Aug. 5 (Bloomberg) -- Time Warner Cable Inc.’s blackout of CBS Corp. networks entered its third day, cutting off audiences in the largest TV markets from seeing tonight’s “Under the Dome,” the highest-rated scripted series of the summer.
Time Warner Cable stopped broadcasting CBS to more than 3 million viewers in New York, Los Angeles, Dallas and other markets on Aug. 2. The two sides have sparred over the fees that CBS charges to retransmit shows over Time Warner Cable’s system, as well as other issues, such as how content can be streamed over the Internet. As of last night, negotiations between the two sides remained stalled, CBS said in a statement.
The blackout is the first of its kind for CBS and will become more noticeable for viewers on its first prime-time weeknight. The highly rated “Under the Dome” airs tonight, though the potential loss of CBS’s football lineup next month is a bigger threat, said Brad Adgate, director of research for media-buying agency Horizon Media Inc. in New York.
“They could ride this out for a few more weeks, but with the start of the football and broadcast seasons, there will be an outcry from subscribers to make a deal,” Adgate said in an interview.
The showdown pits the most-watched broadcaster against the second-largest cable company in the U.S. CBS is demanding $2 in fees per subscriber per month, up from about $1, according to two people familiar with the negotiations.
The talks also involve whether Time Warner Cable can deliver CBS content online both inside and outside the home -- for instance, via tablet computers -- said the people, who asked not to be identified because the discussions are private. Time Warner Cable and CBS have declined to comment on the revenue at stake in the negotiations.
Time Warner Cable subscribers affected by the blackout missed Tiger Woods winning the WGC-Bridgestone Invitational by seven strokes yesterday. The PGA Championship, the last major tournament of the golf season, begins in three days on CBS. “Under the Dome,” a series based on a Stephen King book about a mysterious force field that cuts off a small town from the rest of the world, airs tonight at 10 p.m. New York time.
Time Warner Cable Chief Executive Officer Glenn Britt said CBS has been “uncompromising” in its negotiations, while asking the company to return to talks. CBS responded yesterday by saying that the cable provider cut off service to gain leverage at the bargaining table.
“There are no negotiations taking place at this time between CBS and Time Warner Cable,” the New York-based broadcaster said in its statement. “We remain ready to negotiate in good faith when they are.”
Britt has been a critic of rising programming costs paid by TV distributors, and he’s attracted industry allies to his crusade. DirecTV, the largest U.S. satellite-television provider, said this weekend it supported Time Warner Cable “fighting back against exorbitant programming cost increases.” DirecTV had its own standoff last year, when it dropped Viacom Inc. networks for 10 days before reaching a $600 million deal.
“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 blocking CBS broadcasts, Time Warner Cable also has been blacking out the Showtime and TMC premium channels, as well as Flix and Smithsonian.
The two companies had extended their negotiating deadline several times before the blackout started. Programming in some areas was temporarily blocked on July 30 and restored about 30 minutes later after the companies agreed to keep talking.
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. 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 its statement. “Since then, CBS has refused to have a productive discussion.”
Shares of CBS, controlled by Sumner Redstone, fell less than 1 percent to $54.52 at 9:56 a.m. New York time. The stock had reached its highest price in 13 years on Aug. 1 after the company reported an 11 percent increase in second-quarter profit. Time Warner Cable, which has about 12 million video customers, rose 0.5 percent to $117.64. The stock was up 20 percent this year through yesterday.
As the most-watched television network, CBS ranks 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 billionaire Barry Diller, that sells access to the broadcast networks online for $8 a month. Aereo, which pays no retransmission fees to broadcasters, is currently being sued by 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.
Retransmission fees have become a frequent sticking point in negotiations between pay-TV providers and broadcasters, which 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.
“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.”
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