12 August 2013

CBS-TWC Standoff Continues: New Yorkers Held Hostage

In nearly every programming dispute that arises and goes on for longer than a few hours, the distributor makes a public offer to restore the programming and make it available to customers on an a la carte basis with the programmer getting 100% of the proceeds. Time Warner Cable CEO Glenn Britt showed that he loves this old chestnut as much as the others, the full text of his highly disingenuous letter is here.

This tactic is a favorite of Cablevision. Here's a rundown of Jim Dolan offering it to the Yankee's YES Network in 2002. 

It didn't work then. It won't work now. It never works.

Almost all cable channels are bundled and the programmers and operators prefer it that way, these a la carte offers are just public relations tactics designed to make it appear to Time Warner Cable customers that they are doing something. After all, any serious business-to-business offers are not communicated via open letters to one party's customers. As the New York Times' David Carr noted in his commentary:
Leave us out of it. We know that you are fighting over lucre, not our inalienable rights as cable consumers. Pretending that you are fighting on our behalf rather than in the interests of your shareholders and executives is infantilizing and unbecoming.
More pictures from the front, these from the TWC iPad app, from a few nights ago.

The "slate" for CBS

The slate for Showtime, with the iPad guide on the left

The slate for Smithsonian, still without mention of its name :(
Starting Sunday, 4 August 2013, CBS has filled WCBS's usual channel 2 (702 HD) with Starz Kids & Family. Premium networks, particularly secondary ones like Starz often offer "free previews" to increase sampling for their channels; Time Warner Cable is likely paying little or nothing for this "substitute programming". The choice of the Kids & Family channel from the Starz multiplex likely reflects the fact that it is the only Starz feed without uncut R-rated movies. CBS is received by all cable customers, Starz only by those who make a specific decision to purchase it.

As expected, CBS didn't think much of the TWC proposal. Moonves' letter.

Variety (Todd Spangler) reports that Time Warner Cable's brand is suffering more than CBS's. Distributors always suffer more in these disputes, since the customer is paying the distributor. Also, his report that Under the Dome piracy is going up with the CBS-Time Warner Cable blackout.

CBS's exclusive, 4-days-post-air deal with Amazon for its summer hit Under the Dome appears to be a big stumbling block for TWC. It appears that in the expired retransmission consent agreement with CBS, Time Warner Cable had VOD rights to prime time shows. Those VOD rights in the expired deal might have been non-exclusive and might not have applied to all prime time programs, but, to the extent that CBS is looking to provide much less this time around, it is no wonder that TWC might object to the change, especially amid a much higher cash fee.

One sees reference to this in TWC's CEO Glenn Britt's public letter offer (not the non-starter a la carte offer I mocked above).
In the interest of getting CBS back on our cable systems today, we write to propose that CBS and Time Warner Cable immediately agree to resume carriage with the new economics TWC reluctantly agreed to during our negotiations, while employing all the other terms and conditions of our recently expired contracts. Although those terms are not ideal to CBS or TWC, and would leave TWC and our customers without the digital rights that CBS has provided to others, since both parties have lived under those terms productively for many years, we believe we should continue to live with them in the interest of restoring CBS immediately for the benefit of consumers.
The key phrase is "the digital rights that CBS has provided to others".

The other developments in this exceedingly predictable dispute are that over-the-air antenna sales are way up and local news ratings are down in the affected markets. Politicians, like new Massachusetts Senator Ed Market are upset that consumers are in the middle of this dispute, but, of course, that is a necessary consequence of the retransmission consent scheme that he helped write.

This has led to discussions about how the retransmission consent structure could be fixed. Rich Greenfield has a suggestion in his blog post today, but unfortunately, it makes little sense. In essence, he wants all the MVPDs in a market to negotiate retransmission consent jointly with a broadcaster, so that if the negotiation fails to reach an agreement, all of the MVPDs will be shut off. Essentially, his solution is that anti-trust laws are suspended to protect the MVPDs from competitive forces in the acquisition of this content.

The elimination of retransmission consent (while preserving must carry) seems simpler and more logical, if one were going down this path. Alternately, some sort of compulsory license could provide an additional revenue stream for broadcasters (if Congress feels that appropriate) and predictability to those in, or considering entry into. the MVPD marketplace. I am not advocating such structures, but they would be ways to move public blackouts out of the mix.

