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MEDIA & MARKETING

December 27, 2011

Fuse Is a Flash Point in Cable Fight

By SAM SCHECHNER And CHRISTOPHER S. STEWART

Millions of New Yorkers might miss Knicks basketball games if the MSG Network went dark on Time Warner Cable's systems in the new year, amid a bitter dispute over fees. But how many viewers are missing the other network caught up in the fight, the Fuse music channel? That's an important question, not only to Madison Square Garden Co., which owns both MSG and the smaller and lesser-known Fuse, but to the broader TV industry. Garden Co. regularly packages the channels together in its deals with cable and satellite operators. Such arrangements are common in the industry but they are coming under pressure, a potential problem for the smaller channels, as distributors grapple with rocketing programming costs. Time Warner Cable dropped Fuse from its lineup on Dec. 16 as its negotiations to renew both Fuse and MSG broke down. The move took Fuse out of 7.4 million homes. Time Warner Cable's contract for MSG expires at the end of Dec. 31, when it could go dark if the two companies fail to reach an agreement. Time Warner Cable, which would prefer to negotiate for the channels separately, says Garden Co. is seeking a package deal for Fuse and MSG, with a 53% increase in fees. Garden Co. says it wants a fair market price, and that the cable operator has "grossly mischaracterized" the negotiations. While MSG's audience varies depending on whether there is Knicks basketball or Rangers hockey on the air, its exclusive local rights to games make it a must-have channel for some fans in the New York market. Fuse, on the other hand, is in a different situation. Its prime-time shows, for instance, averaged 47,000 viewers in 2011, according to Nielsen, compared with 1.1 million for prime-time shows on Viacom Inc.'s MTV, a major network. Yet cable and satellite operators pay roughly six cents per household each month for Fuse, according to SNL Kagan, compared with 37 cents for MTV. Before Garden Co.'s current spat with Time Warner Cable, Fuse was available in roughly 59 million homes, compared with

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Music Channel's Fate at Heart of Cable Dispute - WSJ.com

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about 100 million for the most widely distributed networks. Mike Bair, president of MSG Media, said he believes Fuse makes the most sense inside a bundle of cable channels. "When you break that up," Mr. Bair said, "the consumer gets harmed." But he emphasizes Fuse is separately available to distributors. Lots of entertainment companies generate revenue by selling obscure channels in packages with their better known outlets. News Corp., whose cable channels include Fox News and FX, owns an extreme-sports channel called Fuel TV, which averaged about 14,000 prime-time viewers in 2011 but drew an average of 14 cents a month from about 36 million homes. (News Corp. also owns The Wall Street Journal).
Fuse/Associated Press

Fuse's 'Funny or Die's Billy on the Street,' with comedian Billy Eichner.

Cloo, a mystery channel owned by Comcast Corp.'s NBCUniversal, which also owns NBC, USA, Bravo and other channels, draws an average of seven cents a month in about 40 million homes, according to SNL Kagan, and has one of the smaller prime-time audiences among Nielsen-rated cable networks. A spokesman for Fox Networks Group and a spokeswoman for NBCU declined to comment on the practice of bundling channels in distribution agreements. The small channels don't necessarily make much profit, despite often having low programming costs. Analysts estimate that Fuse, for instance, loses money, though Garden Co. won't comment on the matter. But the channel's wide distribution gives it the chance to grow into a lucrative business. For years cable operators have been willing to carry these smaller channels as part of the price of getting access to their bigger sibling networks. But as cable operators face ballooning subscription costs from splashy sports channels like Walt Disney Co.'s ESPN, and giant broadcast networks like CBS Corp.'s CBS and News Corp.'s Fox Broadcasting, the lesser-known channels may become more vulnerable. Cable operators are "cutting every programming cost they can, which typically means smaller independent entities without leverage," said Larry Aidem, chief executive of web-TV firm IconicTV and former CEO of Sundance Channel, now owned by AMC Networks Inc. "If we hadn't sold Sundance Channel in 2008, I'm not sure it would exist today," he adds. In the Time Warner Cable skirmish, Fuse has been particularly exposed because it is bundled only with MSG's regional sports channels, which are largely carried in the New York area. Garden Co. "might be too small to play this game," said Sanford C. Bernstein analyst Craig Moffett. "The Knicks fan base is not as strong as it used to be. And the Rangers are an immeasurably small fan base." A year ago, Dish Network Corp. dropped Fuse and MSG after a showdown over rates. Mr. Bair said that, despite the numbers, "Fuse has never been healthier in economics and ratings."

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Music Channel's Fate at Heart of Cable Dispute - WSJ.com

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He added that the channel's advertising is up, too. Fuse is taking steps it hopes will make it a must-watch channel. Mr. Bair said it is moving toward more original programming, like a lot of other channels, with live concerts from acts like the Dave Mathews Band and a new game show featuring comedian Billy Eichner. Write to Sam Schechner at sam.schechner@wsj.com and Christopher Stewart and christopher.stewart@wsj.com

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