Time Warner Cable, CBS Talks Break Down, Stations Go Dark

CBS blacked out on Time Warner Screengrab - H 2013

CBS blacked out on Time Warner Screengrab - H 2013

CBS stations in New York City, Los Angeles, Dallas-Fort Worth and elsewhere, reaching over 3 million homes, are being blacked out by the nation's second largest cable company.

Talks between CBS and Time Warner Cable have broken down. Stations reaching about 3 million homes are being blacked out by the cable company as of 5 p.m. ET on Friday, which was the latest deadline in the long-running negotiations between the two parties. 

The stations going dark on Time Warner Cable systems go beyond those in New York, L.A. and Dallas and include the pay services Showtime, TMC and FLIX along with the Smithsonian channel. Stations affected include KCBS and KCAL in L.A; WCBS and WLNY in New York; KTVT and KTXA in Dallas; WBZ and WSBK in Boston; KDKA and CW affiliate WPCW in Pittsburgh; WBBM in Chicago; WKBD (The CW) in Detroit; and KCNC in Denver.

STORY: Time Warner Cable Says CBS Refused a Contract Extension of up to One Year

"We agreed to an extension on Tuesday morning with the expectation that we would engage in a meaningful negotiation with CBS," said Time Warner Cable in a statement. "Since then, CBS has refused to have a productive discussion. It’s become clear that no matter how much time we give them, they’re not willing to come to reasonable terms. We thank our customers for their patience and support as we continue to fight hard to keep their prices down."

CBS retorted: "We deeply regret this ill-advised action, which is injurious not only to our many affected viewers, but also to Time Warner Cable itself. Throughout this process, Time Warner Cable has conducted negotiations in a combative and nonproductive spirit, indulging in pointless brinksmanship and distorted public positioning."

In the past two years, CBS and other broadcasters have shifted from a policy of using their must-carry and retransmission consent leverage for launching new channels to seeking cash payments that value their content as highly as cable channels like ESPN and TNT. That has led to fractious negotiations.

There have been a series of extensions of the contract negotiations, with the latest coming last Tuesday, July 30, as TWC began to black out channels. Both sides have gone public with their arguments, each charging the other with being unreasonable. TWC says the increases CBS is seeking are too great and would harm their customers, while CBS has been running ads in print and on TV saying that all they want is to be paid the fair value their content is worth.

STORY: Time Warner Cable CEO Talks Carriage Disputes at London Conference 

While the battle between CBS and TWC is over the cable company paying retransmission consent fees, the decision by TWC to also black out the pay channels, including Showtime, appears to be a strategic move meant to ramp up the heat on CBS. (TWC and CBS share in the revenue from the pay subscriptions.) The blackout brought an angry statement from Showtime: "The service interruption is not only completely unnecessary, but totally punitive to our subscribers, and will impact and inconvenience millions of Time Warner Cable and Bright House Networks subscribers in major markets across the country."

Several Wall Street analysts have sided with CBS and noted TWC is in a difficult position because it is also the subject of merger and takeover talk -- plus it's in the process of a leadership change, with a new CEO coming in after the end of this year. 

Typically in these disputes, the content providers have the most leverage because fans not only want sports but also hit shows, from Two and a Half Men to 60 Minutes. In the TWC markets, the CBS stations (but not the cable channels) are available over the air for free and on other pay services like DirecTV and Dish, who will aggressively go after TWC customers if this lasts very long. 

David Bank, a market analyst with RBC Capital, said in a recent report that TWC has been paying between 75 cents and one dollar per sub per month for the CBS content. "We believe there has been a significant 're-value' for broadcast network TV content since that time due to a number of factors including increased VOD and potential TV Everywhere utility, the higher cost of sports programming (especially NFL) and a more competitive distribution environment where demand has increased for quality content."

Other analyst are estimating that CBS is seeking about $2 per sub per month in a two- or three-year deal. 

Now that talks have broken down, it is unclear how long the blackout will last. The NFL regular season begins in early September, which could push TWC to settle; but as of Aug. 9 some CBS stations, including WCBS in New York City, will be carrying preseason games.

In a press advisory, CBS also warned that the blackout could cause CBS viewers who subscribe to TWC to miss out on several high-profile PGA events, including the World Golf Championships: Bridgestone Invitational's third round on Saturday, the PGA Championship at Oak Hill beginning on Aug. 8 and the Wyndham Championship on Aug. 17 and 18.

It is also unclear how big an impact this will have on CBS' ratings, and ultimately on what it can charge for advertising. If the dispute lasts for some time, it would have a negative impact on CBS Inc.'s bottom line.