As Time Warner Cable (NYSE:TWC) and CBS (NYSE:CBS) continue to battleover programming costs, perhaps the biggest question facing both sides is coming due.
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Are you ready for some football?
It doesn’t come as a surprise to most the fight over retransmission fees, or how much the cable operator should pay CBS for its programming, has lingered until football season officially kicks off. Some analysts speculated early on CBS could look to use the National Football League’s opening Sunday, as well as the start of NCAA football this Saturday, as extra leverage in the negotiations.
But it remains to be seen whether football will provide the final bit of motivation for the two companies to come to an agreement, or if they feel comfortable punting a deal and risk angering fans in New York, Dallas and other markets.
“The NFL is the biggest ratings event in all of television,” said Neal Pilson, founder of Pilson Communications and the former president of CBS Sports. “NFL football is a pretty important property in those cities.”
The battle between Time Warner Cable and CBS began one month ago, spurring a blackout of the namesake network, Showtime and TMC for about 3.5 million Time Warner Cable subscribers in New York, Los Angeles, Dallas and other markets.
Last week, CBS announced a new carriage agreement with Verizon Communications’ (NYSE:VZ) FiOS. Chief Executive Les Moonves said at the time that Time Warner Cable “has been offered almost exactly the same deal for CBS carriage to which Verizon has agreed.”
Pilson added he suspects CBS and Time Warner Cable will settle their dispute before the games on Sept. 8 get underway. If not, it would certainly be a “major inconvenience” for fans in blacked-out markets.
Pigskin Pressure Building
Things could heat up starting this weekend, when CBS airs the first weekend of college football. Then on Sept. 14, CBS has a much-anticipated football game between Texas A&M and defending national champion Alabama.
Next weekend is the start of the NFL season. CBS has games featuring the New England Patriots, Indianapolis Colts and others. And on Sept. 15, the network has rights to the “Manning Bowl,” a matchup of sibling quarterbacks, Peyton Manning of the Denver Broncos and Eli Manning of the New York Giants.
Meanwhile, U.S. Open tennis is already underway. CBS, in addition to other networks, is airing matches from the tournament. Before the U.S. Open got underway, Time Warner Cable announced it would give subscribers in blackout areas a free preview of the Tennis Channel.
Even if a deal isn’t reached in time, the sports fanatics among Time Warner Cable’s customers have other options to watch football.
Consider top-rated CBS is an over-the-air broadcast network, meaning anyone with a television can purchase an antenna to watch CBS, or 21st Century Fox’s (NASDAQ:FOXA) FOX and Comcast’s (NASDAQ:CMCSA) NBC, all of which air NFL games. Time Warner Cable, the second-largest U.S. cable operator, is offering its customers a credit for the purchase of an antenna.
21st Century Fox is also the parent company of FOX Business.
Amy Yong, an analyst at Macquarie Research, noted Time Warner Cable has suggested its customers use Aereo, a controversial service that streams over-the-air networks on Internet devices.
“Broadcast networks are available on a few alternatives, which could allow Time Warner Cable to stick to its negotiating tactics,” Yong said.
She added in New York, Time Warner Cable is likely the only provider in many apartment buildings, making it difficult for consumers to switch providers. The lack of alternatives to Time Warner Cable in many areas is also a reason to think football season, or any other programming, won’t give much of a jolt to negotiations.
“At the end of the day, consumers don’t churn as easily as Wall Street thinks they do,” Yong explained.
When asked if the start of football season will provide added motivation, Time Warner Cable spokeswoman Maureen Huff said the company was motivated to get a deal done from the beginning.
“We are motivated to get a deal done as soon as possible to return programming to customers as soon as possible,” she said. “There’s no one particular day that’s a tipping point for us.”
Huff also pointed to a website created by Time Warner Cable during the blackout. In a section dedicated to sports programming, the company reminds viewers NFL games on CBS are available for free over the air. And the first two regular season games for the New York Jets are not on CBS, while Dallas Cowboys games usually air on FOX since they’re in the NFC.
FOX owns rights to the NFC package, while CBS primarily airs AFC games.
CBS declined to comment for this story.
The network has recently begun airing radio ads featuring play-by-play voice Jim Nantz and others, suggesting fans switch providers to avoid missing out on NFL games.
Power of Live Sports
At the center of the dispute is an effort by cable and satellite providers to fight against rising programming costs, arguing they are driving up subscription prices paid by customers. Broadcast networks like CBS, however, have sought to grab a piece of the pie formerly reserved for cable channels.
Pay-TV companies only started to pay broadcast networks for the right to carry their signals in the last few years. Distributors used to instead negotiate deals to give broadcasters additional capacity for new channels.
Disputes over rights fees often result in blackouts. Last year, Viacom channels such as MTV and Nickelodeon were taken off DirecTV (NYSE:DTV) for nine days.
During these disputes, distributors are usually the ones who get most of the blame from consumers. Yong noted TV watchers tend to dislike cable and satellite companies anyway. Those firms are on the front lines and charging consumers directly.
She agreed consumer anger is often misdirected, with companies like Time Warner Cable looking to control costs and, theoretically, keep subscriber bills from swelling.
“This is not new to Time Warner Cable or the cable industry. Like others, Time Warner Cable is trying to hold down the cost of programming,” Pilson said.
“I don’t think the public fully understands the issues. They will probably blame CBS and TWC equally. It’s easy to blame TWC because they’re the ones saying ‘no,’ ” while they’re also trying to keep costs low, he explained.
If the battle over programming costs continues into the football season, competitors like FOX and Walt Disney’s (NYSE:DIS) ESPN could benefit in markets where CBS is blacked out by Time Warner Cable.
In the tussle between Time Warner Cable and CBS, the focus on football season is a testament to the power of sports programming.
Live sports are more immune to DVR use, Pilson said, and regional sports networks are getting “pretty impressive” subscriber rates. “It’s a driver of audience. The sports audience is passionate, not passive.”
As for Time Warner Cable subscribers looking for football on CBS, Pilson added, “They simply want to watch NFL football and will be upset if they can’t watch games on CBS.”