The public war of words between CBS and Time Warner Cable continued Thursday even as the two companies resumed private negotiations to resolve the blackout that has infuriated consumers from New York City to Los Angeles. For a seventh day, CBS, the highest-rated broadcast network in the country, remained dark for more than 3 million consumers, following Time Warner Cable’s decision to drop the channel after the two sides failed to agree on terms to settle their retransmission consent fee dispute. Cable and satellite companies pay these fees to broadcasters for the right to carry their channels.
CBS wants more money from Time Warner Cable for the right to broadcast its flagship network. The cable giant has thus far refused. In the latest round of bickering designed to gain the upper hand in the court of public opinion, the two sides exchanged angry charges accusing each other of trying to hamper the development of online services like Netflix, Amazon and Hulu. In response to Time Warner Cable’s decision to yank CBS, the broadcaster blocked online access to its shows for the cable giant’s subscribers. (Time Warner Cable was spun off as an independent public company from TIME parent Time Warner in 2009.)
On Thursday, the two companies sent top executives to square off at a New York City Council hearing. “This latest negotiation with Time Warner Cable has gone badly off course,” said Martin Franks, an executive vice president at CBS. Franks, who’s been involved in negotiating every CBS retransmission deal since 2000, said that since 2006, when CBS became a standalone company, the media giant has negotiated over 100 retransmission consent agreements “without even a hint of public discord, much less having our channels dropped…until now.” CBS earned $3.65 billion in profit over the last 12 months.
“We also realize that not everyone affected by this dispute can resort to an antenna to watch our broadcasts beaming for free from the top of the Empire State Building, or switch to Verizon FiOS, DirecTV, RCN or other providers,” Franks added. CBS is reportedly asking for an increase from Time Warner Cable of about 100% per subscriber, from $1 to $2 per month. (By comparison, ESPN commands more than $5 per subscriber, according to industry estimates.)
For its part, Time Warner Cable, which was represented by Rory Whelan, regional vice president for government relations, insisted that it is “eager to resolve this dispute,” but accused CBS of engaging in “outrageous, punitive conduct by blocking TWC’s Internet access subscribers nationwide from viewing CBS programming online.” Whelan added: “Such blocking is akin to yanking television antennas off our customers’ rooftops to make certain they cannot access CBS programming over the air.” Time Warner Cable earned $7.65 billion in profit over the last 12 months.
In interviews this week, Wall Street analysts and industry experts told TIME that neither side has much of an incentive to back down at the moment, because CBS is still weeks away from the debut of its new fall primetime season — which includes hits like “NCIS” and “The Big Bang Theory” — as well as NFL football, including New York Jets games. Rich Greenfield, a media analyst at BTIG, said that the two sides wouldn’t risk the fury of viewers if NFL games are blacked out.
For now, the financial impact on the two billion-dollar companies appears limited. John Janedis, Managing Director at UBS Equity Research, believes that the financial impact on CBS — which reported revenue of $3.7 billion last quarter – is likely to be minimal. “Based on our estimates, we think the CBS Network going dark could cost CBS about $400,000 per day, including lost retransmission revenue and a loss of advertising dollars at both the network and the stations,” Janedis wrote in a note to clients.
For Time Warner Cable, the financial consequences of the dispute could be more severe, especially if customers get angry enough to ditch their subscriptions, according to Craig Moffett, senior research analyst at Moffett Research. “The real cost to Time Warner Cable will be if and when they lose subscribers,” Moffett told TIME. “Retransmission disputes are about who feels the most pain. Broadcasters feel it immediately in the form of lost advertising revenue. The pain for cable operators is felt more slowly, but could end up being worse in the long run if customers leave.”
For now, Moffett expects few Time Warner Cable subscribers to bolt, because consumers have gotten used to these disputes getting resolved in a matter of weeks. “I wouldn’t expect an exodus this time of year, because customers know that these disputes typically don’t last very long,” Moffett said. “Customers tend to procrastinate, and by the time they get around to switching, the dispute will be over.”
Earlier in the week, CBS blasted a proposal from Time Warner Cable to resolve the ongoing CBS blackout in the nation’s top media markets as a “sham.” In a letter to CBS chief Les Moonves, Time Warner Cable CEO Glenn Britt proposed that CBS could return to Time Warner Cable customers on an a la carte basis, which would mean that individual cable subscribers could choose to buy CBS programming for an additional cost on top of their normal cable package fees.
In response, CBS accused Time Warner Cable of bluffing, calling the proposal a sham “designed to distract from the fact that Time Warner Cable is not negotiating in good faith.” Giving consumers the ability to pick and choose channels would undermine the entire cable industry business model, which is based on selling bundles of channels to subscribers. ”In short, this was an empty gesture from a company that is expert at them,” CBS said. Echoing that position in comments on Thursday, 21st Century Fox president Chase Carey called cable a la carte pricing “a fantasy.”
One key test of viewer sentiment will come this Sunday, when CBS broadcasts the PGA golf championships, which will be blacked out to Time Warner Cable customers if there is no resolution to the dispute. “The PGA championships will provide a little bit of pressure but probably not enough to force a deal,” said Moffett. “So this could drag on until football season starts. By opening day, Time Warner Cable will be under unbelievable pressure to settle, and it’s hard to imagine that they will have the fortitude to continue holding out.”