Time Warner Cable agrees to arbitration

Firm battling Fox over retransmission fees

Time Warner Cable extended an olive branch in its tense carriage negotiations with News Corp., agreeing to submit the dispute to binding arbitration before the FCC as well as to an interim agreement that would keep Fox and several cable siblings, including FX, on the TWC systems if the two sides don't reach a resolution by the looming midnight Dec. 31 deadline.

TWC made the offer Wednesday morning in an open letter to Sen. John Kerry, chairman of the Senate Commerce Subcommittee on Communication, Technology, and the Internet.

It is a response to Kerry's Dec. 22 letter to News Corp. president Chase Carey and TWC chairman and CEO Glenn Britt, in which Kerry urged them to resolve their spat by New Year's Day so viewership of the big college football games isn't disrupted. (Fox is set to air the Sugar Bowl, Cotton Bowl, Fiesta Bowl and Orange Bowl between Jan. 1-5.)

"We do not want consumers waking up on the first day of the new year wanting to watch football and instead finding that they have to take a trip to the electronics store to purchase a digital receiver in the hope that they receive a clear over-the-air signal," he wrote in his letter, which proposed several options for breaking the deadlock, including arbitration.

In the letter to Kerry, on which Carey was cc'd, Britt wrote that "TWC will agree to whatever interim steps are necessary to preserve consumers' uninterrupted access to Fox programming after our current agreement expires on Dec. 31, including your suggestion to enter into binding arbitration."

Additionally, if a deal is not reached by midnight on Dec. 31 "we would enter into an interim agreement with Fox that applies existing terms and conditions or an interim rate subject to a true-up once a final rate is established."

Britt stressed that TWC would go for an interim agreement even if Fox doesn't agree to arbitration.

Fox later struck down TWC's request for arbitration in a letter by Carey.

At the core of the two companies' dispute is the size of the retransmission fee TWC should pay for Fox programming, which had been free thus far. Fox insists on $1 per subscriber per month, noting the strength of its lineup, which includes "American Idol," "24" and professional and college football. TWC has called that demand outrageous.

"Fox's well-publicized effort to change the economics of the retransmission consent by making unprecedented demands for cash compensation for its broadcast signals -- despite the transmission of that same programming over the air -- is placing the retransmission consent process under strain," Britt wrote.

The public battle is crucial for the other broadcast networks, which also are seeking fees from cable and satellite operators for their programming to supplement falling ad revenue.

Fox and TWC have been negotiating for months but, with a day left on their existing deal is to expire, they are yet to reach an agreement.

In another wrinkle to the spat, TWC insists that Fox's Dallas stations fall under the "must-carry" provision, which allows it to carry their signal without Fox's consent.

"In 2008, Fox failed to timely notify Time Warner Cable that it wished to negotiate for terms of carriage for its Dallas affiliates, KDFW and KDFI," TWC said in a statement. "Therefore, under FCC rules, Time Warner Cable had no choice but to treat those stations as 'must carry.' Time Warner Cable is operating pursuant to FCC rules and will not drop those channels from its lineup on Jan. 1, 2010."

Fox vigorously disputes TWC's interpretation and insists that TWC is prohibited to carry the Dallas stations beyond Jan. 1 if no deal with the Fox station group is reached.