Time Warner Cable Drops CBS in Three Cities as Talks Fail

Time Warner Cable Inc. (TWC) cut off CBS Corp. (CBS) broadcasts and pay TV-channels in New York, Los Angeles, Dallas and several other markets after the companies failed to agree on new terms for program rights.

More than 3 million Time Warner Cable subscribers will be without shows such as “60 Minutes” and their local CBS news, the New York-based network said yesterday in an e-mailed statement. It was the first time CBS has been dropped by a cable system, the broadcaster said.

The companies failed to settle on how much Time Warner Cable would pay for rights to CBS shows. The second-largest U.S. cable company said CBS was asking for fees that were 600 percent higher than the network’s affiliates in other markets. Glenn Britt, Time Warner Cable’s chief executive officer, has been a critic of rising program costs.

“If there was ever a retrans battle for the distributor to fight, this is the one,” said Rich Greenfield, an analyst with BTIG LLC in New York. “This is a unique opportunity to push back for the subscribers.”

In addition to CBS broadcasts, Time Warner Cable was also blacking out the Showtime and TMC premium channels, Flix and Smithsonian, according to the pay-TV provider.

The two companies had extended their negotiating deadline several times, most recently to yesterday at 5 p.m. New York time, when the blackout started.

Photographer: Patrick T. Fallon/Bloomberg

The CBS Corp. studio complex in Los Angeles. Close

The CBS Corp. studio complex in Los Angeles.

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Photographer: Patrick T. Fallon/Bloomberg

The CBS Corp. studio complex in Los Angeles.

Programming in some areas was temporarily blocked on July 30 and restored about 30 minutes later after the companies agreed to keep talking.

Largest Blackout

The blackout is the first of a top broadcaster by a major pay-TV carrier in New York, the largest U.S. TV market, since Cablevision Systems Corp. (CVC) shut down Fox for two weeks in 2010.

“We agreed to an extension on Tuesday morning with the expectation that we would engage in a meaningful negotiation with CBS,” Time Warner Cable said in a statement. “Since then, CBS has refused to have a productive discussion.”

Time Warner Cable’s negotiating leverage is strongest now, because CBS has few new programs or professional football on the air, Greenfield said. The network is probably seeking “a couple bucks” a month per subscriber from Time Warner Cable, he said.

“CBS wants to be paid like a cable network,” Greenfield said. “Yet you don’t see ESPN putting their content over the air for free or on the Internet for free. They were looking for a big step up from Time Warner Cable.”

Extended Talks

CBS is the most-watched television network, ahead of Comcast Corp.’s NBC, Walt Disney Co.’s ABC and 21st Century Fox Inc.’s Fox.

Time Warner Cable, based in New York, has encouraged customers to sign up with Aereo Inc. to watch CBS. Aereo is a startup service, backed by Barry Diller, that sells access to the broadcast networks online for $8 a month without paying retransmission fees for the right to air the programming. Aereo is currently being sued by New York-based CBS.

When a channel is dropped from a pay-TV service, 7 percent of subscribers end up switching providers, while 16 percent watch the lost channel online, according to a survey from Parks Associates, a market research firm based in Dallas. The survey, conducted in the third quarter of last year, looked at 2,500 households and asked residents what they did the last time they lost a channel in a fee dispute.

Fee Fight

The dispute between the companies focused on retransmission fees, which have become a frequent sticking point in negotiations between pay-TV providers and broadcasters that historically provided their signals for free.

Pay-TV operators will spend more than $3 billion in retransmission fees this year, according to data compiled by research firm SNL Kagan.

In a statement, CBS said viewers would miss today’s coverage of the Bridgestone Invitational golf tournament featuring Tiger Woods. Without an agreement, Time Warner Cable subscribers also won’t get the golf’s final major tournament of 2013, the PGA Championship, starting Aug. 8, CBS said.

CBS, controlled by Sumner Redstone, fell 0.6 percent to $54.53 yesterday in New York. The stock reached its highest in 13 years on Aug. 1 after the company reported an 11 percent increase in second-quarter profit, led by rising fees from pay TV systems like Time Warner Cable.

Time Warner Cable, with about 12 million video customers, declined 0.5 percent to $117.10. The stock is up 20 percent this year.

To contact the reporters on this story: Alex Sherman in New York at asherman6@bloomberg.net; Edmund Lee in New York at elee310@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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