Time Warner Cable Inc. (TWC - Analyst Report) – the second largest cable MSO in the U.S. – plans to increase rates on the back of multiple deals signed with different sporting majors like Los Angeles Galaxy, Los Angeles Sparks, Los Angeles Lakers and Los Angeles Dodgers.
The demand for sports network is always on the rise. In order to tap the growing demand mainly across Los Angeles and Hawaii regions, Time Warner Cable launched two specialized sports networks namely Time Warner Cable SportsNet and Time Warner Cable Deportes in October last year.
In an effort to popularize these channels, Time Warner Cable is continuously expanding its local sports coverage by signing long standing telecast agreements with Los Angeles-based popular teams in different categories.
The recently signed 25-year contract with the popular baseball team Los Angeles Dodgers is expected to cost Time Warner Cable more than $7 billion. Moreover, the company has already spent around $3 billion on its 20-year agreement with the basketball team Los Angeles Lakers.
These hefty fees of more than $450 million per annum will increase the programming costs for Time Warner Cable. So, to offset the rise in costs, the company started charging an extra $2.25 per month from those subscribers, who have taken the two Lakers channels. However, these channels are free for those who opt bundle package services. Moreover, the company will also hike rates on basic programming packages in Los Angeles by 8.2% to $72.50 and its DVR rental fee by 18.6% to$12.99 per month.
Furthermore, Time Warner Cable will also gain from the distribution rights sold to other pay-TV majors like DirecTV (DTV - Analyst Report), AT&T Inc.’s (T - Analyst Report) U-Verse and Verizon’s FiOS TV.
The trend to pass over the fees to its respective customers is gaining popularity across pay-TV industry as both Dish Network Corp. (DISH - Analyst Report) and DirecTV have recently hiked its programming rates. So, in the near future, the subscribers tend to be the ultimate losers if these higher rates are not absorbed by these pay-TV companies, thereby forcing these subscribers to move towards low cost video streaming companies.
Currently, Time Warner Cable has a Zacks Rank #3 (Hold).