warner Cable are doing their best to make sure that television addicts around the country get a chance to go outside and stretch their legs come New Year’s Day. Of course, the reason they’re doing their part for physical fitness has little to do with ensuring the health of their viewers.

As Reuters reports, Viacom — the company run by financially challenged media mogul Sumner Redstone — provides programming to cable networks like Time Warner Cable for a fee. Now we’re at a time when Viacom and Time Warner Cable are renegotiating the fee, a regular occurrence. Equally regular are the disputes that arise as the negotiators try to determine what a fair price is.

The ultimate loser turns out to be you, the faithful TV watcher, because the last resort of companies like Viacom is to pull their programs off the air. The idea is that sends watchers into paroxysms of rage, usually directed at the cable company that they give all their money to every month. Eventually, the idea goes, the cable company cries Uncle! and agrees to pay more money to bring you the programming. Yes, your bill goes up too, as it always does.

Here’s a sample of what will stop being broadcast on Jan. 1: Dora the Explorer, SpongeBob SquarePants, The Colbert Report, The Daily Show with Jon Stewart and The Hills.

And here’s a sample of the pre-packaged righteous indignation that you hear at times like this from the companies:

Viacom: Time Warner Cable has dismissed our efforts at a fair compromise… As a result, we are sorry to say that for Time Warner Cable customers our networks will go dark as of 12:01 on January 1st.

Time Warner Cable, via spokesman Alex Dudley: “It just smacks of desperation from a company that is trying to make up for a failing business model on our subscribers’ backs, and we’re not going to take it.”

Don’t worry C-SPAN will continue uninterrupted.

Keep an eye on

• Speaking of cable, the 24-hour news channels got record ratings this year, though it looks like they would have made Obama race against McCain for another year, if just to keep them relevant until the financial crisis is expected to ease. (Los Angeles Times)
• The Village Voice continues to shed the names that made its name so famous. The latest axe casualty is Nat Hentoff, the influential jazz critic who started there in 1958. Sketches of Pain, anyone? (The New York Times)
• Vicki Iseman, intentionally or not, was kind enough to wait until after John McCain lost his 2008 presidential bid to sue The New York Times over its February 2008 article that the lobbyist said suggested that she and the Arizona senator were carrying on inappropriately in more ways than one. (Reuters)

It's not every day that you have a top executive in big business talk about how nice it will be to see the back of the Bush administration. Republican presidencies typically tout their adherence to free markets, unbridled capitalism and, most importantly, a smaller pile of what corporations often consider burdensome regulations. That isn't what they usually expect from Democratic administrations, even ones led by Barack Obama.

That's why we thought it so interesting that Time Warner Cable's chief financial officer, Rob Marcus, is happy for some turnover at the Federal Communications Commission. It is the FCC, after all, that has to approve some key licenses for Time Warner Cable's split from its majority owner, Time Warner Inc. For some reason, the FCC can't seem to find room on its schedule to do that, and that seems to have irked Marcus. It is, after all, preventing the two companies from separating by the time Time Warner Cable said it would.

"There's nothing substantive that has currently arisen in connection with the FCC approval. They just haven't put it on the agenda," he told the Reuters Media Summit in New York on Monday.

The FCC has made no special demands, he said. Rather, it just hasn't seen fit. He did note that Chairman Kevin Martin, a Republican, seems to be the stick in the mud, but declined to talk more about why he thinks this.

So what is he looking for from a commission where three of its five members are selected by the upcoming Obama administration?

"We're looking forward to a little more rationality."

Everyone wants to save money in these troubled economic times. For those of you craving a flat-panel TV, Bernstein Research suggests you might be able to afford a “nice” LCD model if you cancel your cable bill and utilize free Web video sites like Hulu.com for a year.

In the report “The Nouveau Broke - Hitchhiker’s Guide to a Free LCD TV,” analyst Jeff Evenson says IP video will eventually account for at least 80 percent of all video viewed globally as college students, recent graduates, and young adults — equipped with computers and broadband Internet — find cable less necessary.

The economic crisis could accelerate Web video adoption, he writes:

Some consumers may decide to reduce expenses by canceling video subscriptions (e.g., cable) and viewing content over the Internet … we conclude that making the switch could easily pay for a “nice” LCD TV in under a year if consumers utilize advertising-supported content and 3 years with reasonable use of “for fee” downloads.

