Bloomberg News

CBS CEO Moonves Attacks Time Warner Cable Plan Amid Blackout (2)

August 06, 2013

CBS Corp. (CBS:US) Chief Executive Officer Les Moonves rejected a Time Warner Cable Inc. (TWC:US) proposal to offer his channels a la carte on cable TV as “a public relations gesture,” escalating a dispute that led to a blackout.

Moonves responded today to a letter by CEO Glenn Britt after CBS called the plan a “scam.” Britt said yesterday he would resume using the broadcaster’s programming if stations were made available individually to customers. Subscribers could choose which channels they wanted at a separate price for each, and the money would go directly to CBS, Britt said.

“Are you really so reluctant to come to the same kind of agreement that we have struck –- without incident –- with every other cable operator, telco and satellite provider?” Moonves wrote.

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 New York-based 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.

CEO Answers

The a-la-carte proposal would “allow customers to decide for themselves how much value they ascribe to CBS programming,” Britt said in his letter.

Moonves challenged Britt by asking him why Time Warner Cable isn’t selling its regional sports networks in Los Angeles on an a-la-carte basis. Instead, Moonves said, all customers that receive basic cable pay at least $8 a month for the channels, “whether they want them or not.”

Time Warner Cable owns the rights to broadcast games of the National Basketball Association’s Los Angeles Lakers and Major League Baseball’s Los Angeles Dodgers, whose network will debut next year. The cable provider sells the networks to other pay-TV operators and includes them in their basic cable packages for Los Angeles subscribers.

“We view your so-called proposal, then, as nothing more than an attempt to muddy the water and confuse the public discussion,” Moonves said.

Time Warner Cable is “disappointed” that CBS offered no solution, Maureen Huff, a spokeswoman, said in an e-mail.

‘Under the Dome’

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.

The blackout, the first of its kind for CBS, entered its first prime-time weeknight last night. That meant viewers couldn’t watch an episode of the popular series “Under the Dome,” based on a Stephen King book about a mysterious force field that cuts off a small town from the rest of the world. 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 last weekend. The PGA Championship, the last major tournament of the golf season, begins in two days on CBS.

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

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 last 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.”

Extended Deadlines

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.

Shares of CBS, controlled by Sumner Redstone, rose less than 1 percent to $54 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 1.9 percent to $114.26. The stock is up 18 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.

Using Aereo

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 reporter on this story: Alex Sherman in New York at asherman6@bloomberg.net

To contact the editor responsible for this story: Kevin Miller at kmiller@bloomberg.net


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Companies Mentioned

  • CBS
    (CBS Corp)
    • $60.36 USD
    • -0.07
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  • TWC
    (Time Warner Cable Inc)
    • $147.52 USD
    • -0.48
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