A glimpse at the numbers behind the CBS/TWC retrans fight.

An analysis of the CBS/TWC retrans consent deal by research firm SNL Financial suggests that CBS's demands are so far above current numbers that if CBS wins, it could establish a new standard that would likely "alter the economics" of the multichannel industry.

According to the report, CBS had been getting between $0.65 and $0.75 per subscriber per month from TWC (the range likely due to variations in individual station performance in markets).  According to the SNL report, this time CBS was demanding a minimum of $2.00 per month per subscriber. 
   That's a significant jump, for a network who's ratings (and thus value to multichannel operators and viewers) has been generally falling for decades.  For example, last week CBS's top program pulled down a 2.5 rating.  CBS was trumpeting its occasional success as top broadcast network in prime time ratings this last year, but a closer look shows that much of that was for sports, major one-off events, and its jumping the gun on the Fall season by starting several new series early (when every other broadcast network was in reruns). Ratings for regular programming was bad enough that at times the ratings for CBS shows fell below that of Spanish-language networks Telemundo and Univision.  Average viewership for CBS, in fact, was on a par with cable network USA in 2012.  That kind of performance doesn't seem to justify more than doubling carriage fees.

"Multichannel operators are experiencing programming cost growth from cable networks as well as from TV stations, leading to a decline in video margins for major operators from 32.4% in 2007 to 25.7% in 2012," Flynn wrote (in the SNL report). "Operators are walking a tightrope between stemming margin erosion via price increases and stanching basic sub losses via pricing restraint."

Carriage costs are already resulting in increased subscription fees, and are arguably leading to subscribers cutting multichannel services.  In the last fiscal quarter, total multichannel subscriptions fell by 366,000.  If CBS can set a new baseline for carriage rights, the next round of negotiations can see many more networks seeking a doubling of fees - and while generating more cash for the networks, the added costs would most likely be passed on to subscribers.  With the rise of alternative programming sources, or multichannel distributors choosing to drop carriage altogether (both of which could lead to a sharp decline in multichannel subscriptions and result in reduced net earnings for channels).  We're seeing this in the blackout already, where ratings for CBS O&O local news programs dropping by a third or more.  We're also  beginning to see it in sports channels, where exploding program rights is leading to increased carriage fees - and when combined with the increase in national and regional sports channels, is causing many multichannel distributors to package many of the channels into a separate tier (as they attempt to keep basic tier prices within reason).

My point is that carriage/retrans fees are not a zero-sum game, with gains for programmers coming out of multichannel distributors' monopoly profits.  This isn't the old days of cable local monopolies - TV and video distribution markets are highly competitive.  Furthermore, we may be reaching a threshold point where multichannel TV access transitions from being a necessity to being a luxury good - and where additional price increases tend to result in reduced overall revenues.  If channels are too greedy, they may find that pushing for high carriage fees results in declines in available audience - which results not only in lower revenues from carriage fees, but also lower revenues in advertising.  And that's the really critical issue, as advertising remains the dominant revenue stream.

Source -  Analyst: CBS/TWC retrans battle could 'alter the economics' of the industry, Fierce Cable
The changing economics of retrans consent and what's at stake, SNL Kagan report

CBS-TimeWarner battle continues - people notice

CBS and Time Warner Cable (TWC) have yet to reach an agreement on retransmission consent, and people are noticing.
  To recap, CBS and TimeWarner (as a cable operator) are required to regularly reach an agreement on the terms under which CBS's owned-and-operated (O&O) local broadcast stations are carried on cable systems in their broadcast areas.  During the last round of retransmission consent negotiations, reports indicate, CBS insisted on more money for carriage than Time Warner was willing to pay.  Under the 1996 Telecommunications Act, if agreement isn't reached within a certain time frame, the cable system is required to stop carrying the local station's signal.  As part of CBS's negotiating strategy, allegedly, was to also force Time Warner to pay higher carriage fees for CBS cable-only channels, Time-Warner dropped all of those channels as well.  CBS responded by cutting access to cbs.com (and the programs it provides access to) to all Time-Warner internet service customers.

The programming blackout extends to some 3.5 million homes in some of the largest TV markets in the US, and will inevitably have an impact on ratings as well as the value of the CBS and TWC brands.  CBS trumpeted that it remained in first place in Nielsen ratings for the first full week of the blackout, despite a small decline in total viewers.  But CBS shouldn't crow too much, it's top prime time show only grabbed a 1.4 rating and saw a 30% drop in viewing. (I'll note that August is traditionally a low viewing month, and that the ratings don't include the estimated 5 million people who get their programs online).

The impact on local station ratings - particularly for their local news programs - has been much more significant.  At LA's KCBS, viewership for their main local news programs fell 25-33% from the previous week; NY's WCBS saw 17% declines, and Dallas-Ft Worth O&O KTVT saw their news numbers fall 13-19% (depending on which news broadcast).  The declines are enough to trigger make-goods and is impacting last-minute ad sales.  Their is significant concern at the local level about continuing impacts, particularly if the blackout continues into the fall sweeps period (which traditionally determine local advertising rates).

That both parties are concerned about the impact of the blackout can be seen in some recent deals between CBS and TWC to temporary lifting of the blackouts - to carry the NY mayoral and comptroller campaign debates in New York, and offering the Tennis Channel during the U.S. Open Tennis championships.

