Behind the Time Warner-MTV Tussle


MTV Networks' Jan. 1 plan to pull channels off Time Warner Cable may portend more distribution-fee battles between cable programmers and operators

The free fall in advertising spending and the desperation by television programmers to boost revenues from distribution fees is certainly a major factor in the dispute between MTV Networks (VIAB) and Time Warner Cable (TWC). The standoff will most likely result in MTVN pulling its 19 channels from Time Warner's systems across the country at midnight on Jan. 1. "We sympathize with the fact that [MTVN parent] Viacom's advertising business is suffering and that their networks' ratings have largely been declining," Time Warner Cable Chief Executive Officer Glenn Britt said Wednesday in a statement. "However, we can't abide their attempt to make up their lost revenue on the backs of Time Warner Cable customers."

What is also fueling the fight—and may foreshadow similar battles in the new year—is a growing animosity by cable operators toward programmers. For the past year or so, cable operators have watched as programmers increasingly hand over full episodes of shows to video Web sites such as Hulu, Joost, and Sling.com. The programmers often share in advertising revenue from those sites. The cable guys, of course, get nothing.

Britt has been particularly outspoken about his conviction that cable operators should get more digital rights to shows. He has said that because Time Warner Cable subscribers essentially pay for shows through their monthly bills, they are "entitled" to receive the programs on any platform they want, whether it's on the web or through video on demand. Being able to stream TV programs on their own high-speed Internet services (Roadrunner, in Time Warner's case) will become an increasingly big issue for cable companies as they negotiate distribution deals. MTVN faces another round of talks in January, when its current deal with satellite service Dish Network (DISH) expires. Comcast (CMCSA), the nation's largest cable operator, has already negotiated the rights to some shows for its video portal, Fancast.

How Much Is Bluster?

As in most of these distribution deals, the negotiating tactics are just emerging. It looks as if David Zaslav, CEO of Discovery Communications (DISCB), is trying to set a tone ahead of new distribution deals for his collection of cable channels, which include TLC, Animal Planet, and Discovery. Zaslav—who ironically played an early role in developing Hulu while as an executive at NBC Universal—now says he doesn't believe there is a lucrative business model for full episodes of TV shows online. It sure sounds as if he is trying to send a message to cable operators that online video is not a business they want to be in, even though they're clearly itching to put more shows online.

But given the pressures the dismal advertising climate is placing on programmers, they might ultimately be willing to give cable operators what they want in order to collect their asking price on distribution fees. It's not clear whether this might mean they'd provide less programming to sites like Hulu to further appease the cable operators.

In the current dispute, MTVN says it is seeking an increase of less than 25¢ per subscriber per month and claims its channels, such as Nickelodeon, VH1, and Comedy Central, have been undervalued for years. Time Warner Cable says it is outrageous for MTVN to ask for an increase at a time when the economy is putting the pinch on consumers. In turn, MTVN has begun an aggressive advertising campaign encouraging its viewers to call Time Warner Cable and complain.

MTV Networks seems determined to let their channels go dark for Time Warner Cable's 13 million TV subscribers, many in big cities such as New York and Los Angeles. The company rejected an 11th-hour offer from Time Warner Cable to continue airing the channels while the sides negotiate, says a Time Warner Cable spokesman. "If we were involved in a good-faith negotiation, we, of course, would have granted an extension," responds an MTVN spokeswoman.

Lowry is a senior writer for BusinessWeek in New York.

The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus