The TV network, known for its round-the-clock forecasts and tracking of big weather events like hurricanes and blizzards, is facing a major threat to its core business--the fees it collects from pay-TV providers that carry its channel.
Verizon Communications Inc. dropped the Weather Channel last month from its FiOS TV service, which reaches 5.6 million households, citing customers' growing use of online sources and apps to look up weather information. The network is scrambling to pull every lever it can to get back on the air, including threatening not to give the telecommunications giant an unrelated Web traffic contract, according to people familiar with the matter.
Meanwhile, another battle is looming with satellite provider Dish Network Corp. The companies' carriage contract expires in coming months and the Weather Channel's backers are preparing for the possibility of being dropped by Dish, which has about 14 million subscribers, the people familiar with the matter said.
The financial outlook for parent company Weather Co. is deteriorating. Moody's Investors Service on Friday downgraded the company's debt, saying it isn't perceived by cable and satellite companies as a "must have" channel, and could therefore be dropped by more providers or face cuts in carriage fees.
All of this is raining on the ability of the company's owners--a consortium that includes private-equity firms Bain Capital LLC and Blackstone Group LP, and Comcast Corp.'s NBCUniversal--to exit the roughly $3.5 billion investment they made when they purchased Weather Co. in 2008. No formal sale process is under way, some people close to the company said.
The Weather Channel's predicament is bringing into stark relief the challenges ahead in the U.S. TV industry for independent channels--even relatively well-known ones--that aren't part of bigger media conglomerates.
As more consumers "cut the cord," or drop their pay-TV subscriptions, cable and satellite providers are increasingly looking for ways to reduce their hefty programming expenses--either by paying less for channels or dropping those that they feel their viewers can live without.
Media companies with bundles anchored by powerful channels-- Walt Disney Co. with ESPN and Time Warner Inc. with TNT, for example--can negotiate in a way Weather Channel cannot. Moody's said the environment makes it "challenging for stand-alone and smaller cable networks to maintain their subscriber base."
In an interview, Weather Co. Chief Executive David Kenny said the company has been aggressively diversifying into digital advertising and business-to-business services so it isn't so reliant on TV. Those areas combined have already eclipsed TV revenue, he said.
"I feel really supported to finish this transition that we have started, " he said. "We are on a very different path to become a data and tech company."
The immediate concern, however, is getting carriage on Verizon's FiOS service. The Weather Co. has been in talks with Verizon to purchase "content delivery network" services--essentially sophisticated Web traffic routing. But after its channel was dropped last month, Weather Co. terminated those talks in hopes of putting some pressure on Verizon, the people familiar with the situation said. Verizon has so far been unmoved.
The efforts recall Weather Co.'s tense dealings with DirecTV last year, where an unrelated business arrangement ultimately played a role in the channel securing carriage on the satellite-TV giant. DirecTV had dropped the Weather Channel for nearly three months for many of the same reasons Verizon cited. But the satellite provider agreed to carry the Weather Channel because of a separate deal it was pursuing to become the "preferred" provider for the Hilton Worldwide hotel chain, whose owners include Blackstone, also a backer of Weather Co. Hilton wanted the Weather Channel on its TV lineup, The Wall Street Journal reported last year. (People close to Blackstone said at the time that the private-equity firm didn't influence Hilton's push for the Weather Channel.)
Mr. Kenny declined to comment on any specific negotiations, but he said he no longer looks at distribution deals as pure TV negotiations. "You have to look at it as an enterprise partnership," he said.
The company's website is the leader in disseminating weather information online, with 101.5 million unique visitors in February, according to comScore. Its family of weather apps is also No. 1 in its category, with 53 million unique visitors in February. Weather Co. also sells weather information to companies in industries ranging from airlines to retailers.
Still, the TV woes threaten to put a major dent in the company's roughly $300 million in earnings before interest, taxes, depreciation and amortization, people familiar with the matter say. Already, operating profit has been slipping, a person familiar with the company's results said.
As pay-TV distributors look to control programming costs they are scrutinizing networks like the Weather Channel, which have relatively low fees. Market researcher SNL Kagan estimates the Weather Channel gets 14 cents per average subscriber a month from pay-TV distributors, compared to $6.61 for ESPN.
Some distributors have already sought out other channels for weather information, including WeatherNation, which is available in 30 million households. One of WeatherNation's investors is EchoStar Corp., which is controlled by Dish Chairman Charlie Ergen, people familiar with the situation say.
To attract new audiences, the Weather Channel moved in recent years to expand its prime-time programming lineup to include more reality shows. The company said 53% of its hours are dedicated to live weather information, while 47% is dedicated to original programming.
Nonetheless, ratings have sagged. The average number of viewers tuning in during prime-time fell 22% between 2011 and 2014 to 225,000, according to Nielsen. Since December, however, severe winter storms in the Northeast have helped increase the channel's viewership.
Comcast has collected handsome management fees from its role in Weather Co. Thus, it wouldn't need to sell at as high a price as the private-equity owners to recoup its investment--a potential complicating factor in any push to sell the company, a person familiar with the matter said.
The cable giant has the right of first refusal to acquire Weather Co., but isn't inclined to put in a bid, the person said.
