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Time Warner Cable Squeezes CW Stations

Time Warner Cable is trying to turn the tables on broadcasters in the war over cable carriage of local TV signals, demanding cash from a number of affiliates of the new CW network, which it partly owns.

As of late last week, 20 CW stations were either dark on Time Warner systems or being carried on a narrow digital tier not seen by half the subscribers. The markets are generally smaller ones, including Palm Springs, Calif.; Lima, Ohio; and Waco, El Paso, Corpus Christi and Wichita Falls, Texas.

The call for payment by the second-largest U.S. cable operator is an attempt to reverse the debate over so-called retransmission consent, which is one of the most divisive issues in the media industry. For years, broadcasters have ranted that cable operators make billions of dollars in large part by carrying local stations and that they should write big checks for those retransmission rights. Time Warner Cable Chairman Glenn Britt and programming chief Fred Dressler are trying to redirect the spotlight onto the value that cable systems create by extending stations' reach.

Broadcast lawyer Kevin Latek, a partner in Washington firm Dow Lohnes, says he represents a number of small-market CW affiliates that “have distribution deals with virtually every cable operator, with the single exception of Time Warner Cable.”

One station is paying

Time Warner Cable is not simply posturing. The operator has actually secured payment from a station owned by one major broadcaster group, Clear Channel Television. A source familiar with the deal says Clear Channel's WKRC Cincinnati has agreed to pay about $350,000—the equivalent of $1 per subscriber—for carriage of a digital CW feed on the local system's basic tier. The payments were in part for ads promoting the station.

CW officials worried that the network would be dark in the homes of marketing executives in charge of buying advertising at Cincinnati-based Procter & Gamble.

Clear Channel and CW executives would not discuss the size of the payment. A network executive acknowledges partly reimbursing Clear Channel as part of co-operative advertising efforts with affiliates.

A Time Warner Cable spokesman says the company is receiving no straight cash payments for carriage but would not say whether it is receiving “launch support” common among cable networks, which includes buying promotional spots on a cable system.

Sibling rivalry

A major twist in the fight is that Time Warner Cable is consciously undermining a corporate cousin. The CW is 50% owned by Time Warner Inc., the operator's parent.

That breakdown in corporate synergy is amusing, but any chuckles miss the point. Britt and Dressler are really sending a message to the other partner in The CW: CBS.

For months, CBS President/CEO Leslie Moonves has bragged forcefully that, when his stations' retransmission-consent agreements come up for renewal, he will squeeze operators for cash. “We will get paid for our content—one way or another,” Moonves told investors at Goldman Sachs' recent Communicopia conference.

If Time Warner Cable is successful, all cable operators could gain a valuable precedent in future negotiations with stations. The bad news is that broadcasters will be given an equally valuable tool in their fight for “digital must-carry.” They will absolutely use the dispute in lobbying Congress and the Federal Communications Commission to force cable systems to carry their stations, particularly “multicast” services programmed in the capacity created by digital broadcasting.

Digital slot

The immediate fight centers on CW stations in small markets. Cities outside the 100 largest U.S. markets typically have three or four stations, and no broadcaster is dumping an affiliation with a bigger network to make room for The CW.

To fill in those holes, The CW turns to digital broadcasting. Those CBS, NBC and ABC affiliates have space in their digital signals for a few additional channels, although many are dormant. Stations in 49 markets use a digital slot for The CW.

The network needs wide cable carriage for the scheme to work. Even owners of HDTV sets capable of receiving digital signals get their broadcast stations via cable.

Because of regulations and the tension between broadcast stations and cable, digital broadcast channels aren't automatically carried. When they are, the additional programming is generally put in a digital tier subscribed to by 30%-50% of a system's subscribers. Getting a much more valuable slot on a basic-cable tier available to all subscribers requires negotiation.

With most operators, that went smoothly for The CW. For the 25 stations in Time Warner Cable territories, though, programming negotiator Dressler decided to play hardball. “They want cash, or they want airtime, all sorts of things,” says the general manager of one affiliate.

Demands included giving commercial time on the stations to promote Time Warner Cable and rights to offer the station's local news via video-on-demand and to put all the station's programming on the cable operator's Start Over service.

A proposed agreement sent around Labor Day asked stations to buy advertising on local systems equaling 15¢ per subscriber in the market. Executives at The CW told affiliates it was Dressler's “wish list.”

CW executives wouldn't discuss the dispute in detail. “From CW's point of view, we're thrilled with the distribution we have,” says COO John Matta. “Broadcasters and cable operators alike were eager for the programming.”

As for the sibling rivalry, he adds, “Time Warner Cable has been extraordinarily cooperative with us. They work night and day to try to make the deals with the affiliates.”

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