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CBS, Time Warner Cable talks grow ugly

A showdown between the broadcast network and the cable provider over fees could cause programming to go dark in some of the country's biggest cities, which would be good for few but Amazon and Aereo.

CBS's "Under the Dome" has been the top prime-time show on broadcast TV. CBS

Time Warner Cable subscribers, if you're an "Under the Dome" fan in one of the country's biggest cities, you may want to start considering whether Amazon Prime and Aereo are right for you.

CBS Corp., which is the parent company of CNET, has been negotiating a new carriage pact with Time Warner for its flagship network under an extension to their previous agreement that expired June 30. In the first sign that talks are heading south, CBS started running ads in New York, Los Angeles, and Dallas on Thursday saying Time Warner Cable customers could lose access to its shows on Wednesday, which is when that extension expires.

Disputes like this between TV broadcasters and distributors are intensifying. The networks' desire to amp up a lucrative stream of revenue -- retransmission fees -- clashes with pay-TV providers' need to beat down their sky-high subscriber rates that are fanning the flames of cord cutting, when customers turn to cheaper online options like Netflix that bypass the cable box.

The Time Warner Cable customers at risk of losing CBS programming are located primarily in those cities, which analysts estimate represent anywhere from 25 percent to 29 percent of TWC's subscriber base. CBS-owned channels Showtime and TMC are at risk for all the cable operator's subscribers.

Both sides pointed fingers at the other. Time Warner said CBS is asking for a 600 percent markup on fees compared to what it pays in the rest of the country, an unreasonable and unprecedented price that it is negotiating down on behalf of its customers. 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.

The ad campaign comes after CBS offered another deadline extension Wednesday that Time Warner declined, according to a source close to CBS. Time Warner said its focus right now is on reaching an agreement before the first extension lapses, but it would consider another delay to the deadline.

If they can't come to terms, the losers would be about 3 million viewers. The situation has arisen before -- Viacom channels went dark on DirecTV for more than a week last summer because of a fee increase standoff -- and it outraged consumers.

Marci Ryvicker, a media industry analyst at Wells Fargo, noted that the face-off between Time Warner Cable and CBS is unusual. Though other disputes between networks and cable companies have resulted in dropped stations, she couldn't recall a single time that CBS went dark. And the ball is in CBS' court, she says in a note. "Content tends to have the upper hand in these disputes," and CBS gets even more leverage from its No. 1 position in ratings and its clutch on NFL broadcasts coming in late August. Ryvicker also noted TWC's unsteady position during an operational transformation, while it also defends against a potential takeover.

However, another media expert -- analyst Richard Greenfield at BTIG Research -- noted the changing technological landscape may have shifted the odds in Time Warner's favor.

Amazon and Aereo, the online streamer of over-the-air broadcasts, are the reason.

A CBS ad says its shows are held hostage by Time Warner Cable.
A CBS ad says its shows are held hostage by Time Warner Cable. CBS

CBS is home to "Under the Dome," the hit summer show based on Stephen King's book. Earlier this year, CBS made a broadcast first in licensing "Under the Dome" episodes to Amazon Prime only four days after the original airing.

The show has topped prime-time broadcast viewership since it premiered, according to Nielsen figures. It has been an even bigger hit when including delayed and online viewing. Its average audience jumps by nearly 6.5 million viewers to almost 20 million people by including seven-day DVR playback, video-on-demand, and online streaming with the traditional live and same-day viewing figures.

And that doesn't even include Amazon.

The e-commerce giant doesn't disclose streaming stats, but it has said that the 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.

Amazon didn't respond to messages seeking comment for this article, but millions of viewers losing access to television's most-watched program put it in a plumb position to benefit as the exclusive provider of it online.

The licensing pact with Amazon would also provide a commercial cushion for CBS if the Time Warner argument comes to a head. The streaming video-on-demand deal guarantees syndication revenue for "Under the Dome."

But the availability of the program elsewhere, like on Aereo, enhances Time Warner's leverage.

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, BTIG analyst Greenfield noted. 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, he said in a note.

Aereo Chief Executive and founder Chet Kanojia said the standoff between Time Warner Cable and CBS "is nothing new for consumers" and "further highlights the importance of having alternatives in the marketplace."

And if it's true the enemy of an enemy is a friend, then Aereo and Time Warner Cable should be good chums. CBS and a team of other networks are suing Aereo, claiming it is circumventing the very retransmission fees that TWC is fending off.

Updated at 2:18 p.m. PT with comment from Aereo.