Neither side had much to gain if Viacom had withheld its programming. One media analyst described the potential scenario as "mutually assured destruction" that could lead to Viacom losing advertising revenue and Time Warner losing subscribers.
"Viacom's cable networks are among the most popular on cable television," Michael Nathanson of Bernstein Research wrote in a research report Wednesday. He said about 25% of all cable viewers tuned in to Viacom channels throughout the day.
Nathanson said that the affiliate fees paid to Viacom by cable operators, including Time Warner, were "underpriced" when compared with those paid for other channels.
According to research firm SNL Kagan, Viacom's MTV receives about 32 cents per subscriber a month from cable operators, while Nickelodeon receives an average of 45 cents a month. Operators pay 86 cents a month per subscriber for the Disney Channel, which commands a higher fee because it runs commercial-free.
In contrast, sports channel ESPN receives an average of nearly $4 per subscriber a month. Viacom said it was seeking a modest increase of about 23 cents a month per subscriber.
That adds up to a rate hike of about 12% for the package of Viacom cable channels. Time Warner estimated that amount would increase its payments by $39 million a year.
"We are not asking for unreasonable increases," Philippe Dauman, chief executive of Viacom, said before the post-midnight breakthrough was reached. "All of our networks put together cost less than the regional sports networks that they provide."
Time Warner pays Viacom about $300 million a year for its programming, Nathanson estimated in his report. He said Viacom payments represented 7.9% of Time Warner Cable's video programming costs.
On Wednesday, investors cheered Viacom's tough stand, driving up the media company's stock 85 cents to $19.06 a share. Time Warner Cable's stock fell 31 cents to $21.45.
The dispute underscored how important cable affiliate fees have become to cable programmers, such as Viacom, particularly during an economic recession and a downturn in advertising revenue.
"A 12% increase on a multiyear deal doesn't seem that significant," said Derek Baine, an analyst with SNL Kagan. "But the challenge is we are in a difficult economic climate and it's getting harder for the cable operators to pass these costs along to consumers."
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meg.james@latimes.com
