Opening of Football Season Putting Pressure on Time Warner to Strike Deal with CBS

Andrew Klips |

“The outrageous demands from CBS, the owner of Showtime and TMC, has forced us to remove it from your lineup while we continue to negotiate for fair and reasonable terms.”

That’s a clip from what millions of Time Warner (TWC) customers in areas like New York City, Dallas, Cincinnati, Los Angeles and other parts of the country see when they go to specific channels on their televisions.  The message has been running for about a month now as Time Warner and CBS Corporation (CBS) squabble over fees for content.  In some cases, Time Warner has substituted alternate programming, such as Starz, for viewing pleasure.  Okay, so not seeing an old movie again or the last episode of Under the Dome hasn’t sent customers to corporate headquarters in protest, but not getting their favorite football team in a couple weeks might spark a growing choir of complaints.

Losing their local games in some major markets with the TWC/CBS impasse has already alienated baseball fans.  In order to try and assuage subscribers, Time Warner is reportedly giving away some over-the-air broadcast antennas so customers can watch their local team.  (On a side note, retailers like Radio Shack (RSH) may benefit modestly from increased antenna sales.)

The start of the NFL season on Thursday is bringing the month-long battle between Time Warner and CBS to a head as fans will end up getting blacked-out from local games, not something Cowboys, Giants, Jets, etc. fans will take a shine to.  Luckily, in some cases other stations, like ESPN or Fox, are carrying games, but the heavily-anticipated contest pitting Denver Bronco’s quarterback Peyton Manning against his little brother Eli, the New York Giants quarterback, on September 15 will not be able to be seen by many New Yorkers if a deal isn’t struck.

CBS has now started running ads in a few major markets encouraging consumers to switch from Time Warner to another TV provider.  One of the ads features the “Manning Bowl” in which the ad teases that TWC customers may not get to see what could be the last time the brothers play each other as Peyton closes in on the end of this Hall of Fame career.

Let’s not forget about the NCAA either.  Many college football fans will also find themselves unable to watch games, including the upcoming rivalry between Alabama and Texas A&M that is being broadcast on CBS on September 14.

The long-and-short of the negotiations between Time Warner and CBS is a disagreement over fee increases for content.  CBS has hiked the price for the retransmission fee that Time Warner pays to use the signal and added fees for using the signal in digital platforms.  CBS charges other companies for the digital component, but Time Warner argues that it shouldn’t have to, saying it already pays for it.  Companies like Netflix (NFLX) and Amazon.com (AMZN) are spending millions to get exclusive digital rights to certain titles.  Time Warner claims that CBS is raising prices in the “100s of percentages” for cable providers to have access to their content.

Digital rights are a newer concern hitting the industry.  The problem is that the 1992 Cable Act that currently provides guidance to the industry doesn’t have provisions for digital rights for a simple reason:  digital didn’t exist when it was written.  Simply, Congress has to fix this matter that has fractured the system.

Consumers are looking to the Federal Communications Commission to step-in and force Time Warner and CBS to come to terms.  Not happy with the situation, FCC Commissioner Jessica Rosenworcel said in a recent statement that consumers are “collateral damage” in the argument between Time Warner and CBS.  “Enough,” she said. “If the parties can’t reach resolution, the FCC should use its ‘good faith’ authority under the law to help bring an end to this disagreement—and prevent long blackouts like this from happening again.”

It’s not that simple, though, as the FCC’s hands are tied unless one of the companies files an official complaint alleging that the other company is acting in “bad faith” by not bringing an open mind to the negotiating table.

Dish Network (DISH) and Direct TV (DTV) seem to be on the side of Time Warner, looking for a regulations that won’t allow providers like CBS to be able to strong-arm companies into paying exorbitant prices.  Dish EVP Stanton Dodge recently told Politico that the consumer is the one who ends up getting “screwed.”

It’s difficult to discern if Time Warner is losing subscribers to rivals that have agreements in place with CBS.  It’s not hard to imagine, though, that a meandering stream of people jumping to a different provider could turn into the Mississippi River if people start getting blacked-out of football games.  Fans of the pigskin are some of the most passionate around.

To TWC customers in affected areas (which I am one), calling the company and asking about an antenna or a discount is never a bad idea.

[Image via Wikipedia]

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
CBS CBS Corporation Class B 61.09 0.10 0.16 164,579
DISH DISH Network Corporation 57.00 0.34 0.60 37,745
TWC Time Warner Cable Inc n/a n/a n/a 0
AMZN Amazon.com Inc. 764.22 4.86 0.64 223,376
NFLX Netflix Inc. 119.99 0.83 0.70 338,205
KMWE KM Wedding Events Management Inc 0.01 0.00 0.00 0

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