What's Taking Time Warner and CBS So Long? | Adweek What's Taking Time Warner and CBS So Long? | Adweek
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What's Taking Time Warner and CBS So Long?

Carriage fight threatens to extend into NFL season

Photo: Getty Images

CBS made a point of announcing this morning that it had signed a three-year deal with Verizon for distribution over its FiOS TV service, which closed out the second quarter with 5.04 million subscribers. The subject line on the email was a pretty straightforward "everyone is happy and no one shouted" agreement declaration, but it might as well have said "at least someone's being reasonable."

Cable blackouts are just part of the landscape now—notable dustups in years past include the epic DirecTV-Viacom throwdown last year and then the Dish-AMC skirmish shortly thereafter. This week has brought us an AT&T-Al Jazeera America spat, and there are likely more to come.

But rarely do cable providers black out broadcast networks; rarer still do those blackouts stretch on for weeks, as the current disagreement between Time Warner and CBS has. In a memo to staff obtained by Adweek, Les Moonves vented his frustration with the cable provider, which provides every channel except CBS and Showtime to 3.2 million homes.

"I cannot describe to you the frustration I feel at the way these negotiations have gone," Moonves said. "Never in my most pessimistic moments did I ever think that they would have lasted this long and have been so difficult."

Moonves made a point of saying that Time Warner's demands were very different from the MSO's competitors "in many aspects of the deal" and professed himself "frankly mystified by what appears to be a lack of urgency to resolve this matter for their customers."

Let's be honest: This is, on some level, a bit of theater, perhaps not quite on a par with Glenn Britt's "open letter" in which he suggested that CBS provide its service a la carte (we're on record about the merits of that notion). But Moonves isn't wrong that this is an unusual sitiation. So what's the hold-up? Consider three possible explanations:

1) Plenty of people can just turn off their cable boxes and pick up CBS with an antenna. Sales of digital antennas are up in Dallas, New York and Los Angeles, Radio Shack told Multichannel News. Time Warner, obviously, feels that the clock isn't ticking on this dispute in the same way it might if its customers were missing, say, new episodes of Breaking Bad; even if the dispute does continue into football season, it won't have the same impact of blacking out a pure cable network.

2) Time Warner is serious about cutting costs through whatever means necessary, and that includes cutting features, raising prices and, obviously, wars of attrition with content publishers. The U.S. cable market is mature, and Time Warner is a publicly traded company. It has to show year-over-year increases in profits in order to keep paying out dividends, and there's nowhere else to expand. Retrans fees are consistently on the rise, and they've been a sore spot with MSOs since they came into being in 1992; the content used to be free, and now it's getting less free all the time.

3) Among broadcasters, CBS has the smallest number of sister cable channels to leverage in a fight like this—there's only premium cable net Showtime. Showtime isn't insignificant, of course, especially not with its boxing package—fans are already biting their nails about the Sept. 14 Mayweather-Canelo match, and that's the sort of thing that could shift subscribers over to a service like good cop FiOS. But in the broadcasting pantheon, pretty much everyone else can strong-arm an MSO into signing a hefty retrans hike without too much trouble. NBC has high-rated cable networks like USA and Bravo alongside niche networks such as Syfy and E!; ABC has the Disney family of cable nets and the vital ESPN; Fox has powerhouses like FX and the upcoming FS1. Granted, not all these networks even share a division, but you can bet they're all on the table when it comes to making these deals. If half your cable package goes dark when you black out a broadcast network, you're in a hurry to patch things up with them.

There are signs that the freeze may be thawing. The blackout will be temporarily lifted in New York for some WCBS programming so that locals can watch the debates in the races for mayor and comptroller (both hotly contested seats). But the substance of the conflict seems to be digital rights, and CBS has historically been savvier than its contemporaries with regard to the value of digital editions of its shows (I can only watch Star Trek on Netflix as of last year).

There's been plenty of press around CBS' maintenance of its No. 1 position in the ratings, but that misunderstands the most fundamental factor about retrans. It's an effort to make broadcast a dual-revenue stream business just like cable. That its ratings aren't going down is not, actually, that great a thing for CBS; it means people aren't bothered that they can't get the network on cable, and that's where it needs to amp up distribution if it, too, will keep showing shareholders progressively more greenbacks each quarter.

Time Warner continues to lose the PR war, as is customary for cable operators in this situation. It's not losing many subscribers yet, but as new services like FiOS and Google Fiber penetrate markets that established companies have dominated for decades, spats like this may really begin resulting in lost subscribers. That, in turn, may drive your bill up even higher.

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