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If there is no agreement by that deadline, which may well be the case, CBS stations on Time Warner Cable systems in New York, Los Angeles, Dallas and some other markets are expected to go dark. In Los Angeles, for instance, where Time Warner Cable is the biggest multisystem operator in the market, that would include KCBS, KCAL, the Smithsonian Channel and CBS Sports.
In the latest escalation, CBS Corp. president and CEO Leslie Moonves on Tuesday sent a memo to CBS employees (full text at end of this article) warning them that “there is a real threat Time Warner Cable is going to drop our stations” — possibly including Showtime — when the deadline is reached.
Time Warner Cable has said CBS is demanding an increase of 600 percent in New York, L.A. and Dallas over what they pay in other markets. CBS has said they have been able to make deals with Comcast, Cablevision, DirecTV and others, but not with TWC, which Moonves calls “unique in its aggressive approach.”
“CBS programs are among the most popular in the industry,” writes Moonves, “and yet there are many cable networks — with considerably less viewership — that receive more money for their programing from Time Warner Cable than we do. In fact, CBS is not even in the top 10 recipients of the programing fees paid out by Time Warner Cable.”
Time Warner Cable in a response Tuesday fires back at Moonves: “Every decision we make on programming is based on a variety of factors, including unique content, cost and popularity. We are constantly engaged in making our lineup the best value we can for our customers. We are willing to pay for CBS, and we have offered them significant fees. But their current demands don’t represent a good value for our customers. Nevertheless, we’ll continue to negotiate, and hope to reach an agreement before the expiration.”
TWC says they want to know that they are paying a similar rate than the others who have made a deal with CBS: “They claim publicly that they’ve offered us the same rates, but privately they’ve refused to offer us assurances that the rate they are seeking for CBS is the same rate they are seeking from others.”
While this dispute could lead to channels going dark, it is expected the pressure on TWC will grow as we approach the NFL season in September. Without football there would be a real possibility of subscriber losses that could impact TWC for a long time to come.
TWC says it has not refused to consider an extension of the negotiations but “right now we want to continue to negotiate to try to reach an agreement before the expiration.”
TWC also complains they have been unfairly singled out: “We’re not the only ones – everyone is having these problems. The truth is literally every other distributor, whether cable, satellite, or telco, has acknowledged the problems created by programmers’ rising costs, and there have been well-publicized disputes this year and last involving cable/satellite/telco distributors and both national cable networks and local broadcast stations.”
Moonves warns that TWC is different in that it has dropped, by his count, 50 channels off the air due to similar disputes. He even cites a speech by TWC CEO Glenn Britt at an investor conference where he said they are taking a “hard look at each service” and won’t continue to carry those that don’t carry their “own weight.”
Moonves even takes on how much profit TWC makes in making his case: “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.”
Here is the full text of the Moonves memo to CBS employees:
As you are probably aware, CBS is in the midst of a business dispute with Time Warner Cable. This dispute has escalated over the past few days, and there is a very real threat that Time Warner Cable is going to drop our stations in New York, Los Angeles and Dallas (and possibly Showtime) off the air Thursday morning. As you can imagine, we don’t take this situation lightly. So I want to take a few minutes to tell you how we’ve gotten to this point, and where it may go from here.
At the heart of this debate is the way in which Time Warner Cable compensates CBS for the programming we provide its subscribers. CBS programs are among the most popular in the industry, and yet there are many cable networks – with considerably less viewership – that receive more money for their programming from Time Warner Cable than we do. In fact, CBS is not even in the top 10 recipients of the programming fees paid out by Time Warner Cable. That means networks that are watched by audiences much smaller than that of our lowest-rated shows are receiving much more compensation than the network that provides viewers with THE NFL ON CBS, THE BIG BANG THEORY, NCIS and 60 MINUTES. Clearly something is out of whack.
Across the industry, cable, telco and satellite companies are appreciating what CBS provides their customers, and we have been successfully negotiating new, current market deals that work well for us and our partners, including Comcast, Cablevision, DirecTV, Dish, Verizon FIOS and AT&T U-Verse, among many others. Unfortunately, the same cannot be said for Time Warner Cable, which is unique in its aggressive approach. During the last five years, Time Warner Cable has taken nearly 50 channels off the air in disputes such as the one we’re having right now. CBS has never gone dark during this time.
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.
Interestingly, Time Warner Cable CEO Glenn Britt agrees. Here’s what he said at a recent investor conference:
“As our programming contracts come up for renewal, we’re going to take a hard look at each service. And those services that cost too much relative to the viewership or value of the service, we’re going to drop them or we may put them on a different tier. That’s the outcome. But we can’t keep carrying these giant packages of things with the services that don’t carry their own weight.”
We obviously agree with Mr. Britt. Because at CBS we carry our own weight.
The future success of any company is predicated on getting fairly compensated for the product it provides. That’s a goal we’ll pursue, on every platform, with every partner. We have a great negotiating team in place and we are determined to get the job done right. We have offered Time Warner Cable a short-term extension as we continue to negotiate, but to date they have refused. Nevertheless, we will continue to be both reasonable and resolute in our talks, and if on Thursday our content has been pulled off their service, you’ll know that we are in the midst of a crucial struggle we intend to bring to a satisfactory conclusion.
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