Bundle Battles

The CBS Standoff and the Enduring Beauty of Bundled TV


The CBS Standoff and the Enduring Beauty of Bundled TV

Photograph by Jason Stang/Corbis

The dispute between CBS (CBS) and Time Warner Cable (TWC) is now being waged as an exchange of letters between CEOs, both of whom want to appear hurt—deeply—by the other.

CBS Chief Executive Officer Les Moonves wrote today to Glenn Britt, his counterpart at Time Warner:

“I was surprised to get your letter yesterday, particularly since I hadn’t spoken to you in more than a week. Come to think of it, you haven’t reached out to me personally, as I have to you on more than one occasion, even once during this entire matter, so your communication was both unexpected and welcome. The fact that you released it simultaneously to the media, however, dampened my enthusiasm somewhat.”

The cable company stopped carrying CBS channels on Friday in several major markets, including New York, Dallas, and Los Angeles, in a spat focused largely on two areas: the price Time Warner Cable should pay to include CBS, and whether cable subscribers will be allowed to watch CBS programming on their mobile gadgets. There’s little enthusiasm from either side for more negotiations. Britt, who retires at year’s end and is seen as a pioneer in the industry, may well be considering his legacy in battling the rising flood of programmers’ fees that bedevil cable operators. For its part, CBS—the highest-rated broadcast network, with such shows as 60 Minutes, NCIS, and Under the Dome—is seeking to boost its carriage revenue to $1 billion by 2017.

In his letter to Moonves on Monday, Britt proposed that both sides stop their squabbling and make CBS an “a la carte” choice for subscribers at a price set by the network, “with 100 percent of that price remitted to CBS. This way, rather than our debating the point, we would allow customers to decide for themselves how much value they ascribe to CBS programming.” He also decried as “beyond the pale” CBS’s decision to block its online content from Time Warner Cable’s Internet customers.

Moonves’s response:

“Anyone familiar with the entertainment business knows that this is an empty gesture. The economics and structure of the cable industry have created a certain way that content is distributed and compensated. We both know that a true a la carte universe is not one that Time Warner Cable welcomes. In fact, if you thought it was a good idea, why aren’t you offering your new, multibillion-dollar Lakers and Dodgers channels to your subscribers in Los Angeles on an a la carte basis? Instead, your subscribers in Los Angeles are already being charged in the neighborhood of $4.00 for the Lakers and likely more than that for the Dodgers—both of which you have pulled off broadcast television entirely.

The “certain way” Moonves referenced—program bundles from entertainment companies such as CBS, 21st Century Fox (FOXA), and Walt Disney (DIS)—led Cablevision (CVC) to sue Viacom (VIA) in February on antitrust grounds. The Long Island-based cable operator argues that it’s been forced to carry Viacom offerings its subscribers don’t want to fund—VH1 Classic, Palladia, and CMT among the dregs—so that it could obtain “commercially critical networks” such as Comedy Central, MTV, and Nickelodeon. (Viacom has six MTV and four VH1 permutations, according to the lawsuit.)

Rich Greenfield, a veteran media analyst with BTIG Research, says there’s “zero chance” content producers like CBS will abandon the bundled-channel model that has proved so lucrative for so many years. “You start picking and choosing, and all of a sudden your reach” with advertisers diminishes, he says, as the size of cable viewing audiences declines.

The bigger question, according to Greenfield, is whether federal regulators will get involved. That could “force CBS to cave,” he says, otherwise the standoff could “drag until late September when Time Warner is forced to cave, when the programming becomes too valuable.” A spokeswoman for the Federal Communications Commission says the agency would become involved in the dispute if one side files a complaint about the other not negotiating “in good faith.”

Paul Sweeney, a media and Internet analyst with Bloomberg Industries, predicts no traction for an a la carte pricing model until cable subscribers—who typically pay $75 to $90 per month for video and broadband Internet—revolt over the rising costs. “It does not appear that we are there yet,” he wrote in an
e-mail.

If nothing else, the start of the NFL season next month could alter the balance of the money fight and make Time Warner Cable shut up and pay. No company gets between a football fan and the game. Even then, however, there’s that ancient method of watching even digital TV broadcasts from networks like CBS: a $5 rabbit-ear antenna.

Bachman is an associate editor for Businessweek.com.

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Companies Mentioned

  • CBS
    (CBS Corp)
    • $55.98 USD
    • 0.28
    • 0.5%
  • TWC
    (Time Warner Cable Inc)
    • $152.83 USD
    • 1.68
    • 1.1%
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