Viacom, Time Warner dispute over fees

Viacom wants an extra $35 million to $40 million from Time Warner to pay for carrying its cable channels, including MTV, Comedy Central and Nickelodeon.

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NEW YORK (Reuters) -- Viacom Inc. and Time Warner Cable remained at a standoff on Wednesday, but were hopeful that top executives would step in to resolve a dispute that threatens to prevent more than 13 million U.S. subscribers from seeing "Dora the Explorer" and Jon Stewart.

No face-to-face meetings between executives have occurred for several weeks, sources on both sides said. The sources asked to remain anonymous because they were not authorized to discuss the situation publicly.

At issue is an extra $35 million to $40 million that Viacom (VIA) wants Time Warner (TWX, Fortune 500) to pay for carrying its cable channels, including MTV, Comedy Central and Nickelodeon.

Time Warner has refused, saying the economic climate makes it impossible to pass along such costs to its customers. Viacom has denied Time Warner's request for an extension of the current terms.

Instead, Viacom threatened to pull its TV networks from Time Warner at midnight on Jan. 1 unless a deal was reached. Viacom also wants Time Warner Cable's Chief Executive Glenn Britt to become more active in the talks, sources said.

Although disagreements between cable carriers and programmers are common, this one is particularly notable given it involves two major companies, threatens top shows and has prompted a high-profile advertising campaign.

Time Warner is a major outlet for programmers with its 13.3 million video subscribers and presence in New York, Los Angeles, Dallas and Cleveland.

But Viacom has an equally strong hand. It controls 19 cable TV networks that offer "Dora the Explorer" and "The Daily Show with Jon Stewart" among others.

Viacom has taken its case to the public in an ad campaign.

"Why is Dora crying?" read an advertisement Viacom placed in The New York Times. "Time Warner is taking Dora off the air tonight! Along with 19 of your favorite channels."

Affiliate fees have become even more important as the recession has crimped advertising revenue.

But neither side is well-positioned for a long standoff. Time Warner Cable is about to lose the protection of parent company Time Warner Inc. , with a planned split in early 2009. Viacom, meanwhile, has come under scrutiny as its controlling shareholder, mogul Sumner Redstone, faces his own debt crunch.

"As has been the norm, we would expect a settlement - terms undisclosed - in a relatively quick manner, as both sides may not want to see if this battle results in mutually assured destruction, as Viacom loses ad dollars and Time Warner loses subscribers," wrote Bernstein analyst Michael Nathanson.

Viacom is arguing that it deserves more money because viewers spend more than 20% of their time with its networks, but its fees amount to less than 2.5% of Time Warner's revenues from customers.

"We sympathize with the fact that Viacom`s advertising business is suffering and that their networks` ratings have largely been declining," Time Warner's Britt said in a statement. "However, we can`t abide their attempt to make up their lost revenue on the backs of Time Warner Cable customers."

Like other cable and satellite operators, Time Warner has been under pressure from program makers who are keen to increase their fees. Until now, it has largely been broadcasters like CBS Corp. (CBS, Fortune 500) who have complained.

Time Warner also needs to keep down its programming costs, the single biggest expense at around $4 billion a year, and faces a slowdown in consumer spending on add-on products like HD digital video recorders.

Viacom, with about 30% of its revenue coming from advertising, announced plans to cut about 7% of its staff. Its shares were down about 60% in 2008.

Part of the share drop can be attributed to worries about Redstone, who has been forced to sell Viacom stock to cope with a debt crunch elsewhere in his media empire, analysts said.