CBS, Time Warner Cable Set Stage for Long, Messy Retrans Battle

UPDATED: CBS starts an ad blitz in New York, Los Angeles and elsewhere claiming its stations are being held "hostage" as the cable provider bemoans the "unreasonable" increase it claims the network's seeking.

With the clock ticking toward a June 30 deadline to reach a new retransmission consent agreement, CBS Inc. launched an advertising blitz on TV, radio and in print Thursday to warn viewers that “Time Warner Cable is threatening to hold your favorite shows hostage and to drop CBS.”

The fact that both sides are going public after weeks of negotiations is not a good sign for consumers of CBS content who are TWC customers, with both sides apparently now set for a prolonged and very public battle.

The ads say CBS is working in good faith to resolve the issue, but warns that the cable system is capable of dropping its stations, “as proven by their track record. Time Warner Cable has dropped at least 50 channels in the last five years.”

PHOTOS: THR's 35 Most Powerful People in Media 2013

With TV ads already running in New York and Dallas, and about to start in Los Angeles, Time Warner cable fired back with claims that CBS is demanding an “unreasonable” and “unprecedented” 600 percent increase over the price TWC pays for CBS in other markets, and that the broadcaster doesn’t “care about our customer’s budgets or the going rates” for programming.

At issue is TWC’s right to carry the CBS television network and affiliated local stations including those in New York, Los Angeles, and Dallas-Ft. Worth (where TWC is the dominant local cable system operator), as well as the Showtime suite of networks, the Smithsonian Channel and CBS Sports Network.   

The big hammer in these negotiations is CBS Sports, where NFL games are set to air starting in September.

TWC has proven to be a tough negotiator in similar talks, going to the last minute to make a deal with LIN Media for instance. Some experts have suggested TWC might drop the CBS channels at least until football season, in order to get the best possible deal.

However it is unlikely that would include Showtime because both TWC and CBS make money from the subscriber payments for the pay service.

These deals also include other multi-platform aspects such as video-on-demand rights and TV Everywhere distribution rights.

While TWC is currently paying less than $1 per subscriber for CBS programming and networks, according to industry sources, the network is now looking for as much as $2 per subscriber. TWC’s claim of a 600 percent increase would mean $5 to $6 per sub, though.

PHOTOS: 10 Highly Paid Entertainment CEOs

CBS has had a deal with TWC since 2009 and has extended it several times in recent months as the tense negotiations took place. CBS and its CEO Leslie Moonves have been outspoken in the past year about increasing their revenue from retrans deals.

In a release Thursday, TWC said Moonves has said, “the sky is the limit when talking about the price he thinks he deserves for his CBS stations, and he clearly means it. He doesn’t seem to care about customer’s budgets or the going rates for CBS programming.”

CBS, in a statement issued Thursday, responded: “Time Warner Cable is planning to drop the most popular programming in its entire channel lineup because it won’t negotiate the same sort of deal that all other cable, satellite and telco companies have struck with CBS. Time Warner Cable has dropped nearly 50 channels in the last five years. CBS has never been dropped by a cable company before. CBS remains committed to working towards a mutually agreeable contract. In the meantime, however, we are taking the necessary steps to alert fans -- at -- about how they can seek out alternative options for viewing their favorite CBS programs through Time Warner Cable’s competitors.”

CBS says in its print ad it has already reached “fair agreements” with “every other distributor in the country – including AT&T, Cablevision, Charter, Comcast, DirecTV, Dish and Verizon.”

In a July 10 report by the investment company Davenport & Company provided to journalists by CBS, two stock market analysts conclude there is a great opportunity for broadcasters to increase their revenue through retrans deals: “Beyond simply the largest average ratings, broadcast networks also provide the largest peak ratings (often for NFL programming on CBS, Fox and NBC) and significant audience diversity, and generate demand for additional premium services. … Nielsen concluded that broadcast content is time shifted at nearly double the rate of cable content.”

PHOTOS: Summer TV Preview: 51 New and Returning Series

TWC added that it wants to avoid any interruption of service for its subscribers nationwide -- and noted that in the past 18 months, consumers have suffered through 84 broadcaster blackouts.

“We’re going to continue to negotiate and hope to come to a reasonable resolution before our deadline,” says TWC, “so that our customers don’t have to endure yet another broadcaster blackout.”

If TWC does black out CBS channels into football season, the public outroar could become an issue before Congress and even the White House. If that happens, there could be legislation or FCC actions that force the hand of one side or the other -- which both the broadcast and cable industries have always tried to avoid.

During hearings to confirm Thomas Wheeler as the next FCC chairman, he told a Senate committee when asked about retrans consent battles that what bothers him and what the FCC must pay attention to is “when consumers are held hostage to corporate disputes.”