CBS vs. Time Warner Cable: what’s at stake

CBS and TWC have settled their differences, but only after a month-long blackout of CBS (and Showtime) on TWC.

The dispute got ugly as time passed.  Toward the end, CBS personalities were appearing in ads offering to help TWC customers switch to other providers.  TWC was helping introduce customers to Aereo, the antenna company, as an alternate source of CBS content.  (The latter seems to me to have a strong shoot-yourself-in-the-foot aspect to it, although the networks hate/fear Aereo, so maybe it did something.)

According to SNL Kagan, the media guru that’s the source of most of the hard data in this post, in New York City, Verizon FIOS boosted its customer base by 16%+ during the struggle, presumably all coming from TWC.

The ferocity of the dispute and the length of time it took to resolve indicate the core issue–retransmission consent–is a key subject.  I think negotiations also underline the precarious position of the traditional cable content sales model.

background

Cable companies pay the traditional free over-the-air broadcasters for permission to retransmit network content to cable subscribers.  NFL football is probably the most important item, since lots of people watch.  They watch it live, too–commercials included.  For a long time, the networks regarded the fees they got as “found” money.  All they really cared about was ad revenue.

Not any more.  Over the past few years, as ad revenues have begun to wane, networks have become increasingly aggressive in pushing retransmission payments up.  In the aggregate, the ota networks will collect about $3 billion in retransmission fees in 2013.  That could balloon to $12 billion five years from now.

CBS vs. TWC

According to SNL Kagan:

–CBS had been charging  TWC $.65 – $.75 per subscriber per month for retransmission consent.  It was aiming to raise that to $2/sub/month by 2018

–the reason the previously doggy local affiliate stations are being scooped up in large numbers by predators is their share of the retransmission loot.  SNL estimates that local stations’ share of retransmission revenues has risen by 50% since 2011 and now accounts for a third of EBITDA for many of them.  The way things are going, retransmission will be the dominant source of income for them before the decade is out

TWC was ok with $2 a subscriber/month.  Digital rights were the main sticking point.  “Digital rights” is a broad concept.  It covers on-demand rights and online rights–everything from on-demand over the internet, to ads in on-demand, to fast-forward disabling of broadcast content.  During the years when it wasn’t paying much attention, CBS had apparently granted TWC wide latitude in this area for free.  Now it wants those rights back–presumably so it can charge extra for them in later contracts with cable operators.

no one’s leaking settlement details

That suggests that one party made the lion’s share of the concessions.  My money would be on CBS having come away from the table as the big winner, if I had to make a bet.

a tipping point for cable?

As monthly cable/broadcast satellite/telco video bills approach $100 a month, subscribership is beginning to decline, albeit slowly.  Although an extra $1.50 a month doesn’t sound like much–$6 a month when multiplied to account for all the major ota networks–passing along these new costs may trigger a disproportionately large loss of subscribers.

Cable’s response?

The nuclear option, to put little ota antennas in cable boxes, is probably too expensive.  Partnership with Aereo would be iffy, given the unclear legal status of the service (a Federal court in New York has ruled in favor, one in California has ruled against).

Maybe the retransmission issue forces a rethink of cable’s whole current pricing philosophy.

 

 

 

 

 

 

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