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

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