Online Services Add Tension to Dealings Between Content Owners and Distributors
Digital video rights have become a major sticking point in the carriage dispute between Time Warner Cable Inc. TWC +0.21% and CBS Corp., CBS -0.91% highlighting how new online TV services are adding more tension and complexity to the dealings between content owners and distributors.
Some three million Time Warner Cable customers in Los Angeles, Dallas and New York have been without access to CBS programming since last Friday because the companies haven’t reached a new carriage agreement. Talks have resumed as the blackout continues, the companies said Thursday.
In their negotiations, the companies made significant progress on the money Time Warner Cable would pay to carry the CBS TV signals, but one big roadblock was that the cable operator believes those fees should also buy it the rights to distribute content via on-demand platforms, people familiar with the talks say.
Under the companies’ now-expired TV carriage deal, struck in 2008, CBS had granted Time Warner Cable expansive on-demand rights. For example, the cable operator could automatically have the rights—at no additional cost—to any programming licensed to streaming video players like Netflix Inc. NFLX +0.94% and Amazon.com Inc. AMZN +0.51%
Now CBS wants to roll back those rights to give itself more flexibility to strike lucrative licensing deals with the online video players and new entrants like Intel Corp. that are vying to offer cable TV channels over the Internet, the people say. In CBS’s view, the TV world has changed fundamentally since 2008 and the old terms are outdated.
In a sign of how far apart the companies have been, Time Warner Cable wanted at one point the rights, at no incremental cost, to put entire current or past seasons of CBS shows on its video on-demand service, compared with the current offering of just a few recent episodes, a person familiar with the situation said. Those are the type of rights CBS and other TV networks have begun selling to Netflix for large sums.
Martin Franks, CBS’s executive vice president of planning, policy and government relations, told a New York City Council committee on Thursday that Time Warner Cable’s aim is to “use those outdated terms to hamstring our ability to do business with Netflix, Amazon, Hulu Plus and other new entrants that pose a new competitive threat” to the cable company.
Time Warner Cable has been dropping CBS, as the companies battle over fees. Why cause such a massive disruption over what amounts to pennies-per-day per per subscriber? What’s at stake for the cable and broadcast industries? WSJ’s Jason Bellini has #TheShortAnswer.
Time Warner Cable says it is willing to agree to a fee increase for carriage of CBS but only if the old terms for on-demand rights remain in place. The cable operator believes CBS should be happy to grant it expansive digital rights since it is already a big customer of the broadcaster by virtue of buying traditional TV rights, a person familiar with the situation said.
The cable company denies it is trying to crowd out CBS from doing deals with new entrants. “CBS wants us to pay a lot more for a lot less and take content away from our customers so that they can give it to someone else exclusively,” a Time Warner Cable spokeswoman said in an emailed statement. “We want our customers to get what they pay for.”
At one stage Time Warner Cable also wanted to make recent TV episodes on CBS.com available only to pay TV subscribers, who would gain access with a username and password, a person familiar with the situation said. Other consumers could only access those shows eight days after they air. That request isn’t in Time Warner Cable’s most recent proposal to end the blackout.
Currently, CBS puts shows up on its website the day after they air, without restrictions on who can access them, and generates about $100 million per year in online ads, a growing revenue stream it doesn’t want to jeopardize, the person familiar with the matter said.
Digital rights have been part of negotiations between programmers and distributors for years. But the prominence of the issue in the Time Warner Cable and CBS dispute reflects how much the online video marketplace has matured since the companies last negotiated a carriage agreement five years ago.
“The original deal was struck in 2008—a lot of digital distribution as we know it now didn’t exist then,” said Mike Morris, an analyst at Davenport & Co. Media companies, seeking to adapt to changing consumer viewing habits and generate new sources of revenue, have become more aggressive about licensing their content to digital platforms, he said.
Like others in the cable industry, Time Warner Cable has been losing video subscribers and has blamed programming costs for driving up consumers’ bills. It has received support during the standoff with CBS from rival distributors.
“We do not have the profit margins to absorb those costs and are forced to pass them on to consumers,” said Dave Shull, chief commercial officer of Dish Network Corp., in a statement Thursday. Dish is involved in a blackout dispute with broadcaster Raycom Media in 36 smaller markets.
In his testimony Thursday, CBS’s Mr. Franks said Time Warner Cable can afford to pay higher programming fees without passing on costs to customers, citing the cable operator’s “handsome profit margins” from its high-speed Internet business. “They could easily choose to absorb these programming costs,” he said, “and still be very profitable.”