Analysts Weigh in on Time Warner Cable, CBS Retrans Dispute
CBS and Time Warner Cable may be moving toward a retransmission-consent showdown on July 24 -- and that has caught the attention of media analysts.
The parties’ contract for retransmission of the signals of stations in eight markets within Time Warner Cable’s footprint, including CBS’s owned-and-operated stations -- WCBS-TV New York, KCBS-TV Los Angeles and KTVT-TV in Dallas-Ft. Worth -- as well as carriage of premium network Showtime, CBS Sports Network and Smithsonian Channel – expired on June 30. However, CBS granted TWC an extension until 5 p.m. on July 24 and they continued to try and reach a renewal.
Both sides were quiet about the negotiations until July 18, when CBS launched an ad campaign in the three aforementioned markets, telling Time Warner Cable subscribers that the distributor is “threatening to hold your favorite TV shows hostage and drop CBS.”
For its part, the nation’s No. 2 cable operator responded by saying CBS is seeking an unprecedented 600% bump in rates for the same programming.
Which side would hold the upper hand if stations/networks went dark? A trio of analysts weighed in Friday with reports on the carriage contretemps.
Richard Greenfield of BTIG Research in a note entitled “Is CBS’s Les ‘The Bully’ Moonves About to Make a Critical Mistake Versus Time Warner Cable?” sided with the cable operator.
“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,” Greenfield wrote.
He pointed out that Aereo offers a one-month free trial that would give the MSO’s subs a way to access CBS programming in the New York DMA, and that Aereo is also looking to launch in Dallas.
Given its summer schedule, CBS is not offering much in the way of fresh fare, other than the hit Under the Dome. However, CBS has made the series available to Amazon Prime customers four days after its premiere, Greenfield noted.
Relative to the leverage that emanates from the NFL, CBS’s first home team football game doesn’t come until Sept. 15, when the Giants play Denver. The Jets don’t kick off on CBS until the following week, because the club’s first two contests air on Fox and NFL Network, respectively. The Emmys is on CBS on Sept. 22, with the fall season premiering thereafter, further negating the top broadcast network’s content leverage.
“This is the first time we have ever felt that an MVPD was justified in going to war against a broadcaster,” Greenfield concluded. “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.”
RBC’s David Bank leaned toward the broadcaster, saying the pay TV landscape has changed dramatically since the old deal was signed in 2009. Pegging CBS's retrans fee for the owned-and-operated in the 75 cents to $1 per sub range, he believes there a significant “re-value” for broadcast network TV content since that time due to a number of factors, including increased VOD and potential TV Everywhere utility, the higher cost of sports programming (especially NFL) and a more competitive distribution environment where demand has increased for quality content.”
Likening retrans to carriage fees, Bank said that CBS is not getting its fair share of subscriber revenue, compared to what cable networks realize. "CBS ranks first in primetime households (avg. household viewing in an avg. PT minute) yet at 6 million average (4x the typical top 20 cable networks) it currently earns a monthly affiliate fee basically in-line with top 20 affiliate fee-ranked networks. It seems to us to be massively under indexing on affiliate fees."
Wells Fargo analyst Marci Ryvicker also gives the edge to the programmer.
“Bottom line: We have to side with CBS on this one,” she wrote in a research note, citing CBS’s first-place Nielsen status, and Time Warner Cable having to contend with perhaps defending itself against a takeover bid from 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 claims CBS wants its sub fee to reach $2 over the course of the new contract. “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.”
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