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In the end, Time Warner Cable made the deal it had to make amid rumors it was beginning to lose a significant number of subscribers over the prolonged blackouts of CBS content.
CBS, led by the determination of CEO Leslie Moonves, played hardball and proved that content is still king. CBS appears to have come close to meeting its goal of getting what it considers full value for the programming it delivers to cable subscribers, including NFL games, the U.S. Open, a solid daytime and last season’s highest-rated primetime schedule.
Both sides were tight-lipped about the terms, but sources say CBS made a deal that will run four or five years and secured an increase to more than $1.50 per subscriber, up from between 50 and 85 cents per month under the old contract. Adding in the cost of the CBS Sports Network and Smithsonian Channel, it is expected that CBS will receive more than $2 per subscriber per month by the end of the pact.
STORY: CBS, Time Warner Cable Reach Carriage Deal
It now seems clear that as time passed, more of the leverage shifted to CBS, while TWC faced angry subscribers, worried investors and political fallout that created pressure to reach an agreement. While TWC CEO Glenn Britt said in a statement Monday that he was happy, the agreement had raised the issue of whether there should even be retransmission consent. It also raised the possibility of more government regulation of the cable industry — which isn’t in its long-term interests.
While TWC talked tough, it had to feel the pressure of subscriber losses after the second quarter results, which showed the New York-based company had lost 191,000 subscribers in the second quarter compared with a loss of 169,000 in the same period a year earlier. TWC also reported that the growth of broadband customers fell to 8,000 in the second quarter, compared with 59,000 added a year earlier, and it lost 56,000 telephone subscribers. It had added 45,000 phone customers a year earlier
Still, TWC reported a 6.4 percent increase in net income for the second quarter, and executives told analysts they were concentrating on acquiring and keeping subscribers who will buy more of the services they offer, keeping margins high.
TWC isn’t giving any indication of how many subscribers it lost because of the CBS blackout, but the number could be considerable. TWC will have to report those numbers when it releases third quarter results, which should happen in November.
STORY: How the Time Warner Cable, CBS Standoff Could Set the TV Standard
The pressure on TWC has to be intense. With Britt stepping down at the end of the year — to be replaced by Rob Marcus — and rumors flying about pending consolidation in the cable industry, it is imperative that the number two cable company maintain its position and its value, which is derived from its revenue, profits and subscriber count. All of those seem to be in potential jeopardy.
From the start of the first and longest blackout of CBS stations in history, most analysts and experts predicted there would be a settlement before the NFL season began. That happened, with the first full weekend of games scheduled on CBS this coming weekend.
In the end, according to sources, some of the toughest negotiations were over digital rights that weren’t even on the table last time the two companies negotiated. Time Warner Cable got some of the rights it wanted, including the ability to offer Showtime Anywhere to its subscribers, as well as some VOD rights.
However, CBS also got what it wanted: the ability to sell the same content to new distributors, like Intel and Sony, along with other emerging platforms.
PHOTOS: CBS’ 2013-14 Season: ‘Hostages,’ ‘Intelligence,’ ‘Mom’ and ‘The Millers’
Most notably, TWC did not get TV Everywhere rights to the CBS channels, which means a subscriber with an app from the cable provider will not have free access on mobile phones and tablets to KCBS or other CBS-owned and operated channels in the markets covered by the contract, which include media centers New York and Los Angeles.
The deal that TWC ultimately made doesn’t appear to be much different from the one that Verizon Fios, DirecTV and others have cut with CBS in recent months. So in retrospect, there is a real question of whether standing up to CBS was really worth it.
Other broadcasters and station operators may not be able to get the same deal that CBS won, but this will have all of them looking for more amid expectations by investors, analysts and the media that they will get more — which becomes a self-fulfilling prophecy.
Ultimately, the only thing that could change that is if the golden goose — highly profitable cable system operators like TWC — loses so many customers that the per-sub fees no longer add up the billions CBS is expected to collect over the life of the deal.
The one sure thing seems to be that on the eve of the NFL season, CBS is already a winner.
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