TWC and Viacom patch it up!

Time Warner Cable and Viacom reached a pact to mark a good beginning to the new year. It is not yet clear who blinked in this game of chicken. A quick look at the numbers leads us into an interesting issue. Viacom's advertising revenues were down 2% in Q3-08 compared to Q3-07 which translates to ~$22-25 million short fall. TWC claims the increased charge per subscriber that Viacom wanted from them meant an increase of $39 million in operational expenditure. One would be tempted to conclude that Viacom was trying to make up for the drop in ad revenues by increasing the price of their content (netting an increase of ~10M at that in their content segment). I have not gone through Viacom's 10K in detail, but TWC's contract might have been the first up for renewal at the end of Q4-08. The question remains whether Viacom would have adopted the same strategy with other networks as well.

Looking at the bigger picture, ad revenues are clearly on the decline for the content producers as more and more advertisers shift to online advertising. Given the latest tussle between Viacom and TWC, the implications are huge for consumers who could be deprived of their favorite channels and be further driven to online sources. Advertising is important for everyone in the television value chain. I wonder where the Canoe is floating.