Bloomberg News

MSG Under Pressure to Strike Cable Deal While ‘Linsanity’ Lasts

February 28, 2012

Feb. 17 (Bloomberg) -- Jeremy Lin’s rise to fame has more than doubled ratings at MSG network, putting renewed pressure on parent Madison Square Garden Co. to strike a deal with Time Warner Cable Inc. in their dispute over carriage fees.

A blackout has prevented about 2.8 million local Time Warner Cable subscribers from watching most of the New York Knicks point guard’s games in his rise from backup to National Basketball Association Eastern Conference Player of the Week.

Lin’s success has led the two sides back to a face-to-face meeting this week after a two-month standoff. Time Warner Cable is facing angry fans and customer cancellations. For MSG, there’s urgency to get a contract now, while the “Linsanity” celebrated on T-Shirts sold all over New York lasts, according to Chris Marangi, portfolio manager at Gamco Investors Inc.

“MSG loses all its leverage once the season ends, so it’s a game of chicken,” said Marangi, based in Rye, New York, whose funds own about 5 million MSG shares and 500,000 Time Warner Cable shares. “They really need to get a deal done sooner rather than later.”

Time Warner Cable, the second-largest U.S. cable provider with about 12 millions customers, has said MSG is asking for a 53 percent increase in carriage fees, a figure MSG disputed. Time Warner Cable’s customers aren’t the only ones missing some of the Knicks’ games: Dish Network Corp., the satellite-TV provider, doesn’t carry MSG either after failing to reach a contract.

While Lin captivates his basketball fans, he isn’t giving MSG an upper hand, said Maureen Huff, a spokeswoman at New York- based Time Warner Cable. MSG was on a basic cable package, which means there are customers paying for the network who may not care about the Knicks, Huff said.

“We have to protect all of our customers,” said Huff.

‘Fair Value’

The two sides had a face-to-face conversation this week, MSG Media President Mike Bair said on WFAN radio. MSG wants Time Warner Cable to recognize the network’s “fair market value,” Bair said in an e-mail.

Customers may begin to turn against Time Warner Cable as Lin’s popularity grows, said John Tinker, an analyst at Maxim Group LLC in New York.

In the past week, Lin has outscored Los Angeles Lakers guard Kobe Bryant and received kudos from President Barack Obama. New Twitter followers include former General Electric Co. Chief Executive Officer Jack Welch, former heavyweight champion Mike Tyson, and Vinnie Guadagnino from MTV’s “Jersey Shore” reality show.

‘Strong Argument’

The Harvard graduate has made the Knicks more watchable, and he’s attractive to audiences that would normally ignore NBA games, Tinker said.

“MSG has a strong argument,” Tinker said. “They’re giving people what they want. So why shouldn’t they charge Time Warner Cable more for it?”

Time Warner Cable still has leverage. MSG is losing money by not doing a deal -- in terms of affiliate fees it doesn’t get from the cable company and increased ad dollars MSG isn’t getting from the boosted ratings. And not all Knicks games air on MSG Network -- some are available on national networks, including Walt Disney Co.’s ABC and ESPN and Time Warner Inc.’s TNT, which Time Warner Cable carries.

This will allow Time Warner Cable customers to see Lin play against some of the NBA’s best teams, including the defending champions, the Dallas Mavericks, and LeBron James’s Miami Heat.

If the Knicks are in the hunt for a playoff berth, eight of the team’s 13 games in April are set to be carried by national channels, barring scheduling changes. MSG doesn’t have exclusive rights to any playoff game.

‘Strategic Differentiator’

Time Warner Cable’s risk to lose customers might be minimized by the fact that many Manhattan residents are unable to get satellite TV because tall buildings obstruct signals, according to David Joyce, an analyst at New York-based Miller Tabak & Co. And not all buildings are wired for Verizon Communications Inc.’s FiOS or RCN Corp., a smaller cable provider that serves certain areas of New York City, he said.

“There may be only a few hundred thousand subscribers at risk,” said Joyce. “Having MSG is a strategic differentiator for some, though.”

Cable and satellite-TV operators pay more than $4.50 a month per subscriber for MSG and MSG Plus, according to researcher SNL Kagan. Time Warner Cable Chief Executive Officer Glenn Britt has publicly supported the idea of putting sports on separate tiers from basic cable to give non-sports fans cheaper bills.

Time Warner Cable rose 0.2 percent to $77.17 at 1:04 p.m. New York time. MSG, based in New York, declined 0.7 percent to $31.66. As of yesterday, the stock had gained 8.1½ percent since Feb. 4, when Lin came off the bench to score 25 points against the New Jersey Nets to begin New York’s seven-game winning streak.

Fans have taken to blogs and Twitter to express their discontent with the cable situation, clamoring for the chance to see Lin in each game he plays. Even Knicks guard Bill Walker weighed in with his frustration.

“Time Warner Cable and MSG need to get together and let the fans watch their games,” said Walker in an interview on Feb. 15. “Some people out there are very mad about that.”

--Editor: Cecile Daurat, Larry Siddons.

To contact the reporter on this story: Alex Sherman in New York at asherman6@bloomberg.net

To contact the editor responsible for this story: Ville Heiskanen at vheiskanen@bloomberg.net


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