Companies & Industries

The CBS Blackout Was a Horror Show for Time Warner Cable


The Dallas Cowboys play against the Houston Texans during a preseason game on Aug. 29

Photograph by Ronald Martinez/Getty Images

The Dallas Cowboys play against the Houston Texans during a preseason game on Aug. 29

Despite Breaking Bad and Game of Thrones, Americans still really like their David Letterman, Price is Right, and preseason football. Time Warner Cable (TWC) lost almost 3 percent of its TV subscribers in the recent quarter, a period that included a month when it didn’t broadcast CBS (CBS).

As the TV giants faced off over how much TWC would pay to carry the network, CBS went dark for some 3 million cable customers in New York, Dallas, and Los Angeles. In early September, when fall premieres and the NFL season were nigh, CBS prevailed with a simple negotiating approach: “This will hurt you more than it hurts me”—a line of thinking proved abundantly accurate by this morning’s dismal report from TWC.

The wide-reaching consequences of the fee dispute pushed Time Warner’s profit down 34 percent, to $532 million, in the recent quarter. The company also lowered its revenue forecast for the year.

“Just horrible,” MoffetNathanson analyst Craig Moffett wrote in a note this morning. “The CBS dispute apparently took a much larger toll than anyone would have imagined, and this colored all of the results.”

In the end, TWC agreed to pay significantly more than its prior rate for the right to beam CBS signals, though not quite as big an increase as the network was seeking.

Just as troubling, the country’s second-largest cable company also lost 9,000 high-speed Internet customers in the recent quarter and some land-line phone business. That suggests that the departing cable subscribers had bought services in bulk—Time Warner’s “double-play” or “triple-play” packages.

The extent of the damage may not be entirely clear until the next round or two of negotiations between cable companies and networks. Time Warner’s line in the sand could not have played out worse for the cable business at large. It not only failed to suppress the price of network feeds (known as carriage fees); it also created a solid test case that shows how much viewers value TV’s incumbent, big-four channels, in addition to their Homeland and Mad Men.

“Every cable operator now goes to the table knowing that CBS not only won the war, but left TWC badly damaged for having fought the fight,” Moffett wrote.

Time Warner argues that it had little choice but to stand firm. “In the end, the deals we reached were far better than where we started,” Chief Operating Officer Robert Marcus said on a conference call with investors this morning.

The legacy for cable customers, meanwhile, is less clear. If the TWC standoff leads to higher carriage fees across the board, cable rates could climb. But that’s another fee negotiation—albeit a less direct one—that TWC might not want to have. Like CBS, plenty of TV fans have already proved they’re willing to walk away.

Kyle-stock-190
Stock is an associate editor for Businessweek.com. Twitter: @kylestock

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Companies Mentioned

  • TWC
    (Time Warner Cable Inc)
    • $143.59 USD
    • -1.39
    • -0.96%
  • CBS
    (CBS Corp)
    • $53.7 USD
    • -0.62
    • -1.15%
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