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CBS Cashes In With Verizon

CBS Corp. CEO Les Moonves has apparently made good on his vow to get paid for the Tiffany Network's programming.Verizon Communications Inc. looks like it has anted up.

The telephone company and CBS last week took the wraps off a comprehensive retransmission-consent pact that includes video-on-demand rights to such network primetime hits as CSI: Crime Scene Investigation, NCIS and Survivor, as well as local programming from its TV stations.

Neither CBS nor Verizon would discuss the terms of the deal. But the telco reportedly will pay the broadcaster a license fee in the neighborhood of 50 cents per month, per subscriber.

LOCAL FARE INCLUDED

In addition to on-demand network fare, the CBS-Verizon agreement also will provide the telco's FiOS video service with analog, digital, multicast and HDTV rights to programming on the broadcaster's owned-and-operated stations.

The retransmission-consent pact also provides the telco with local VOD content from those stations, mainly in the form local news.

A very vocal Moonves has been spearheading the effort by broadcasters to extract cash license-fee payments from distributors, in exchange for retransmission consent for broadcast stations. Earlier this month, Moonves said that his company would announce such a deal shortly.

In a prepared statement, Moonves implied that CBS was getting cash compensation.

“With each subscriber that Verizon's FiOS TV adds, CBS will directly benefit, and therefore, we look forward to our partnership as Verizon showcases our programming both in our O&O [owned-and-operated] markets and across the country,” Moonves said.

Terry Denson, Verizon's vice president of content, strategy and acquisitions, said that the deal points were confidential.

However, he added: “One of the things we certainly recognized about CBS is that they've got a unique panoply of assets, and we also have some opportunities that matched up with some of their key initiatives. So to that end, we reached a deal that was mutually beneficial.”

Last November, CBS struck a deal providing Comcast Corp. with some of the same marquee shows it is offering to Verizon, including CSI and Survivor, for on-demand use. But Comcast is charging its subscribers 99 cents per episode to download those programs.

As part of a prior retransmission-consent pact, Comcast also has access to local programming from CBS stations for its on-demand platform.

In contrast to Comcast, all subscribers to Verizon's FiOS video services with a set-top box will receive the CBS network on-demand content, as well as the local on-demand programming in markets where the network owns stations, at no incremental cost.

Verizon is looking to use its free on-demand offering to not only compete with distributors such as Comcast, but also position itself against “device-centric” and “virtual” content providers, such as iPods, according to Denson.

“Our target is, in the eyes of the consumer, to enhance the benefit of network-based distribution,” he said. “That's really our core deal here.”

The retransmission-consent agreement with CBS is Verizon's largest such agreement. CBS has 21 owned-and-operated stations, with broadcast outlets in all of Verizon's TV markets except Washington, D.C. Prior to the signing of the comprehensive agreement, Verizon provided programming from the CBS stations under a special agreement with the broadcaster.

CBS executive vice president Martin Franks called the Verizon retransmission-consent deal “precedent-setting,” in that “it's the first major deal we've made since the split from Viacom.” MTV Networks and CBS were divided on Jan. 1.

The broadcaster sees VOD as building the audience for primetime shows like NCIS, according to Franks.

“It is a show that is clearly on the rise, a hit in the making,” he said. “The other night, as well as it did, it got maybe a 20 share. That means 80% of the sets that were turned on weren't tuned to NCIS, to say nothing of people who didn't have their sets on at all. We don't worry that it's [VOD] going to cost us part of that 20%. We want to go after the 80% and more that weren't watching. We don't buy cannibalization. We really see VOD as frankly extending and reinforcing the network.”

$75M PER YEAR

Assuming a hypothetical 30-cent license fee, CBS could wind up receiving about $75 million a year in annual retransmission-consent payments for the stations it owns, Merrill Lynch analyst Jessica Reif Cohen estimated in a report earlier this month.

But she expressed doubt that larger cable operators will roll over and pay cash for carriage.

“We are skeptical that the stations will generate significant revenue from the larger MSOs, as we do not believe they will be willing to pull their programming from the largest DMAs,” Cohen wrote. “Likewise, the cable industry will strongly oppose paying broadcast networks cash for channels previously aired for 'free.'”

Initially, the CBS shows that Verizon offers on-demand will include the national ads sold by the broadcaster, according to Denson. He said it will take a roughly a month or so for Verizon FiOS customers have access to them on an on-demand basis.