Jan. 3 (Bloomberg) -- Current TV, the network co-founded by former U.S. Vice President Al Gore, was sold for about $500 million to Al Jazeera, the Qatar-based cable-news channel, according to two people with knowledge of the deal.
The price tag represents an eightfold increase from the $60 million Gore and his partners paid in 2004 for the channel that became Current TV, said one of the people, who asked not to be named because the terms are private. Gore, chairman, and Joel Hyatt, co-founder and chief executive officer, announced the sale yesterday in a statement without providing financial terms.
While the purchase gives Al Jazeera access to the biggest U.S. pay-TV carriers for the first time, it will have to improve on Current TV’s viewership to have staying power. Time Warner Cable Inc., the second-biggest U.S. cable carrier, is already dropping Current TV as part of a strategy to eliminate low-rated channels. The network averaged about 42,000 prime-time viewers last quarter, according to Horizon Media Inc.
“It’s a pretty risky deal for them,” said Derek Baine, an SNL Kagan cable analyst in Monterey, California. The $500 million price “sounds high.”
While Al Jazeera’s English network, started in 2006, reaches 250 million households in 130 countries, the U.S. represents only a small fraction of that audience. Al Jazeera said it will replace Current TV’s shows with its own this year, doubling its U.S. staff to 300, with headquarters in New York.
“Current Media was built based on a few key goals: to give voice to those who are not typically heard; to speak truth to power; to provide independent and diverse points of view; and to tell the stories that no one else is telling,” Gore and Hyatt said in the statement. “Al Jazeera, like Current, believes that facts and truth lead to a better understanding of the world around us.”
In the U.S., Al Jazeera’s English-language network is carried on seven pay-TV providers, including small carriers such as Ohio’s Buckeye CableSystem and Vermont’s Burlington Telecom, according to its website. It reaches 4.7 million households, said Stan Collender, a spokesman for Al Jazeera with Qorvis Communications LLC.
Current TV will be available to about 40 million U.S. homes after Time Warner Cable stops airing the channel, Al Jazeera said. It continues to be carried by Comcast Corp., DirecTV and Dish Network Corp., the three largest U.S. pay-TV operators.
That audience could be at risk for Al Jazeera if other carriers follow Time Warner Cable’s decision to stop carrying Current TV with the ownership change. A selection of Al Jazeera English programming is already available to New York residents on Time Warner Cable on the Rise network through a deal with Regional News Network.
“Our agreement with Current has been terminated and we will no longer be carrying the service,” Time Warner Cable, based in New York, said in an e-mailed statement. “We are removing the service as quickly as possible.”
Current TV’s average prime-time audience in the fourth quarter of 2012 of 42,000 viewers compares with 896,000 for Time Warner Inc.’s CNN and 2.48 million for News Corp.’s Fox News, according to Brad Adgate, senior vice president of research at Horizon Media Inc.
Time Warner Cable, which provides 12.3 million households with cable TV, pays about 12 cents a month for each Current TV subscriber, or $17.7 million a year, according to the media research firm SNL Kagan.
Since Fox News has about 60 times as many viewers as Current TV, it would be getting $7.14 a month if it was paid at the same rate as its smaller competitor. Instead, it gets 94 cents a month. Walt Disney Co.’s ESPN gets the highest subscriber fees on cable TV, at $5.26 a month.
Time Warner Cable has been monitoring Current TV’s ratings for months, according to a person familiar with the situation. Terms in Current TV’s contract with the cable provider mandate the cable network stay above a Nielsen ratings threshold, and the channel has been “on the bubble,” the person said.
Time Warner Cable CEO Glenn Britt said last month that his company would take a harder line on renewing channels with low ratings. Time Warner Cable’s programming costs have risen about 30 percent since 2008, leading to a 15 percent increase in cable-TV prices, Britt said at an investment conference. The trends are unsustainable because prices are rising too quickly for many people to afford, he said.
Current TV generated operating cash flow of $16.3 million on revenue of $108 million last year, according to SNL Kagan. Collender declined to comment on the price Al Jazeera paid for the network.
Current TV’s investors included funds controlled by Los Angeles billionaire Ron Burkle and San Francisco money manager Richard Blum, according to a 2008 Securities and Exchange Commission filing when the company unsuccessfully sought to sell stock to the public. Blum is married to U.S. Senator Dianne Feinstein, a Democrat from San Francisco.
The owners introduced Current TV in 2005 after purchasing the network from Vivendi SA.