CBS Corp., which is the parent company of CNET, has been negotiating a new carriage pact with Time Warner Cable, with a key deadline coming later Monday. As is typical in these kinds of discussions, the two sides are locked in a brinksmanship that could result in some subscribers losing programming if they can's come to an accord. It's by no means the first such dispute between a television programmer and a television distributor, but some elements make this face-off different, and a blackout could have implications for TV providers in the digital realm.
What are the two sides fighting over?
At the core, Time Warner Cable and CBS are in a standoff over retransmission consent fees, a system put in motion by Congress in the 1992 United States Cable Television Protection and Competition Act. The broadcast networks are free to see over the air, but the act requires cable operators and other pay-TV providers to ask broadcasters for permission to carry that programming -- in other words, they need to get consent for retransmission. It also allowed broadcasters to ask the distributors, like a cable company, to pay for carriage, hence the fees.
Retransmission fees have become a major source of revenue for broadcast TV networks. Broadcasters need them, they argue, to cover the costs of creating and offering their programming, especially expensive live programs such as national sports events. Enjoying the lucrative stream of revenue, they've worked to amp up the fees whenever a carriage agreement comes due. That's all while cable-network programmers are also demanding higher prices for their channels, clumping in less-watched channels with the top-tier ones that subscribers demand.
The result is higher and higher costs for pay-TV providers, which they've dealt with by passing along costs to customers in the form of higher bills.
The retransmission consent system has come under criticism for just this reason. Regulators and lawmakers both have complained about the cost to the consumer -- in 2010, the Federal Communications Commission said it would look into new rules to prevent broadcast blackouts like the one possible Monday, but so far, little has changed.
What could happen today?
Time Warner Cable and CBS Corp. are coming up on a deadline to reach a fee agreement, after extending their negotiations multiple times already. Their pact expired June 30, and since then, the two sides have been working on a new deal, progressively tacking on more days to hammer out an agreement as each deadline approached. The latest extension is set to expire at at 8 p.m. ET/5 p.m. PT Monday, a 3-hour reprieve.
One of three things is most likely to occur. The two companies can kick the can down the road again and agree to another deadline extension, which would let them continue hashing out their differences on fees. On the other hand, they could reach an agreement that prevents disruption of service. But if Time Warner and CBS can't agree on either of those options, then some Time Warner subscribers will lose CBS and possibly other channels owned by the company as part of their cable package. (It's important to note that anyone can pick up broadcast channels over the air with an antenna for their TV, and some TVs have them built in.)
The two sides need each other. Time Warner can't stand to lose CBS -- the most watched television network in the country -- permanently, and CBS needs the distribution in the major markets that Time Warner provides. For those reasons, they'll need to come to an agreement eventually. The question is when. CBS's first NFL broadcasts come in late August, with the fall television season right around the corner the following month.
What programming is at risk and for whom?
Only some Time Warner Cable subscribers are at risk of losing CBS as part of their cable package. Primarily, its customers in New York, Los Angeles, and the Dallas/Fort Worth area, along with a handful of other cities where Time Warner is not the primary cable operator. In all, it represents about 3 million subscribers, or roughly a quarter of Time Warner's entire base.
But CBS channel Showtime is also under discussion. And that could affect the entire TWC footprint.
Has this kind of blackout happened before?
Yes -- and no. These disputes come up regularly, and they occasionally result in blackouts. Last year, for example, Cablevision lost Tribune Co. stations in parts of New York City, Connecticut, New Jersey, Denver, and Pennsylvania for two months until they settled their differences. But CBS has never allowed its station to go dark on pay-TV companies lineup before, and it has been the side most active in pursuing extensions. The fact that the latest extension was only a three-hour bump could indicate the two sides are close and only need a little more time.
What are the arguments Time Warner and CBS are making?
Time Warner said CBS is asking for a 600 percent markup on fees compared with what it pays in the rest of the country, an unreasonable and unprecedented price that it is negotiating down on behalf of its customers. From the Time Warner Web site explaining its stance:
CBS is asking us to pay 600% more to buy their programming directly from them in New York, Los Angeles and Dallas than we pay to buy their programming from other companies in dozens of other cities across the country.
That's wrong. It's unreasonable to expect our customers to pay a 600% premium in a handful of cities, and so we are negotiating very hard for a reasonable price.
This is not a standard debate over price increases. This is different. CBS's demand for a 600% premium is unprecedented.
CBS said Time Warner Cable won't negotiate the same sort of deal that all other cable, satellite, and telecommunications companies have struck with the network. It also has a site set up to encourage viewers to contact Time Warner Cable about keeping coverage. In a letter last week, CBS Chief Executive Officer Les Moonves wrote:
It's not like Time Warner Cable doesn't have the money. Cable is a very, very profitable business, and Time Warner Cable can certainly afford to pay CBS a fair rate for our programming without passing any added cost on to its customers. According to its own billing statements, it is already charging its subscribers more than $20 a month for broadcast programming. CBS only realizes a tiny fraction of that, as do other broadcasters, and our costs for programming, news operations and sports contracts are growing all the time. In order to invest in this premium content, we need to be paid fairly for it. Yet we receive far less than channels that have nowhere near our popularity. That makes no sense.
It they can't reach a deal, both sides -- and consumers -- stand to lose. Who stands to gain?
A blackout could encourage consumers to try more online options for watching television, with Amazon and Aereo key players poised to benefit.
Earlier this year, CBS made a broadcast first in licensing "Under the Dome" episodes to Amazon Prime Instant Video only four days after the original airing. The show has since become a summer hit, topping prime-time broadcast ratings since it premiered. It's also been popular online. Amazon has said first episode of "Under the Dome" was the most-watched TV premiere ever on Prime Instant Video, and that the program continues to be watched by more customers than any other series on its instant streaming service. Should millions of viewers lose access to television's most-watched program at the moment, it puts Amazon in a plumb position to benefit as the exclusive provider of it online.
But it's important to note that for three days after viewing, the show is available on CBS.com without having to prove you subscribe to any particular pay-TV service.
The availability of all CBS programming elsewhere, like on Aereo, enhances Time Warner's leverage in the talks, even if it runs the risk of
Aereo, the service that streams over-the-air broadcasts on the Internet, is already operating in New York and is planning a launch in Dallas this year. With a one-month free trial, that provides Time Warner Cable subscribers affected by the CBS blackout with immediate access to the lost programming and a cloud DVR to record it. Dallas timing is uncertain, but, if Aereo launches before the fall TV season starts in late September, it could be a major benefit to Time Warner Cable in the talks.
Time Warner Cable has gone so far as encouraging its subscribers to look into Aereo as an alternative way of watching CBS should a blackout occur. It's an eye-raising move for a company that faces the phenomenon of cord-cutting, when a customer opts to forsake high-priced pay-TV packages for cheaper online options instead.
But just as likely, it was a jab at CBS, aimed for where it would really irk the broadcaster. CBS has been among the most vociferous opponents of Aereo, and it is one of the leading members of a team of networks suing the company, claiming it is circumventing the very retransmission fees that TWC is fending off.