Business Update with Mark Lacter

Another delay in Time Warner Cable and CBS negotiations

Time Warner Cable pulled the plug for a few minutes last night on KCBS, KCAL, and other CBS-owned stations.  This morning, everything's back on the air.

Steve Julian: Business analyst, Mark Lacter, do they finally have a deal?

Mark Lacter: No deal yet, Steve.  They've now extended the deadline to Friday afternoon - that's after a bunch of hourly extensions on Monday that suggested they were close to an agreement (almost seemed like an old-fashioned labor negotiation).  So far, no indication of why Times Warner Cable decided to black out the CBS stations last night - and then lift the black out about a half-hour later.  Last-minute contract talks between a cable company and one of its content providers is not unusual, but actually pulling the plug on the L.A. and New York markets is definitely out of the ordinary - gives you an idea of how contentious these discussions have been.

Julian: Could you recap the dispute?

Lacter: It centers on what's known as re-transmission fees, which is what broadcast companies (in this case KCBS and KCAL) ask cable companies (in this case Time Warner Cable) to pay in order to carry content. According to news reports, CBS is asking for a substantial increase in those fees and Time Warner Cable is saying no. Higher fees supposedly represent a big source of future growth for CBS, which is one reason why its stock has been on a tear of late. (It's also why there's so much interest these days in buying TV stations.) Of course, Time Warner Cable is concerned about the precedent that would be set if it gives in to CBS. Everyone would want the same deal.

Julian: Seems that both sides need each other.

Lacter: It would be suicidal not to cut a deal soon.  CBS would lose huge amounts of advertising revenue if its shows weren't on Time Warner Cable, which is the largest cable operator in Southern California.  And, Time Warner Cable runs the risk of losing customers if the CBS network shows (not to mention the Dodgers on KCAL) are suddenly not available.  The fact that they haven't come to terms gives you an idea of how much each side is pushing for an agreement that's favorable.

Julian: This doesn't sound like a simple calculation...

Lacter: Not at all.  Television is a free-for-all these days, with the broadcast companies trying to hold onto audiences in spite of competition - not just from other TV stations and cable channels, but from streaming services like Netflix and Hulu that circumvent traditional television.  The cable companies, meanwhile, are paying out huge amounts to content providers so they don't lose more customers.  Time Warner Cable lost a million video subscribers between 2007 and 2012 (the company is still making money, but that's largely because of its Internet operations).  One area that Time Warner Cable has been focusing on is sports; it recently cut high-price, long-term deals with both the Lakers and the Dodgers, which will mean higher cable prices for all viewers - not just those who want to see those games.

Julian: Speaking of sports, Fox is launching network to compete with ESPN.

Lacter: It's called Fox Sports 1, it debuts Aug. 17, and it'll be coming to you out right off Pico Boulevard at the 21st Century lot (note the change from 20th Century Fox - the new name is part of the restructuring at Rupert Murdoch's News Corp. that has all the broadcast and entertainment assets split off from the newspaper assets).  Anyway, they've built a 14,000-square-foot sound stage for Fox Sports 1, where the new network will originate - not far from the studio where the NFL pregame shows are aired.

Julian: Serious competition for ESPN?

Lacter: Well, that's what they're hoping.  But ESPN is massive - it makes up about 40 percent of the value of the entire Walt Disney Co., in part because it charges cable operators about $5 per subscriber per month, which tops any other content provider by a long shot.  Fox obviously wants some of that action, and Fox has the rights to lots of sports, mostly baseball and football.  Of course, you do have to wonder if there's a limit to the amount of sports programming out there.  Guess we'll find out.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


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