Time Warner Drops CBS: Another Bad Move For NYC's Most Hated Company

After weeks of stalemate in contractual negotiations, Time Warner Cable has officially opted to indefinitely suspend CBS streaming, effective Friday night. Viewers in the channel’s largest markets, namely those in New York, Los Angeles, Dallas, Boston, Pittsburgh, Chicago, Detroit, and Denver, will not be able to access Saturday's anticipated coverage of the World Golf Championship, nor any other CBS broadcasting.

This dramatic severance is rooted in seemingly irreconcilable disagreements between the network and its TV provider, regarding CBS’ desire for increased retransmission rights fees. In a world where television retransmission rights are increasingly competitive for cable providers, largely due to the internet and other alternative viewing options, CBS expects higher compensation from TWC, and at a level that the network claims would be more akin to the rates offered by Time Warner's competitors.

Regardless of the validity of TWC’s claim that CBS demanded unreasonable concessions, TWC has most to lose by discontinuing its CBS contract. Viewers will be inconvenienced, but will receive due compensation from TWC and may also access CBS broadcasting through other means, and CBS may publicly demonize TWC and thus bolster momentum for inevitable future negotiations, all while TWC loses money and sees its already tepid public perception worsen.

TWC has rationalized its histrionic decision as a punishment to CBS. Claiming that the network insisted upon a 600% markup in retransmission fees, TWC hopes that a temporary suspension will force CBS to return with more moderate standards. Yet CBS charges that Time Warner is overexaggerating the loftiness of its demands and argues: “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. We will not accept less.”

Citing such shows as NCIS, 60 Minutes, and the Big Bang Theory, not to mention coverage of myriad primetime sporting events, CBS is absolutely right to insist that its compensation be aligned with its success, and at least consistent with the overwhelming national trend towards increasing retransmission fees.

National projections expect that retransmission fees, which only began at the turn of the century, will more than double by 2018. By that year, it is also expected that an average of 23% of overall network earnings will be achieved from those fees. If the nation is rapidly gravitating towards that direction, it is unreasonable that TWC refuse to do so as well.

CBS has reported that it was paid about $250 million this year from TWC and the plan it is pedaling in negotiations would escalate this compensation to over $1 billion by 2017. And TWC is ultimately not in a position to refuse — at least not permanently — CBS’ demands.

In an evolving television market, CBS’ stalwart viewers may still access the channel’s broadcasting regardless of TWC’s inhibitions. For $8 a month, people may subscribe to Aereo, which streams over-the-air broadcast signals. Equipped with the monetary compensation that TWC promises in CBS’ absence, the network’s viewers may simply switch to Aereo, and perhaps even drop TWC in protest against the cable provider's stubborn behavior. Aereo is also conveniently offering a first-month-free promotion, which will allow disenfranchised viewers to appreciate CBS and ignore TWC.

It unlikely that this corporate impasse will last long enough for either party to feel permanent repercussions — Time Warner would be suicidal to prolong a battle of public perception against CBS that it is sure to lose. Customers ultimately tune in for CBS, not for the company that just so happens to retransmit its broadcasting. As long as television markets are driven by consumers, the producer with the tangible merchandise will always have the upper hand in public perception, and subsequently in negotiations. If TWC continues to play this game, its eventual monetary losses and credibility will only worsen.