CBS, Time Warner head into Week 2 of standoff

CBS, Time Warner blackout: It's not just about profit. The dispute could drive consumers to new options that risk changing the face of television.

Courtesy of CBS/AP
This image provided by CBS shows a CBS advertisement in New York's Times Square on Aug. 2. Three million Time Warner Cable customers in New York, Los Angeles, and Dallas lost access to CBS programming in a fee dispute Friday. The nation's second largest cable operator said that CBS refused to have productive negotiations, which were repeatedly extended after their previous deal expired at the end of June.

As the Time Warner feud with CBS drags on – now in its seventh day, with many predicting weeks more – many TV industry watchers say the dispute could signal huge changes in how and what viewers are able to watch on the tube for years to come.

Since last Friday night, 3.5 million viewers in New York, Dallas, and Los Angeles have been cut off from their favorite CBS shows – from “Big Bang Theory” to Tiger Woods winning the Bridgestone Invitational. This has followed the breakdown in negotiations between CBS and Time Warner over the fees cable and satellite companies pay broadcasters for the right to carry their channels. CBS reportedly wants double what it is now getting.

“CBS has demanded an outrageous increase for programming that CBS delivers free over the air and online, requiring us to remove their stations from your lineup while we continue to negotiate for fair and reasonable terms,” Time Warner Cable wrote in an on-screen notice to subscribers

CBS responded that Time Warner Cable’s response was “ill-advised.”

“What CBS seeks, and what we always have sought from the beginning, is fair compensation for the most-watched television network with the most popular content in the world,” CBS said in a statement. “We will not accept less.”

Analysts say that even as viewers find the dispute distasteful, they should get used to more of the same, because nothing less than the future of television is at stake.

“We should expect to see more blackouts. This is a reflection of the changing economics of broadcast TV,” says Mark Tatge, author of “The New York Times Reader: Business and Economics.” He says cable companies don't want to pay retransmission fees owed to broadcasters for programs that were once distributed free over analog airwaves.

Changes in technology will lead to these fees being eliminated, he says. “What has happened to newspapers is going to happen to local and network TV. Network TV is next. The networks have increasingly become dependent on retransmission fees as a source of revenue as the cable systems have gotten the ad business."

Other analysts say TV consumers are caught in the middle and are being reminded of the profit motives driving the industry. Watch for cable bills to go up, at least in the short term, they say.

“This is a crass reminder that the media business is all about the dollars and the corporations have trouble negotiating sensible deals that keep money flowing for both,” says Jeff McCall, professor of communication at DePauw University in Greencastle, Ind.

“This is the kind of dispute that threatens to kill the golden goose, because it hurts the images of both parties and upsets consumers who just want their programs," he aadds.

Still others say that the dispute will open up the industry in ways consumers have never seen, possibly shining a light into the practice of bundling, by which cable companies mandate that subscribers take multiple channels many never watch, just so they can get the ones they do. It may also open the Pandora’s box of scattering viewers to new technologies in ways that won’t be reversed.

That could happen sooner rather than later, for instance, if disgruntled viewers take Time Warner's suggestion to look into Aereo, a recently begun New York-based company that streams TV signals onto the Internet, after picking them up free over the air. Time Warner has also suggested that CBS be offered on an à la carte basis to customers – a proposal CBS dismisses as an "empty gesture" if it is the only channel offered this way.

Support for the à la carte approach is growing, however.

Sen. John McCain (R) of Arizona and Sen. Richard Blumenthal (D) of Connecticut recently introduced legislation that leans on cable and satellite TV providers to allow their customers to pick and choose the channels they pay for. Senator McCain says the legislation would bring down monthly cable bills by allowing consumers to opt out of the dozens or even hundreds of channels that they don't watch.

“All kinds of things are bound to happen when you create a rising tide of consumer dissatisfaction,” says Paul Levinson, author of “New New Media.” “This is going to further weaken the conventional cable and network model."

The Parents Television Council has applauded McCain’s idea.

“If the cable industry won’t allow a free market to exist, then we hope the McCain-Blumenthal legislation will provide consumers with a remedy,” they said in a statement.”

But opponents of the à la carte approach note that a survival-of-the-fittest approach to cable offerings will produce a much smaller menu of choices for consumers, as the less-watched channels are dropped.

Many feel the dispute may go on longer, because TV schedules are in the dog days of August. But most say that once the NFL season begins on Sept. 5, both sides will get serious and find a solution. Meanwhile, consumers who have taken the opportunity to explore other options may well have put in motion the cord-cutting momentum that will remake the TV landscape.

“The CBS-Time Warner fight over distribution fees is only a symptom of a much larger problem boiling up in the TV industry,” says avowed cord-cutter Mark Buff, president of over-the-air HDTV antenna provider Mohu. Traditional cable and satellite TV have reached a tipping point, he says. “It has become far too expensive for content providers and consumers, so both are rebelling,” he adds.

In the “massive transformation” that will overtake the TV industry in coming years, he says, the winners will be the ones that are inexpensive, create open platforms which allow any content source (online and traditional TV) to be viewed on TVs, and are the simplest to use.

The one thing holding most people back from moving to these new services is how complex they are for the average consumer to set up and use, Buff says. “Apple TV is a great example. I believe all of these new providers are destined to fail unless they figure out how to make their services as easy to use as the traditional “Channel Up, Channel Down,” interface, which has endured for the past 50 years."

"The simplicity of that experience is powerful and lasting, and the providers that get this are the ones that will win," he adds.

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