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Announcement:

Moody's says the NFL Deal Is Credit-Positive For CBS, News Corp. and NBCUniversal When Considering the Alternative; Ratings Unaffected

16 Dec 2011

New York, December 16, 2011 -- Moody's says that the National Football League's deal with the CBS, Fox and NBC networks is positive for their parent companies' credit profiles in that the deal provides additional revenue opportunities and, most important, avoids a long-term negative when weighed against the alternative. The deal is costly, but the networks had no choice but to pursue and maintain their NFL rights. It would have been catastrophic if they did not; if another bidder such as an "over the top" bidder were to have deep enough pockets to afford the rights (such as a Google, Amazon or Apple), it would have been the watershed event that negatively changed the landscape for television entertainment delivery and likely led to more such losses of exclusive sports programming.

RATINGS RATIONALE

Moody's believes that the deal, which is consistent with our expectations, will not affect credit ratings for each of their investment-grade parent companies. The CBS broadcast network is owned by CBS Corporation (Baa2, stable outlook); the Fox broadcast network is owned by News Corporation (Baa1, stable outlook); and The NBC broadcast network is owned by NBCUniversal Media LLC (Baa2, stable).

The deal extends the networks' contracts from the end of the 2013 season to 2022 for a total reported cost of $27.9 billion for the extended period. The deal represents a reported 63% increase in average rights payments to the NFL from these networks. "The deal also expands the rights to include certain digital-rights expected to permit broadcasters to negotiate authentication rights with terrestrial and satellite-pay TV distributors, so that paying cable, satellite or telecom subscribers can view the broadcast games on other devices, such as tablets and mobile phones connected to the Internet inside or outside the home, what the industry refers to as "TV Everywhere," stated Neil Begley, a Moody's Senior Vice President.

The broadcast networks continue to face further audience fragmentation. They now compete with the Internet for people's leisure time, but they still draw the largest mass television audiences (on a predictable schedule, which appeals to consumer product company advertisers), and the highest television ad rates on average. The fragmentation, combined with the greater difficulty in squeezing pay-TV distributors (cable, satellite and telecom companies) for higher annual carriage and retransmission fees, means that important sports and other costly popular programming is paramount in the negotiations for contractual increases in those subscriber-based fees. "Sustaining, if not improving, relevancy in the eyes of the consumer is what provides such leverage," stated Begley. "The NFL rights are the king of relevancy and leverage in our opinion," added Begley. So securing exclusive NFL rights for the next 11 years means that those networks will retain their status in the eyes of consumers as "must have TV" and no over-the-top threat can compete with that.

Moody's believes that the higher costs of the rights will be matched by reverse retransmission fees garnered by the networks from their affiliates and by higher ad rates. We expect that the networks will get at least 50% of the retransmission fees paid to local non-owned network affiliate stations by pay-television companies, and NFL rights will play a very large role in helping to increase those fees over time. We also believe that the networks will mitigate the higher cost by raising ad rates. The largely younger male audience demographic, which is typically hard to reach, and unmatched size will continue to put upward pressure on the already premium ad rates. "What is interesting about portions of the extension is the flexibility of game selections for out of market games, even across conference lines," said Begley. This is now much more important given the dominant role that fantasy football is playing in how it has affected viewer habits. "There is now strong interest by viewing consumers well beyond what was typically only the local or regional team as they now seek out their fantasy players performance on other teams throughout the league, making the out of markets much more valuable than in the past," added Begley.

What is also unusual about the extension is that it comes on the heels of the recent broad economic recession, particularly a consumer-led recession which typically has a dramatic impact on advertising revenues. Historically, new contracts signed in sports rights after a recession have grown, but at consistently lower rates than those signed during expansionary economic environments. NFL contracts have not been an outlier on this point. Following the consumer-led recessions in the early 1980s and early 1990s, the contracts average annual broadcast rights fee rose only 11%, and 15%, respectively. Before, between and after those periods the average annual broadcast rights fee rose by over 100% from the prior contract. "While the new extension does not reflect that level of growth, it is far above the low double digit growth rates following past recessions and on a significantly higher rights fee base," said Begley.

Please see ratings tab on the issuer/entity page on Moodys.com for the last credit rating action and the rating history.

The principal methodology used in rating CBS was the Large Global Diversified Media Industry Methodology published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Earlier this year, we had estimated that the average annual rights fees would double to about $8 billion in a decade. This is quite a success for a league that averaged about $2.2 billion in average annual rights fees about a decade ago. The new extensions, as well as the recent announced ESPN (owned by The Walt Disney Company; A2, stable) broadcast rights extension do not quite get to the $8 billion, but the NFL also has a lucrative rights contract for a premium out of market game package with DIRECTV Group (Baa2, stable), which we anticipate will be extended at a similar or higher rate, and get the league close to that number by the last year of the extended contracts in 2022.

REGULATORY DISCLOSURES

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 31 January 2012. ESMA may extend the use of credit ratings for regulatory purposes in the European Community for three additional months, until 30 April 2012, if ESMA decides that exceptional circumstances arise that may imply potential market disruption or financial instability. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources.

However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst, and to the Moody's legal entity that has issued the rating.

Neil Begley
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

John Diaz
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's says the NFL Deal Is Credit-Positive For CBS, News Corp. and NBCUniversal When Considering the Alternative; Ratings Unaffected
No Related Data.
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