(Updated: Aug. 4, 9 p.m. ET)
The on-again, off-again negotiations between CBS and Time Warner Cable broke down on Aug. 2, with the MSO dropping the signal and the broadcaster going dark to about 3 million of the cable company's subscribers in eight markets, including New York, Los Angeles and Dallas.
CBS cable properties Showtime, TMC, Flix and the Smithsonian Channel also went dark across Time Warner Cable’s 12-million subscriber footprint. The cable networks are also off the systems owned by Bright House Networks, which participates in Time Warner Cable's programming deals.
The disconnects continued over the weekend, as CBS said on Sunday that there had not been any new negotiations with the nation's No. 2 cable operator since Friday.
CBS on Aug. 2 said it had offered to authorize the signals and keep the stations and Showtime on the cable systems, while negotiations continued, but Time Warner Cable opted to pull them.
Conversely, the broadcaster has blocked Time Warner Cable broadband customers from gaining access to its online programming streams at CBS.com, following the linear disconnect.
Time Warner Cable said customers that purchase Showtime and TMC would receive a credit retroactive to the first day of the blackout. In the meantime, Time Warner Cable is offering the pay channels Starz and Encore in lieu of the CBS-owned premium services. However, TWC subscribers won't receive a rebate for CBS because it is part of a basic programming package and isn't the operator's "policy to credit customers for any individual channel change, because the whole package continues to provide value."
The two parties had been deep in talks since July 24 regarding retransmission-consent carriage of CBS stations. That agreement was extended several times over the next several days, with the parties agreeing on July 30 to extend negotiations to Aug. 2.
The two had agreed to try to hammer out a deal by 5 p.m. (ET) Friday, but were unable to reach a resolution.
As expected, both sides blamed the other for the snag in the talks.
“We agreed to an extension on Tuesday morning with the expectation that we would engage in a meaningful negotiation with CBS,” Time Warner Cable said in a statement. “Since then, CBS has refused to have a productive discussion. It’s become clear that no matter how much time we give them, they’re not willing to come to reasonable terms. We thank our customers for their patience and support as we continue to fight hard to keep their prices down.”
Time Warner Cable CEO Glenn Britt issued the following statement Friday evening on twcconversations.com: "It is often said that these disputes are just two giant corporations fighting over money. But the skyrocketing price of programming has a direct impact on your monthly cable bill. If we paid CBS what they are asking, the next broadcaster or programmer would ask us -- and others like FiOS, AT&T and DirecTV -- for even higher prices next time. Cable TV bills would skyrocket. You'd be mad. We'd be mad. It won't end well for anyone. So, we have to take a tough stand in these negotiations and fight to hold down the price we all end up paying for programming and to carry on reasonable and customary terms."
This is the first time that CBS has gone dark with a major distributor regarding a retrans impasse.
“We deeply regret this ill-advised action, which is injurious not only to our many affected viewers, but also to Time Warner Cable itself,” CBS said in a statement. “Throughout this process, Time Warner Cable has conducted negotiations in a combative and non-productive spirit, indulging in pointless brinksmanship and distorted public positioning – such as the fictional and ridiculous 600% increase CBS supposedly demanded – while maintaining antiquated positions no longer held by any other programming distributor in the business.
While Time Warner Cable has accused the broadcaster of seeking a rate increase that was 600% more than what it pays on average for CBS content from other network affiliate stations, CBS claims it is only trying to get fairly compensated for its content.
“What CBS seeks, and what we always have sought from the beginning, is fair compensation for the most-watched television network with the most popular content in the world,” the network said in a statement. “We will not accept less. We will not sign away rights not granted to others. We will not give up our channel position or any other asset by which our viewers identify us. We will also not be subjected to pointless maneuvers like a series of one-hour extensions and mini-drops that do nothing for either side but annoy our viewers. We hope and believe this period of darkness will be short and that we can all get back to the business of providing the best entertainment, news and sports to the Time Warner Cable customers we both serve.”
Some reports have said CBS is seeking as much as $2 per month per subscriber from Time Warner Cable. Those same reports claim Time Warner had previously paid under $1 per month per subscriber under its old deal.
Time Warner Cable, responding to CBS's move to deny streams of its content to its broadband customers, said the programmer "has shown utter lack of regard for consumers by blocking Time Warner Cable’s customers, including our high-speed data-only customers, from accessing their shows on their free website. CBS enjoys the privilege of using public-owned airwaves to deliver their programming — they should not be allowed to abuse that privilege.”
