(Updates with closing stock prices.)
Dec. 30 (Bloomberg) -- Time Warner Cable Inc. is set to lose Madison Square Garden Co.’s MSG Network in a dispute over rising program costs, leaving millions of viewers without New York Knicks and Rangers games.
MSG wants 53 percent more for its programming, according to Melinda Witmer, an executive vice president at Time Warner Cable. That would make the channel the most expensive sports network in the U.S., she said. MSG Media President Mike Bair calls that claim “categorically untrue.” The current deal expires at 12 a.m. Jan. 1.
The dispute highlights growing tension over the cost of televised sports. Heads of pay-TV services, including Time Warner Cable’s Glenn Britt, DirecTV’s Michael White and Dish Network Corp. Chairman Charlie Ergen have all lamented the role of sports in rising cable bills. If the two sides don’t reach a deal, 2.8 million Time Warner Cable subscribers, mostly in the New York area, will lose the network and MSG Plus.
“We have not had any recent, meaningful discussions with Time Warner Cable,” Bair said. “We continue to urge fans to find alternate providers.”
MSG Co. is controlled by New York’s Dolan family, which also holds majority voting stakes in AMC Networks Inc., another cable programmer, and Cablevision Systems Corp.
MSG Co., which owns the Knicks and Rangers, has run ads urging Time Warner Cable customers to switch to other services, including DirecTV and Verizon Communications Inc.’s FiOS.
“This is an old deal, and they are not in the ballpark of what others are paying for our services,” Bair said. “All we’re asking them to do is to reflect what the current market is paying.”
MSG and MSG Plus broadcast the National Basketball Association’s Knicks and the National Hockey League’s Rangers, New Jersey Devils, New York Islanders and Buffalo Sabres.
Britt, chief executive officer of New York-based Time Warner Cable, told the Wall Street Journal this month that sports networks should be sold separately from basic cable to lower bills for customers who don’t care about athletics. MSG and MSG Plus are part of the expanded basic package on Time Warner Cable, the second-largest U.S. cable service.
Last month, White said the cost of sports was “one of our single biggest challenges as an industry.” Ergen suggested one large pay-TV service could stop carrying sports.
“There could be a day when one of the big providers just doesn’t have a sports offering, so that they can differentiate their programming in a major way,” Ergen said on Dish’s November conference call.
Cable and satellite-TV operators pay more than $4.50 a month per subscriber for MSG and MSG Plus, according to researcher SNL Kagan. Walt Disney Co.’s ESPN, the most expensive cable network, charged an average of $4.69 a month in 2011 and will fetch $5.06 in 2012, Kagan said.
MSG’s rates have increased more than 70 percent over the past five years, according to Kagan. Time Warner Cable was willing to pay 6 percent more in 2012, according to Witmer, who said MSG was asking for “dollars more” than any other sports network.
MSG’s current deal with Time Warner Cable was signed in 2005, according to Cablevision regulatory filings at the time. DirecTV and FiOS have negotiated new agreements and agreed to higher prices, Bair said.
Time Warner Cable added 0.8 percent to $63.57 at the close in New York and has lost 3.7 percent this year. MSG Co. rose 0.3 percent to $28.64 and is up 11 percent in 2011.
Time Warner Cable is betting few customers will cancel if they lose Knicks and regional NHL games. The company said it will provide replacement programming, without being more specific.
Many Manhattan residents are unable to get satellite TV because tall buildings obstruct signals, and not all buildings are wired for FiOS or RCN Corp., a smaller cable provider that serves certain areas of New York City, according to David Joyce, an analyst at New York-based Miller Tabak & Co.
“Time Warner Cable has the upper hand because it has roughly one-third of MSG’s total viewers,” Joyce said. “MSG would be hindered in viewership, advertising and affiliate fees if Time Warner Cable drops it and stops paying.”
Counting other pay-TV systems, MSG network and MSG Plus have about 8 million subscribers, primarily in New York, New Jersey and Connecticut, according to the company’s 2010 10-K regulatory filing.
MSG Co. also owns Fuse. That network is watched by 0.6 percent of Time Warner Cable customers, according Maureen Huff, a spokeswoman for the pay-TV service. MSG had told Time Warner Cable the price will rise more than 53 percent if the company refuses to carry Fuse, Witmer said. Time Warner Cable dropped Fuse this month and doesn’t plan to bring it back, Witmer said.
“There will likely be some switching away from Time Warner Cable,” said Paul Sweeney, an analyst at Bloomberg Industries. “In most cases, the cable provider caves and passes along the price increase to consumers, so we’ll see.”
--Editors: Rob Golum, Ville Heiskanen
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