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TWC Faces Consumer Wrath

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Second largest cable MSO (multi service operator) in the U.S. Time Warner Cable Inc.’s  continuing efforts to incur expenses to carry the rights to broadcast LA Lakers and LA Dodgers games has landed it into trouble. Four consumers, who are grappling with rising monthly cable bills, have filed a legal suite against the company and the teams in the Supreme Court of the United States.

Notably in Oct last year, Time Warner Cable launched two new regional sports channels to broadcast the LA Lakers basketball games. Furthermore, earlier during the year Time Warner Cable agreed with Major League Baseball team Los Angeles (LA) Dodgers to broadcast the latter’s games for the next twenty years starting from 2014.

The cable MSO out bid media giant News Corp.’s (NWSA - Free Report) sports arm Fox Sports in the process. Per the deal, Time Warner Cable will run the new sports channel of Dodgers, which will cost them around $7 billion.

The suit claims that the LA Lakers contract has already causing a pocket pinch for its subscribers, who have to pay an additional $4 a month for the two channels. The new Dodgers channel when launched will fetch another $4 to $5 a month from each subscriber.

The suit also claims that as these channels are sold as a bundle with the MSO’s cable satellite or telephone services non-sports loving fans have no options but to subscribe to it. The suit wants the network to be sold separately to the sport loving fans as a large part of the LA consumer is not interested in paying the additional $40 to $ 50 a year.

Of late, sports entertainment has become a lucrative form of revenue for cable MSOs like Time Warner Cable, which charge high rates from customers to cover up their high cost of acquiring the rights.

However, we believe that if the cable MSO loses the legal battle and is forced to sell the sports channel on a standalone basis it will dampen its future revenue prospect. The company’s policy of recovering the acquisition cost via raising the monthly bill will also be dealt a serious blow.  

TWC currently carries a Zacks Rank #3 (Hold). Among the other companies in the industry, Telus Corp. (TU - Free Report) and Charter Communications Inc. (CHTR - Free Report) with a Zacks Rank #2 (Buy), is a better option for the investors.

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