Using the simplest option of buying a 32″ HD LCD TV using only free IP Video content, the payback period is 6 months and the consumer would save $1,300 over a three year period

With many top-rated network TV shows now available for free online, plus the likes of Netflix, Evenson says the cost of buying an LCD TV, a box to connect it to your computer, and content, is now less than the cost of basic cable packages.

As for where you can find your favorite shows online? Bernstein provides this table:

Keep an eye on

• Sumner Redstone recently proposed to sell National Amusements’ 1,500-screen theater chain to help pay off debt, but it may not be enough to placate his bankers because there’s no agreement on what the theaters are worth (New York Times)
• Blockbuster said it will roll out a new digital media player that brings fewer, but more recent titles from the Internet to consumers’ televisions than a six-month old offering from rival Netflix (Reuters)
• Warner Music Group’s quarterly earnings beat Wall Street estimates but the company said results in early fiscal 2009 may look worse than later in the year due to its music release schedule and the global economy (Reuters)
• New York’s Tribeca Film Festival, founded by actor Robert De Niro after the Sept 11 attacks, plans to stage a new festival in Qatar next year (Reuters)

(Photo: A worker cleans parts of the Samsung exhibition stand at the International Funkaustellung consumer electronics fair in Berlin, 27 August 2008. REUTERS/Fabrizio Bensch)

Anybody out there in TV land riding an Olympic buzz (NBC’s ratings have been scorching) will be brought back down to earth by these numbers from SNL Kagan.

Cable TV ad revenue is forecast to grow at just 4.7 percent in 2009, the firm says. That compares to growth of about up 10 percent for 2008, when cable has been one of the few bright spots for media.  Or as paidContent sums it up, ”This year appears bad enough for media revenues, but for cable TV, 2009 is nothing to look forward to.”

The SNL Kagan numbers back up concerns that were voiced in an article by Reuters’ Kenneth Li after Viacom’s quarterly earnings report last month.

Although the portfolios of each conglomerate varies, making sweeping generalizations difficult, what unites them is a fear that a dramatic halt in newspaper and local advertising could seep into national advertising, namely cable and broadcast networks.

It is all the more troubling because cable networks are seen riding a high as their shows vie for award nominations as aggressively as they court broadcast viewers.

Here’s what the Wall Street Journal says about the SNL Kagan report:

In recent weeks, several cable-network groups have reported double-digit ad-revenue growth in the first half of 2008, bucking the weakness in the rest of the ad market. In part, TV advertisers have been saving money by shifting dollars from broadcast to cable networks, which cost less. “But that can’t go on forever,” says Derek Baine, a senior analyst at SNL Kagan. “Cable networks are already seeing demand slow, and that trend will likely continue and get worse as broadcast networks roll out their fall season.” 

Well, there’s always booming Internet advertising.  

Or not. Bloomberg reports on another study that says Internet advertising spending in the US will be lower than expected this year and next.

EMarketer plans to cut its forecast for 23 percent growth in 2008 by “a few percentage points,” said analyst David Hallerman. The New York-based research firm had predicted almost $26 billion in ad sales this year. Hallerman said his estimate for 16 percent growth in 2009 is “also probably too high.”

Keep an eye on:

• The decision to have a pretty face lip-synching during the Beijing Olympics opening ceremony instead of the actual singer was taken after consulting with broadcasters (Reuters)
• Former HBO Chief Executive Chris Albrecht has left talent agency IMG (Reuters)
• Best Buy will be the first national retailer to sell Appe’s iPhone in the United States in a partnership that could help drive sales of a device expected to be one of the hottest gadgets this holiday season (Reuters)

It looks like cable networks advertising held up quite well, despite investors fears, says Pali Research’s Richard Greenfield.

“We are encouraged that all but two reported double-digit increases in advertising revenues; particularly in light of the weakening economic environment,” he writes on his blog, citing quarterly earnings reports. He expects growth to slow in the third quarter and a pick-up in the fourth.

His comments echo those of Gabelli & Co associate portfolio manager Larry Haverty, with whom we spoke right after Viacom reported a sharp fall-off in second quarter ad revenue at MTV Networks.

