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Analysts Take Sides on CBS-TWC Retrans War

With CBS and its top-rated broadcast network squaring off against No. 2 MSO Time Warner Cable in the latest retransmission

consent payment battle, analysts are taking sides as to which company is likely to end up in better shape if the dispute leads to a blackout of cable subscribers at the July 24 deadline.Conventional wisdom is that the broadcaster has the upper hand, partly because consumers like content better than they like their cable companies, but also because advertising revenue is seen as easier to make up than lost subscribers.

“Normally, we would expect Time Warner Cable to get crushed in negotiations with CBS. However, the more we think through the situation, the more we believe this could be the perfect opportunity for Time Warner Cable to take a hard stand against CBS to change the future of retrans,” says the often contrarian Richard Greenfield of BTIG Research in a Friday morning note entitled “Is CBS’s Les ‘The Bully’ Moonves About to Make a Critical Mistake Versus Time Warner Cable?”

Greenfield notes that Aereo now covers the New York market, where CBS owns a station and Time Warner Cable runs a cable system. Aereo offers a one-month free trial which would give blacked-out Time Warner subs an easy way to access CBS programming. Greenfield says that takes away from CBS’ leverage. Aereo is also looking to launch in Dallas, another market where CBS and TWC both do business. TWC would benefit if the launch took place before the fall TV season begins.

CBS is in the middle of its summer programming, which, despite the success of Under the Dome, usually isn’t must-see fare. And as part of a unique streaming deal, CBS has made Under the Dome available to Amazon Prime subscribers four days after air, making that show more accessible to blacked-out cable customers.

And when it comes to the biggest broadcast hammer, the NFL, CBS’ first home team football game doesn’t come until Sept. 15, when the Giants play Denver. The Jets don’t appear on CBS till Sept. 22 and the earlier games are on Fox and the NFL Network.

“While a CBS blackout would clearly be painful for Time Warner Cable, the first real pain would likely not be felt for at least 60 days, which is a long time for CBS to be dark in New York and LA, the two largest advertising markets,” Greenfield says.

“This is the first time we have ever felt that an MVPD was justified in going to war against a broadcaster,” Greenfield concludes. “We believe the leverage in this battle is far more balanced than in past retrans/programming disputes and CBS

would be making a critical mistake to think it had an overwhelmingly strong negotiating position.  We would not be surprised to see CBS settle before the deadline next Wednesday evening.  If they do not this could be a very long, ugly battle.  Keep an eye on Aereo to play a major role to assist Time Warner Cable subs that lose CBS content.”

On the other hand, Marci Ryvicker, analyst at Wells Fargo, says “Bottom line: We have to side with CBS on this one,” in a research note.

“CBS seems to be in an even more advantageous position,” says Ryvicker, analysts at Wells Fargo, pointing to CBS’ position as No. 1 in the ratings. She also looks at Time Warner Cable having other issues to deal with, including a management transition and defending itself against a potential takeover by John Malone’s Charter Communications.

“To us, this proves CBS means business! CBS doesn’t usually ‘ruffle any feathers’ when it comes to retransmission consent (or even reverse comp) negotiations and in fact, we don’t know of a single time that CBS actually went dark in a retrans dispute,” according to Ryvicker, who says CBS  wnts its sub fee to reach $2 by the time the new agreement ends. “Clearly this has changed given [Thursday] night’s news. As we understand it, CBS will not settle for a rate that does not fairly equate with its ratings power and is willing to stay dark for as long as it takes.”