Expect More Fights Like CBS-Time Warner

by Jonathan Berr | September 5, 2013 11:27 am

Although many pundits are arguing that CBS (CBS[1]) won its recent battle with Time Warner Cable (TWC[2]) because it got most of the fee increases it demanded, that view might be shortsighted.

Had the dispute lingered on through the start of the NFL regular season, CBS would have been in the uncomfortable situation of explaining to millions of football fans why they couldn’t watch their favorite teams play. You can bet the Federal Communications Commission and perhaps members of Congress would have demanded that the dispute be resolved.

I doubt the NFL — by far America’s most-watched professional sports league — would have sat idly by either, particularly since one of the cities affected by the blackout was New York. (Though if past performance were any indication of future returns, keeping the Jets off the public airwaves would have been considered a public service.)

The question, though, isn’t if there will be another dispute like the one between CBS and Time Warner, but when.

Advertising Age makes a persuasive case[3] that the next dust-up might involve Dish Network (DISH[4]) and Disney’s (DIS[5]) ESPN network, the most expensive in the industry. Their contract expires Sept. 30.

Dish’s unpredictable Chairman Charlie Ergen has made it clear that he is willing to walk if he can’t get a deal that he likes. He has already won one legal battle with ESPN in 2009 over an earlier carriage agreement, though the court only awarded him $4.9 million for his trouble — far below the $152 million he was seeking.

According to Ad Age:

“Dish is often considered one of the most litigious players in the space, and doesn’t easily shy away from public disputes. It has also been resolute in its desire to cut costs in part by dropping regional sports networks like MSG and Yes Network.”

Ergen isn’t the only one girding for a fight. Profit margins are getting squeezed for media companies and the pay television industry, creating an atmosphere that’s not conducive to compromise. The ties that have bound the media industry together for decades are starting to fray, and there doesn’t appear to be much anyone can do to stop it from deteriorating further.

Too much money is at stake.

CBS and other broadcast and cable networks are facing skyrocketing costs for content over the next few years, particularly for rights to professional and collegiate sports. Competition in intensifying from upstarts such as Netflix (NFLX[6]), which has given new life to some shows that the networks canceled. Content providers and pay TV operators are also battling one another over the rights to stream programming over the Internet.

Big cable companies such as Viacom (VIAB[7]) are demanding that TV providers take less popular channels if they want their popular ones or else face a $1 billion penalty, according to Advertising Age. Cable and satellite providers are balking at the demand, and with good reason — launching new channels isn’t easy. Al-Jazeera America, for instance, has attracted only a tiny audience despite millions being spent to promote it. So providers face an uphill battle to collect viewers each time they’re handcuffed to one of those less-popular channels.

Broadcast networks are expected to reap more than $6 billion in retransmission fees in 2018, more than double the $2.4 billion they will earn this year, according to SNL Kagan[8]. However, the Aereo digital antenna that streams broadcast signals over the Internet is threatening that cash cow[9]. Networks have tried and failed to get Aereo to pay them fees. Some have threatened to convert to cable channels if the service, which is backed by billionaire Barry Diller, isn’t stopped.

About the only thing that’s clear in the cloudy situation in the world of television is that consumers, as always, will see their bills continue to rise as they are forced to pay for channels that they have no interest in watching.

Unfortunately, it looks like Congress is going to need to clean up this mess, and that will take years to happen … if it happens at all.

As of this writing, Jonathan Berr was long CBS. Follow him on Twitter at @jdberr

Endnotes:
  1. CBS: http://studio-5.financialcontent.com/investplace/quote?Symbol=CBS
  2. TWC: http://studio-5.financialcontent.com/investplace/quote?Symbol=TWC
  3. makes a persuasive case: http://adage.com/article/media/tv-network-lose/243950/
  4. DISH: http://studio-5.financialcontent.com/investplace/quote?Symbol=DISH
  5. DIS: http://studio-5.financialcontent.com/investplace/quote?Symbol=DIS
  6. NFLX: http://studio-5.financialcontent.com/investplace/quote?Symbol=NFLX
  7. VIAB: http://studio-5.financialcontent.com/investplace/quote?Symbol=VIAB
  8. SNL Kagan: http://www.multichannel.com/distribution/kagan-retrans-fees-6b-2018/140125
  9. is threatening that cash cow: http://investorplace.com/2013/04/aereo-is-rattling-the-network-tv-cage/

Source URL: http://investorplace.com/2013/09/expect-more-fights-like-cbs-time-warner/
Short URL: http://invstplc.com/1fyhTNJ