Time Warner Cable Threatens to Take Coveted Channel 2 Slot Away From CBS 1:50 PM PDT 7/24/2013 by Alex Ben Block
As the tense talks over retransmission fees continue toward the Thursday deadline, the network says it will not make any deal that doesn’t maintain their position.
Tense negotiations on a new retransmission consent deal between Time Warner Cable and CBS Inc. continued Wednesday but all indications are it is still unlikely there will be an agreement before the 9 a.m. deadline on Thursday because the parties are still so far apart on the value of the subscriber fees.
In the latest maneuver, Time Warner Cable says that if they black out CBS on their systems until a deal is made, they may auction off the coveted channel two slot on their program lineup – making it permanently unavailable.
Historically, the lower the slot on the line up the better. Typically, when a TV set is turned on, a viewer begins looking for something to watch at the default point of a channel lower on the line up.
A spokesperson for TWC told The Wall Street Journal, “if CBS goes dark, they likely lose their space on the (channel) lineup” permanently in the markets most affected by these talks – New York City, Los Angeles and Dallas/Ft. Worth.
CBS appears to be taking that as an effort by TWC to gain leverage in the talks. In a statement to The Hollywood Reporter, a CBS spokesperson said: “CBS obviously won’t be making any deals in which we are required to change our channel position.”
On background, sources at TWC and CBS confirmed it does not look likely a new deal will be reached before the current deadline. That means CBS stations, CBS Sports and the Smithsonian Chanel may all go dark. There is also a chance it could force CBS owned pay TV service Showtime to go dark as well.
CBS has offered a short-term extension of the deadline while talks continue but so far TWC has declined that offer. Sources say TWC wants a deal as soon as possible because each day that passes gets them closer to September 5 when NFL football on CBS resumes. A blackout of the games is expected to anger football fans who are TWC subscribers.
The next major sports event scheduled to air on CBS is the U.S. Open tennis tournament, which begins August 26 and runs until September 9.
David Banks, a Wall St. analyst with the firm RBC Capital Markets, said in an interview on CNBC that ultimately CBS has the stronger negotiating position because “typically in this business it’s the content that wins … content has the leverage.”
During the interview, a graphic based on data from SNL Kagan showed that ESPN gets $5.54 per subscriber per month from cable operators while TNT gets $1.24, Fox News gets 94 cents and CBS gets 88 cents per sub.
Banks said we have entered an era where these retrans fees are being “re-valued.”
“I think CBS has a great case,” said Banks, “because of their audience level and program investment.”
Banks said today the economics of media are that advertising and subscriber revenue are needed to afford a menu of quality programming.
Another issue is the terms of the deal. In August 2010, CBS did a ten-year deal with Comcast on retransmission fees. The longer the deal, usually the more the cable distributor has to pay for that long-term peace of mind.
In the case of the Comcast deal, Banks said -- and company sources confirmed -- CBS would be asking for a lot more money if that was being negotiated today.
CBS CEO Leslie Moonves has said they now want full value for their content and think it is wrong that they get the higher ratings but are paid less than many others, such as TNT, who can’t match their offerings.
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At a Bank of America conference in September 2012, Moonves recalled the history of retransmission revenue. Three years ago, he said, CBS was receiving no retransmission cash. Five years ago, the network was paying its affiliates to carry CBS programming. In 2012, he estimated cable, satellite and telco TV distributors will pay CBS more than $250 million in retransmission fees.
Moonves at that time said CBS expects those feels to reach $1 billiion by 2016.
“People are realizing the value of our content,” Moonves said at the time. “They can’t live without the things we provide — the NFL, CSI, Two and a Half Men, Big Bang Theory, 60 Minutes. So our affiliates and our (cable) partners realize they need to pay. The ecosystem has changed dramatically.”http://www.hollywoodreporter.com/news/time-warner-cable-threatens-take-592471