Here’s what Haverty told us:

I’ve seen it probably many more times than I care to. When you hit prior to the Olympics, advertisers get very conservative. They either are an Olympics sponsor or they run and hide. If you are looking at spending money in the months preceding and during Olympics, you probably are not going to do it.

What Viacom saw is indicative of that. It’s being punished way more than they should be. You’ll see other companies reporting slow down. I would expect the ad market to bounce back pretty nicely.

Not everyone, including ad buyers, shares this view.

Greenfield’s chart on second quarter cable network ad revenue growth:

(Chart: Pali Research / Richard Greenfield)

The U.S. Federal Communications Commission today ordered the largest U.S. cable TV operator Comcast Corp to change how it manages its broadband network. The regulator concluded that some of Comcast’s tactics unreasonably restrict Internet users who share movies and other material.

The 3 to 2 decision supported by two Democrat commissioners and the Republican chairman,  is precedent-setting. It could kick-start a long-simmering ‘net neutrality’ debate between advocates, who believe Internet access should always be open without interference, and some Internet service providers, who believe they should be allowed to manage Internet delivery in order to provide the best service to all users. The FCC seemed to support the former group.

“Subscribers should be able to go where they want, when they want, and generally use the Internet in any legal means,” FCC Chairman Kevin Martin said in a statement.

 Here are some reactions:

We are disappointed in the Commission’s divided conclusion because we believe that our network management choices were reasonable, wholly consistent with industry practices and that we did not block access to web sites or online applications, including peer-to-peer services. We also believe that the Commission’s order raises significant due process concerns and a variety of substantive legal questions.  We are considering all our legal options and are disappointed that the commission rejected our attempts to settle this issue without further delays.

Sena Fitzmaurice, Comcast senior director, Government Affairs

I believe today’s FCC action sends a strong message to the industry that the Commission intends to take Internet freedom principles seriously and will act to protect the integrity and openness of Internet commerce and communications.  Vigilance by regulators and policymakers, coupled with a commitment to act when necessary, is vital to thwart the emergence of new bottlenecks to competition and innovation.  I commend Chairman Martin, as well as Commissioners Copps and Adelstein, for their recognition of this fundamental tenet of realistic telecommunications policymaking. 

Rep. Edward Markey (Democrat),  chairman of the House Subcommittee on Telecommunications and the Internet.

Today’s order makes it clear that there is nothing reasonable about restricting access to online content or technologies. Moving forward, this bellwether case will send a strong signal to cable and phone companies that such violations will not be tolerated.  But the fight is far from over. A duopoly market — where phone and cable companies control nearly 99 percent of high-speed connections — will not discipline itself. We look forward to working with the FCC and Congress to ensure proactive measures keep the Internet open and free of discrimination, and accessible to all Americans.

Josh Silver, executive director of Free Pres (Free Press was one of two parties that brought the complaint against Comcast)

No one has seriously questioned the right of network operators to reasonably manage their networks.  They will continue to do so after this Order.  But, there is nothing reasonable about the use of techniques that indiscriminately target applications or protocols, regardless of their use.  This is something that anyone who cares about the free and open Internet should be concerned about.  Equally important, all free markets require transparency in order to be effective.

Gilles BianRosa, Chief Executive Officer Vuze Inc. (Vuze was the other party to bring the complaint against Comcast)

There is no longer any doubt that ISPs have the right to use network management tools to address unlawful activity - including the theft of copyrighted music.  We applaud Chairman Martin’s clear affirmation that ISPs may use technology to prevent the theft of copyrighted works.  There is a crystallizing consensus among governments around the globe that ISPs should be taking affirmative steps to address piracy on their networks.  It is our hope and expectation that ISPs here will accelerate their efforts to work with us to address online piracy.

Mitch Bainwol, Chairman of Recording Industry Association of America.

The  FCC  should  be  careful  what  they  wish  for. If network operators can’t manage traffic loads one way, they’ll need  to  do it another.  By banning  discrimination based on application  or  content,  the  FCC - and  Net  neutrality proponents  more  broadly - are  pushing  network  operators closer  and  closer  to  what  is  increasingly  their  only  viable alternative option - Usage Based Pricing.  UBP might just be the  best  thing  that  ever  happened  to  the  network  operator crowd.  And it might be the worst thing that ever happened to applications and content.

Craig Moffett, analyst Sanford Bernstein

(Photo: Reuters / FCC’s Kevin Martin)