For its part, Showtime characterized Time Warner Cable's decision to pull the plug on its channel as "not only completely unnecessary, but totally punitive to our subscribers."
In a statement, the premium channel said: "Showtime has been working in good faith with Time Warner Cable to work out a contract, and is deeply disappointed with Time Warner Cable's decision to pull Showtime channels. Unfortunately, Time Warner Cable and Bright House Networks subscribers will be denied access to new episodes of the climactic eighth and final season of Dexter, and the most popular freshman series the network has ever had, Ray Donovan. Additionally, subscribers will also miss the opportunity to catch up on past seasons of Homeland before the series' fall debut, new episodes of Web Therapy and countless movies, specials and documentaries.
Showtime noted that it has negotiated deals with all of the other major distributors, including Comcast, DirecTV, Cox, Dish, Verizon FiOS, Cablevision and AT&T U-Verse, and that Time Warner Cable has taken nearly 50 channels off the air in similar disputes.
"We hope and believe this period of darkness will be short, and we can all get back to the business of providing award-winning original series, hit movies, specials, provocative documentaries, and our hard-hitting sports programming to the Time Warner Cable and Bright House Networks customers we both serve," according to the premium service.
Showtime urged it subscribers to call Time Warner Cable to restore the service and put a list of alternate providers on its website.
The FCC called for the parties to do a deal.
"The Commission is disappointed that the respective parties could not reach a retransmission agreement," an FCC spokesperson said of the CBS-TWC blackout. "Our primary concern remains with consumers and viewers in the affected markets. We urge all parties involved to resolve this situation as soon as possible."
Richard Greenfield of BTIG Research believes the blackout could be protracted, given that it's the summer season and there isn't a lot of high-profile CBS fare on the air in the weeks ahead.
"We believe Time Warner Cable must stand firm, which most likely means an extended multi-week blackout of the CBS network in NY, LA and Dallas," Greenfield wrote in a research note. "Time Warner Cable will have virtually no leverage in battles with other broadcasters that occur at the end of 2013/early 2014. In turn, this is "the battle" to fight. Simply put, this is a "'Once-in-a-Cable Lifetime Opportunity' to battle retrans."
Greenfield argues that given the big advertising markets involved, with the network in summer programming -- its adaptation of Stephen King's Under the Dome has emerged as a hit, though -- and with Aereo available to provide CBS programming to Time Warner Cable subscribers, the MSO has more leverage than a distributor usually has during these kind of negotiations.
RBC Capital Markets analyst David Bank estimates CBS is currently receiving between 75 cents and $1 in monthly fees for TWC subscribers.
With potential loss of 3.3 million viewers from the O&Os, Bank, in a note written before the Aug. 2 disconnect, calculated that CBS could lose $23 million from network advertising fees, $28 million in local ad revenues from the stations and $9 million in retrans fees, if a blackout lasted a quarter. On a net basis that could result in some $29 million in lost income for CBS. If the stations went dark for a month, CBS, according to Bank, would sustain a loss of $10 million in net income.
Relative to Showtime affiliate fees, Banks estimated CBS would lose $49 million if the premium service went dark for the entire quarter on TWC systems and $32 million in net income. Over a month, CBS’s net would be reduced by $11 million if Showtime were not available to the MSO’s customers.
For his part, analyst John Janedis of UBS expects CBS to emerge from the blackout in good shape, calling the mid-term financial impact minimal relative to more long-term ramifications.
Janedis estimates that being dark in Time Warner Cable markets could cost CBS about $400,000 a day, including lost retrans revenue and a loss of advertising dollars at both the network and the stations. That means each two weeks off TW Cable is a loss of 1 cent of earnings per share.
"Our view continues to be that consumers have more loyalty to the content rather than the company which is responsible for distribution and with contracts often running five-plus years CBS can’t afford to take below market value given the inability to renegotiate terms.If history is a guide, this should be resolved in less than two weeks" and the programmers stocks are rarely affected," Janedis wrote in a research report in which he reiterated his "buy" recommendation for CBS stock.
Next weekend, with the NFL preseason kicking off in full force and CBS presenting the PGA Golf Championships, there could be more pressure for the parties to reach a deal during the otherwise generally sleepy broadcast summer season. The start of the NFL regular-season in early September and the premiere of the network's entertainment series later that month are greater potential programming flashpoints.
Mike Reynolds contributed to this story.