Read more: http://www.nasdaq.com/article/at-th...omy-skies-linger-20150405-00008#ixzz3WUPuSoz3
Verizon Communications Inc. dropped the Weather Channel last month from its FiOS TV service, which reaches 5.6 million households, citing customers' growing use of online sources and apps to look up weather information. The network is scrambling to pull every lever it can to get back on the air, including threatening not to give the telecommunications giant an unrelated Web traffic contract, according to people familiar with the matter.
Meanwhile, another battle is looming with satellite provider Dish Network Corp. The companies' carriage contract expires in coming months and the Weather Channel's backers are preparing for the possibility of being dropped by Dish, which has about 14 million subscribers, the people familiar with the matter said.
The financial outlook for parent company Weather Co. is deteriorating. Moody's Investors Service on Friday downgraded the company's debt, saying it isn't perceived by cable and satellite companies as a "must have" channel, and could therefore be dropped by more providers or face cuts in carriage fees.
All of this is raining on the ability of the company's owners--a consortium that includes private-equity firms Bain Capital LLC and Blackstone Group LP, and Comcast Corp.'s NBCUniversal--to exit the roughly $3.5 billion investment they made when they purchased Weather Co. in 2008. No formal sale process is under way, some people close to the company said.
The Weather Channel's predicament is bringing into stark relief the challenges ahead in the U.S. TV industry for independent channels--even relatively well-known ones--that aren't part of bigger media conglomerates.
As more consumers "cut the cord," or drop their pay-TV subscriptions, cable and satellite providers are increasingly looking for ways to reduce their hefty programming expenses--either by paying less for channels or dropping those that they feel their viewers can live without.
Media companies with bundles anchored by powerful channels-- Walt Disney Co. with ESPN and Time Warner Inc. with TNT, for example--can negotiate in a way Weather Channel cannot. Moody's said the environment makes it "challenging for stand-alone and smaller cable networks to maintain their subscriber base."
In an interview, Weather Co. Chief Executive David Kenny said the company has been aggressively diversifying into digital advertising and business-to-business services so it isn't so reliant on TV. Those areas combined have already eclipsed TV revenue, he said.
"I feel really supported to finish this transition that we have started, " he said. "We are on a very different path to become a data and tech company."
The immediate concern, however, is getting carriage on Verizon's FiOS service. The Weather Co. has been in talks with Verizon to purchase "content delivery network" services--essentially sophisticated Web traffic routing. But after its channel was dropped last month, Weather Co. terminated those talks in hopes of putting some pressure on Verizon, the people familiar with the situation said. Verizon has so far been unmoved.
The efforts recall Weather Co.'s tense dealings with DirecTV last year, where an unrelated business arrangement ultimately played a role in the channel securing carriage on the satellite-TV giant. DirecTV had dropped the Weather Channel for nearly three months for many of the same reasons Verizon cited. But the satellite provider agreed to carry the Weather Channel because of a separate deal it was pursuing to become the "preferred" provider for the Hilton Worldwide hotel chain, whose owners include Blackstone, also a backer of Weather Co. Hilton wanted the Weather Channel on its TV lineup, The Wall Street Journal reported last year. (People close to Blackstone said at the time that the private-equity firm didn't influence Hilton's push for the Weather Channel.)
Mr. Kenny declined to comment on any specific negotiations, but he said he no longer looks at distribution deals as pure TV negotiations. "You have to look at it as an enterprise partnership," he said.
The company's website is the leader in disseminating weather information online, with 101.5 million unique visitors in February, according to comScore. Its family of weather apps is also No. 1 in its category, with 53 million unique visitors in February. Weather Co. also sells weather information to companies in industries ranging from airlines to retailers.
Still, the TV woes threaten to put a major dent in the company's roughly $300 million in earnings before interest, taxes, depreciation and amortization, people familiar with the matter say. Already, operating profit has been slipping, a person familiar with the company's results said.
As pay-TV distributors look to control programming costs they are scrutinizing networks like the Weather Channel, which have relatively low fees. Market researcher SNL Kagan estimates the Weather Channel gets 14 cents per average subscriber a month from pay-TV distributors, compared to $6.61 for ESPN.
Some distributors have already sought out other channels for weather information, including WeatherNation, which is available in 30 million households. One of WeatherNation's investors is EchoStar Corp., which is controlled by Dish Chairman Charlie Ergen, people familiar with the situation say.
To attract new audiences, the Weather Channel moved in recent years to expand its prime-time programming lineup to include more reality shows. The company said 53% of its hours are dedicated to live weather information, while 47% is dedicated to original programming.
Nonetheless, ratings have sagged. The average number of viewers tuning in during prime-time fell 22% between 2011 and 2014 to 225,000, according to Nielsen. Since December, however, severe winter storms in the Northeast have helped increase the channel's viewership.
Comcast has collected handsome management fees from its role in Weather Co. Thus, it wouldn't need to sell at as high a price as the private-equity owners to recoup its investment--a potential complicating factor in any push to sell the company, a person familiar with the matter said.
The cable giant has the right of first refusal to acquire Weather Co., but isn't inclined to put in a bid, the person said.
Read more: http://www.nasdaq.com/article/at-th...omy-skies-linger-20150405-00008#ixzz3WUPuSoz3
