Bloomberg News

Time Warner Cable Makes a-la-Carte Proposal in CBS Dispute (3)

August 05, 2013

Time Warner Cable Inc. (TWC:US), which blacked out CBS Corp. (CBS:US)’s networks on its cable system last week after a breakdown in negotiations, said it’s willing to resolve the dispute by offering CBS’s channels on an a-la-carte basis.

Chief Executive Officer Glenn Britt said in a letter to CBS CEO Les Moonves that he would resume carriage of the broadcaster’s programming if stations are made available individually to customers. Subscribers could then choose which channels they wanted at a separate price for each, and the money would go directly to CBS, Britt said.

“This way, rather than our debating the point, we would allow customers to decide for themselves how much value they ascribe to CBS programming,” Britt said in the letter.

Time Warner Cable stopped broadcasting CBS to more than 3 million viewers in New York, Los Angeles, Dallas and other markets on Aug. 2. The two sides have sparred over the fees that CBS charges to retransmit shows over Time Warner Cable’s system, as well as other issues, such as how content can be streamed over the Internet.

Britt’s proposal is a “sham,” CBS said in an e-mailed statement. “Anyone familiar with the entertainment business knows that the economics and structure of the cable industry doesn’t work that way and isn’t likely to for quite some time.”

CBS’s networks include the Showtime and TMC premium channels, as well as Flix and Smithsonian, which are blocked from Time Warner Cable customers. Time Warner Cable is still airing the programming in parts of the country where it has agreements with the network’s affiliated stations. CBS said it had received Britt’s proposal today and was formulating a response.

‘Under the Dome’

The blackout is the first of its kind for CBS and is expected to become more noticeable this evening during the first prime-time weeknight. The popular “Under the Dome” series airs tonight, though the potential loss of CBS’s football lineup next month is a bigger threat, said Brad Adgate, director of research for media-buying agency Horizon Media Inc. in New York.

“They could ride this out for a few more weeks, but with the start of the football and broadcast seasons, there will be an outcry from subscribers to make a deal,” Adgate said in an interview.

The showdown pits the most-watched network against the second-largest cable company in the U.S. CBS is demanding $2 in fees per subscriber per month, up from about $1, according to two people familiar with the negotiations.

Seeking Compensation

Broadcast networks such as CBS, which offer programming free over the air, didn’t traditionally ask for fees to transmit their signals over cable networks. That changed in 1992 when the Cable Television Protection and Competition Act gave the networks the right to seek compensation from pay-TV providers.

Retransmission fees have steadily climbed since then, though they remain lower than those for popular cable channels. ESPN, owned by Walt Disney Co. (DIS:US), gets an average of $5.54 per subscriber each month from pay-TV systems and is attracting an average audience of 2.1 million this season, according to Nielsen. CBS, meanwhile, is drawing 10.6 million people over the same time period.

The talks also involve whether Time Warner Cable can deliver CBS content online both inside and outside the home -- for instance, via tablet computers -- said the people, who asked not to be identified because the discussions are private. Time Warner Cable and CBS have declined to comment on the revenue at stake in the negotiations.

Tiger Woods

Time Warner Cable subscribers affected by the blackout missed Tiger Woods winning the Bridgestone Invitational by seven strokes yesterday. The PGA Championship, the last major tournament of the golf season, begins in three days on CBS. “Under the Dome,” a series based on a Stephen King book about a mysterious force field that cuts off a small town from the rest of the world, airs tonight at 10 p.m. New York time.

CBS has said that Time Warner Cable cut off service to gain leverage at the bargaining table.

“There are no negotiations taking place at this time between CBS and Time Warner Cable,” the New York-based broadcaster said yesterday in a statement. “We remain ready to negotiate in good faith when they are.”

Rising Costs

Britt has been a critic of rising programming costs paid by TV distributors, and he’s attracted industry allies to his crusade. DirecTV, the largest U.S. satellite-television provider, said this weekend it supported Time Warner Cable “fighting back against exorbitant programming cost increases.” DirecTV had its own standoff last year, when it dropped Viacom Inc. networks for 10 days before reaching a $600 million deal.

“If there was ever a retrans battle for the distributor to fight, this is the one,” said Rich Greenfield, an analyst with BTIG LLC in New York. “This is a unique opportunity to push back for the subscribers.”

The two companies had extended their negotiating deadline several times before the blackout started. Programming in some areas was temporarily blocked on July 30 and restored about 30 minutes later after the companies agreed to keep talking.

The blackout is the first of a top broadcaster by a major pay-TV carrier in New York, the largest U.S. TV market, since Cablevision Systems Corp. shut down Fox for two weeks in 2010.

“We agreed to an extension on Tuesday morning with the expectation that we would engage in a meaningful negotiation with CBS,” Time Warner Cable said in an earlier statement. “Since then, CBS has refused to have a productive discussion.”

Highest Price

Shares of CBS, controlled by Sumner Redstone, fell 1.2 percent to $53.86 at the close in New York. The stock had reached its highest price in 13 years on Aug. 1 after the company reported an 11 percent increase in second-quarter profit. Time Warner Cable, which has about 12 million video customers, fell 0.6 percent to $116.42. The stock is up 20 percent this year.

As the most-watched television network, CBS ranks ahead of Comcast Corp.’s NBC, Disney’s ABC and 21st Century Fox Inc.’s Fox.

Time Warner Cable, based in New York, has encouraged customers to sign up with Aereo Inc. to watch CBS. Aereo is a startup service, backed by billionaire Barry Diller, that sells access to the broadcast networks online for $8 a month. Aereo, which pays no retransmission fees to broadcasters, is currently being sued by CBS.

Retransmission fees have become a frequent sticking point in negotiations between pay-TV providers and broadcasters, which historically provided their signals for free. Pay-TV operators will spend more than $3 billion in retransmission fees this year, according to data compiled by research firm SNL Kagan.

“CBS wants to be paid like a cable network,” Greenfield said. “Yet you don’t see ESPN putting their content over the air for free or on the Internet for free. They were looking for a big step up from Time Warner Cable.”

To contact the reporters on this story: Alex Sherman in New York at asherman6@bloomberg.net; Edmund Lee in New York at elee310@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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Companies Mentioned

  • TWC
    (Time Warner Cable Inc)
    • $150.45 USD
    • 1.57
    • 1.04%
  • CBS
    (CBS Corp)
    • $60.95 USD
    • -0.40
    • -0.65%
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