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Was the war with CBS worth it? Time Warner subscribers left in droves

CBS channels were blacked out for more than a month in Dallas, New York and Los Angeles, affecting over 3 million Time Warner Cable customers.
CBS channels were blacked out for more than a month in Dallas, New York and Los Angeles, affecting over 3 million Time Warner Cable customers.
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Time Warner Cable paid a big price for its monthlong battle with CBS over carriage fees:  More than 300,000 of its cable customers left last quarter, or 3 percent of its subscribers, the company reported in its quarterly earnings statement Thursday. Time Warner also reported a rare loss of broadband and phone business.

The number of defectors was about twice as many as analysts had expected.

During the standoff, Time Warner Cable blacked out CBS, Showtime and other CBS-owned channels from its service in Los Angeles, Dallas and New York in a dispute over the fees CBS charges to carry its programming. The move — which deprived subscribers of access to  L.A. Dodgers games on KCAL, U.S. Open tennis on CBS and hit shows such as "Under the Dome" — did not sit well with subscribers, some of whom sued the cable service.

For its part, Time Warner blames the CBS blackout for most of the defections and maintains that the blackout was worth it in the name of keeping down prices to customers.

"The issues at stake had long-term, far-reaching implications for our business," said Time Warner Cable President and Chief Operating Officer, Robert D. Marcus, in a conference call with analysts Thursday.  "So I really believe we had little choice but to stand firm on behalf of our customers. In the end, the deals we reached were far better than where we started."

RBC Capital Markets Senior Analyst David Bank isn’t so sure.

“The simple financial answer is it was a terrible mistake," said Bank. "I imagine that they would never anticipate doing it again."

But Bank says Time Warner may concede they lost the battle, but not the war, which means buckle up for more disputes. “If what they’re ultimately seeking is some sort of government intervention – which I believe they are – on some level they may just have to do the kabuki,” he says.

Bank says last quarter’s defections once again illustrate a scary truism for cable providers: Content is king.

Take away people’s David Letterman and "Two and a Half Men" at your own peril.

"Content has a massive amount of leverage in this ecosystem," said Bank.

Time Warner says it's still concentrating on lowering programming costs, which have risen 8.4 percent this year.

"We are very focused on ensuring that we obtain reasonable pricing for the programming that our customers value, so that we can ensure that they, in turn, can pay reasonable prices for those -- for our video services," said Marcus. So that's going to continue to guide our negotiations on that front."