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Time Warner's big gamble in its battle against CBS
By suggesting that the network go a la carte, Time Warner could be asking for trouble
 
This could end badly.
This could end badly. Michael Ansell/Warner Bros.

For the fifth day in a row, contentious negotiations between CBS and Time Warner Cable have left 3 million customers without access to CBS, the highest-rated network on television, as well as affiliated cable channels like Showtime.

For the uninitiated, the battle is over rebroadcasting fees, which are what cable companies pay networks for the right to distribute their content to customers. Following months of bickering over how much of a hike CBS could charge Time Warner, Time Warner pulled the plug on CBS Friday night, leaving the on-screen note: "CBS has demanded an outrageous increase for programming that CBS delivers free over the air and online, requiring us to remove their stations from your lineup while we continue to negotiate for fair and reasonable terms. We regret this inconvenience, but feel it is crucial that we let CBS know that we’re willing to do what it takes to keep down the price of TV."

CBS responded in a statement saying, "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."

Details of the negotiations remain unclear. Time Warner says CBS is trying to raise prices by 600 percent, while other sources say CBS is asking for a 100 percent increase to $2 a customer — still less than half of what other networks with fewer viewers charge.

The nastiness of the fight, however, is coming through loud and clear. On Monday afternoon, Time Warner Cable CEO Glenn Britt publicly released a letter to CBS CEO Leslie Moonves suggesting that Time Warner give customers the option to buy CBS a la carte, meaning separate from any cable package. The plan would "allow customers to decide for themselves how much value they ascribe to CBS programming," Britt said.

CBS snapped back. "Today’s so-called proposal is a sham, a public relations vehicle designed to distract from the fact that Time Warner Cable is not negotiating in good faith," the network told TIME.

And in a rather brusque letter to Britt released Tuesday, Moonves wrote:

As to your ground breaking "offer" to go a la carte: Anyone familiar with the entertainment business knows that this is an empty gesture. The economics and structure of the cable industry have created a certain way that content is distributed and compensated. We both know that a true a la carte universe is not one that Time Warner Cable welcomes.

So is Time Warner bluffing? Whispers of unbundling cable have been floating around for months, as innovations in internet video-streaming threaten the old TV model, in which unpopular channels are sold with popular ones. The cable companies are trying to send a strong message to networks: If you keep bundling unpopular programs and forcing prices to go up, then everyone loses. Verizon and Cablevision, for example, already support unbundling the channels customers don't watch. Earlier this year, Cablevision sued Viacom for forcing it to carry all Viacom’s programming, or pay more than $1 billion in penalties, and Time Warner Cable came out in support of the lawsuit.

But the move is not without risk. CNN explained earlier this year:

The business of television is deeply entrenched: Networks and cable providers are dependent on one another to survive, and they have no incentive to let customers mess with a good thing. This sums their position up nicely: Switching to an a la carte model would cut cable and network revenue in half (to about $70 billion), according to Needham's Martin. [CNN]

Indeed, the longer the fight drags on, the more Time Warner could regret its a la carte gamble. Here's the Los Angeles Times:

It's not a trivial thing to switch to another method of getting TV, but it's getting easier all the time. And if this battle drags on over blacked-out channels, cable viewers will adapt and find other outlets. So our advice to Time Warner and CBS is to agree to a compromise, fast — before cable viewers go elsewhere for good. [Los Angeles Times]

 
Carmel Lobello is the business editor at TheWeek.com. Previously, she was an editor at DeathandTaxesMag.com.

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