06 August 2013

A Milestone: An MSO's Broadband Subs Exceed Its Video Subs

For all the talk of how broadband has become the core service for cable TV operators, famously by Time Warner Cable CEO Glenn Britt in 2011, for many operators, the number of video subscribers has continued to exceed the number of Internet (or high speed data or cable modem customers). Charter, one of the largest US cable companies, hit a milestone in the second quarter of 2013. It reported 3.924 million residential high speed data customers and 3.917 million residential video customers. No other major publicly traded cable operator has ever reported that.

2Q13 Subs in 000       Video  Broadband   Broadband/Video
Comcast               21,776 19,986      0.92 
Time Warner           11,720 11,074      0.94 
Charter                3,917   3,924      1.00 
Cablevision            2,868   2,787      0.97 
TOTAL                 40,281 37,771      0.94 

02 August 2013

Pictures from the Front: CBS-Time Warner Cable

WCBS slate
As you may have heard, CBS is not being carried by Time Warner Cable, effective 5PM ET. These are my photos of the "slates" that TWC has put up on the channels for CBS, Showtime (including its sister services The Movie Channel and Flix) and Smithsonian Channel. For those scoring at home, CBS Sports Network (formerly CBS College Sports, formerly College Sports TV) is still on the cable system, apparently that deal is not coterminous with the others.
"No CBS for you."
On some level this is a very simple dispute: each side will be losing during the dispute, but figures that the other side will be hurting more. CBS will reach fewer advertisers and will not collect retransmission consent fees (per its expired contract which is at a lower rate than it wishes now). Showtime, of course, will not collect its affiliate fees, nor will the much smaller Smithsonian Channel. Some analysts, notably BTIG's Rich Greenfield think that CBS is vulnerable because the summer is full of reruns and football will not return for a few months. While it is true that high profile programming would improve CBS's hand, even in the summer, the weekly cume of a Big 4 network is over 90% of households, that is over 90% of households are watching it sometime during the week. That's a figure much larger than any cable network. A lot of people will notice CBS is missing. Greenfield's interview on CNBC is embedded at the bottom of this post.

Showtime slate 
Time Warner Cable, for its part, faces the risk that its customers will look upon it less favorably. Time Warner Cable's risk takes a few forms. Most prominently, customers may defect to other providers. Changing providers is not a snap decision for most consumers, however. The way this phenomenon tends to play out is more in concert with the natural churn in the business. If you are potential Time Warner Cable customer in one of the effected markets, would you sign up with a provider that doesn't have CBS and Showtime right now, or would you connect with Verizon or AT&T or DirecTV or Dish Network or Aereo right now. It is hard to believe that the lack of CBS would not put a damper on TWC's retention efforts and/or does not represent a marketing opportunity for its competitors (not that they will be free of the same sort of conflicts in the future, save Aereo, the point is that for people making a purchase decision now, this is a material and relevant issue). More broadly, Time Warner Cable will probably have a hard time upselling any of its new services (like Signature Home) when customers are, understandably, upset that their expect service is not be delivered the way that they expect.

Smithsonian slate -- how humiliating, it doesn't even get its name on the slate!
Ultimately, both sides will cut a deal. This is not one of those situations where maybe one party is better off not doing an agreement. However, if the dispute drags on for a while, the winners will be Time Warner Cable's competitors. The losers are likely to be both of the combatants and their customers who will endure, at a minimum, some inconvenience in finding the programming they expect (at most, they will not be able to find it at all). For CBS, the economic losses are mostly linear; for Time Warner Cable the economic losses from a short dispute are modest, but they will ramp up if it goes on longer.

The high profile of this dispute could bring some political urgency to make changes to the retransmission consent rules. Having been on both sides of the table for these sort of deals and disputes, I think it is fair to say that those rules were largely written by a very effective broadcast lobby during the sausage-making of 1992 United States Cable Television Protection and Competition Act; the NCTA, the cable lobbying organization, changed its leader shortly thereafter. One would think that the broadcasters may have more to lose from a revisitation of the rules than the distributors would. Consistent with that view, the broadcasters, through their lobby the NAB, have said they believe the system is working.

Update (3 August 2013): CBS has pulled access to full episodes of its shows on cbs.com for TWC customers (Deadline's story). Close viewers know that Fox tried this with Cablevision in their retransmission consent dispute a few years ago, but relented when it was pointed out that some of the customers denied access didn't get video service from Cablevision. Undoubtedly CBS knows this and figures the greater inconvenience it puts on TWC's customers (and hence TWC's management) is worth the public relations hit CBS will take for involving a larger group of innocents in the hostilities.
"No CBS for you" redux