Time Warner Cable, MSG Win as Lin and Knicks Slide

NEW YORK ( TheStreet) -- A month after "Linsanity" hit its peak in the New York area, there is a trail of winners and losers on and off the court.   

During seven straight wins with Knicks phenom Jeremy Lin in the lineup, New York hoops diehards, fair-weather fans and even the governor were crying foul on a standoff between  Madison Square Garden ( MSG), the owner of the Knicks television rights, and  Time Warner Cable ( TWC), a powerhouse cable provider to the region.

While the standoff benched Lin in the living rooms of nearly 3 million local viewers, a truce brokered hours before the tip-off to Lin's eighth start may have been the high-water mark of Linsanity.

Jeremy Lin helped end a MSG and Time Warner standoff, but who won?  

Since MSG and Time Warner settled, the Knicks have cooled to a 6-9 record, but the best New York basketball story in a generation has created off-court financial winners and losers.    

"The timing went to MSG's favor," says Martin Pyykkonen of Wedge Partners, when reflecting on the programming settlement of Feb. 17. "It was not so great for Time Warner Cable to play hardball," he adds of the dispute, which started with the New Year and ended after a 48-day blackout.  

As 2011 drew to a close, MSG and Time Warner Cable were unable to come to terms on the price of a carriage renewal for the network that carries the Knicks and New York Rangers ice hockey team, causing a blackout of games to large chunks of New York.

Time Warner Cable argued that MSG was trying to extract an over-50% price increase, while MSG said that the rise was closer to 6%, fair compensation for the improving teams. Analysts say that the settlement was somewhere in between, with a Lin-fueled Knicks surge putting the ball in the court of MSG after Time Warner Cable began negotiations on the offensive.   

Time Warner Cable would have wanted to wait until March to cut a deal, when the NCAA men's basketball tournament pulls hoops viewers from the pro game to the college ranks, says Richard Tullo, a director of research at Albert Fried. Instead, Lin's play and heightened interest in the Knicks catalyzed a February deal, which Tullo calculates will net MSG a 19% price increase for 2012.  

Because terms weren't announced, earnings at MSG and Time Warner Cable will begin to reveal the pricing and impact of the deal in coming quarters. Ahead of the dispute resolution it was already clear that both companies needed to end their conflict, albeit for different reasons.  

As the distributor of the Knicks to millions of New Yorkers, Time Warner Cable represented a big MSG audience and a key to its subscription and ad revenue. In February first-quarter earnings, MSG reported an over 13% drop in revenue from 2011, largely a result of the NBA lockout. Without Time Warner Cable business, 2012 may have felt like a continued NBA lockout, making the impact of a prolonged dispute clear.  

In contrast, a lack of Knicks and Rangers games posed a more long-term threat of subscriber drain to Time Warner Cable. With the Knicks and Rangers only beginning to show signs of life after a lost decade, one would have assumed that MSG and its shareholders would be panicky. But with Lin in the lineup, MSG seemingly surged to new all-time highs with each victory, as investors speculated that fan excitement would force a high-priced deal, adding to benefits like record TV ratings, ticket price increases and merchandise sales.  

After the settlement, MSG reported that the first two games against NBA cellar-dwellers the New Orleans Hornets and New Jersey Nets drew in the highest ever regular season T.V. viewership. While wins didn't keep flowing in, a parade of good news continued for MSG.

In March, the company said it would lift Knicks season ticket prices by nearly 5% and tickets for the Rangers by nearly 10% for the 2012-13 season. In 2011, MSG asked fans to fork over a 49% Knicks ticket boost and a 23% bump for the Rangers.

New carriage deals with Time Warner Cable and Cablevision ( CVC) that escalate in price over the next five years will also give MSG stable revenue growth from cable systems that are nearly two-thirds of MSG's overall TV audience, according to Pyykkonen of Wedge Partners. That media unit should represent roughly 50% of the company's overall sales, giving it stable growth, he adds.  

All told, its no surprise even nonbasketball loving investors pushed MSG shares to new highs above $32 a share. With Lin in the lineup and the Rangers on track to post their best season since a 1994 Stanley Cup winning run, what could go wrong? More interesting is Time Warner Cable's 25% 2012 stock rise that's significantly outpaced a 15% gain for MSG.

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With an improving economy that should may give consumers the confidence to upgrade to premium cable packages, a standoff could have ruined what many see as a rising 2012 tide for discretionary spending. "Subscriber growth is going to be stronger than expected as it was last quarter because the economy is growing," says Tullo of Albert Fried.  

For Time Warner Cable, the Lin-fueled settlement ends the possibility that subscriber outflows would force the company to increase spending to attract new business. "It doesn't take a lot of subscribers to ruin a cable company's quarter," adds Tullo. The deal also lessens the possibility of customer acrimony. Already, Time Warner Cable is facing a multimillion-dollar lawsuit.  

So while Time Warner Cable may have lost in the carriage dispute, it's still set to benefit from increased certainty and subscriber demand. Meanwhile, MSG may see its earnings quickly righted.  

Prior to MSG's Lin-fueled run, the company reported better-than-expected cash flow but lower-than-expected sales. The sports segment reported a less-than-expected, $24.2 million loss on expenses tied to the NBA lockout.  

Time Warner Cable beat earnings estimates of $1.21 a share, according to Zacks, when it reported EPS of $1.39 on Jan. 26.  

TheStreet Ratings' price target is $92.13 for Time Warner Cable. Analysts polled by Bloomberg give MSG and Time Warner Cable $35.14 and $89 a share, respectively, as price targets have risen since mid-February.  

For more on sports investing and history on the Knicks standoff, see why sports are becoming a private-equity playground and how the blackout began with a Cablevision spin.  

For more on MSG shares see, top rated media stocks. To learn more about Time Warner Cable shares, see the highest dividend yielding media stocks.  

-- Written by Antoine Gara in New York

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