This week, current FCC interim chairman Mignon Clyburn weighed in, expressing frustration that CBS and TWC haven't reached a settlement.  The FCC, though, has limited authority to intervene in negotiations or to order interim carriage of the signals in violation of current law.  Former FCC commissioner Michael Copps weighed in, arguing that CBS's actions may violate the FCC's Network Neutrality provisions.

“CBS is perpetrating an audacious violation of the FCC Open Internet ('net neutrality') rules... These rules guarantee consumer access to lawful content. They are designed to prevent just this sort of corporate censorship.”

Time Warner didn't go quite so far as to allege CBS wrongdoing, but in a filing with the FCC (which is looking into retransmission consent rules), they argued that CBS attempted to use the retransmission consent rules to "leverage the must--have nature of its broadcast network programming to force a multichannel video programming distributor (“MVPD”) to accept massive and unwarranted fee increases and oppressive carriage terms."

As I posted earlier, this ought to be fun to watch, unless you're a Time Warner customer and like CBS programming.

Sources - CBS tops ratings, but don't declare victory over Time Warner yet, Los Angeles Times

CBS stations' ratings drop as Time Warner Cable blackout continues, Los Angeles Times

Former FCC Commisioner Bashes CBS For Web Blackout, Daily Online Examiner

FCC filing on behalf of Time Warner Cable, FCC website

edited - fixed some language and grammar issues.

CBS/TimeWarner Squabble Denies Viewers - UPDATE

Apparently CBS really needs cash - otherwise the retransmission fees fight with TimeWarner would have been settled long ago.  The short version is that stations get to negotiate for compensation from cable and other multichannel video bundlers for the rights to rebroadcast the broadcast station signals every few yeats.  Last Friday was the negotiation deadline, and FCC rules require cable and multichannel systems to drop the broadcast signals if no agreement has been reached.  So TimeWarner dropped the CBS-owned local broadcast stations (mostly in large markets) from their line-ups.

  To add some spice, Time-Warner also dropped all CBS-owned cable networks (including Showtime and TMC) at the same time.

  Then CBS tried retaliating by blocking access to CBS programming through the internet to TimeWarner internet customers.

  From reports, it seems like the hang-up is that CBS wants at least $2/month per subscriber from TimeWarner - a price that is difficult to justify from an economic perspective for a network whose ratings have been falling for decades, and which has been touted as "free TV." (at least when accessed off the air).  While less than rate leader ESPN gets, its more than twice as much as other general interest cable networks are getting.

-- A quick aside - CBS approached me as an outside consultant in the late 1990s as to the retransmission value of their network.  At the time, based on primetime audience viewing share and average cable subscription rates, they thought they ought to be getting $5-7 per month per subscriber.  I had to remind them that viewing isn't the same as willingness to pay, and that pushing for any significant amount in fees would likely be an economic and PR disaster for CBS  After all, they'd be asking people to pay for access to "free" broadcast programming, and cable would gladly advise customers about how to get the programs over-the-air (or these days, offer CBS as a stand-alone a la carte channel and see how many would be willing to pay).  Apparently they didn't like my analysis, because they "forgot" to pay me the agreed stipend (that's why I feel comfortable sharing this with you now).  Still, they didn't push for cash in that round of negotiations, so I guess they felt I had a point.

Since most viewers in those markets have options for getting CBS free (over-the-air and online through CBS.com), or bundled in with other channels from alternative multichannel services, in the long term viewers will figure out how to get what few programs they really want from CBS.  Still, in the short term, lack of "normal" access is likely to hit viewing and ratings hard.  In the meantime, CBS isn't gaining any PR points from their insistence that viewers pay for access to what the network's been touting as "free TV" for years.  TimeWarner isn't helping itself either in the short-term, although they may benefit in the long term as consumers start to learn just how much they're being asked to pay for network programming (those rising fees aren't just cable company greed - they're mostly pass-throughs of retransmission fees from broadcast and cable networks).

Should be fun to watch, although I doubt it'll go on for long - there's too much to lose for both CBS and TimeWarner.

Update:
TimeWarner has made an offer to CBS to include it as an "a la carte" channel, at whatever price CBS wanted.

"Rather than our debating the point, we would allow customers to decide for themselves how much value they ascribe to CBS programming," said TimeWarner CEO Glenn Britt.

CBS dismissed the offer as a "sham" and "PR stunt." Recent statements from media analysts suggest that moving to a la carte could likely cut revenues to networks and program producers in half.  Maybe CBS does know how much value viewers place on access to CBS programming after all.

Sources -  No Deal! CBS and Showtime Go Dark on Time Warner Cable, Deadline-New York
CBS Blocks Time Warner Customers From Watching Full Episodes on CBS.com,  TechCrunch

CBS Twitter feeds Hacked

CBS has acknowledged that the Twitter feeds for 60 Minutes, 48 Hours, CBS Denver, and its main account were hacked over the weekend.  As a result, the accounts were suspended on Saturday night.

Earlier in the day tweets coming from the 60 Minutes account seemed farfetched, including one that claimed the US government was "hiding the real culprit of the Boston bombing."

Other Tweets contained links to virus-laden sites, and rants about government conspiracies and treatment of Syria.  The Syrian Electronic Army claimed credit; previously they have claimed credit for the hacking of Twitter accounts at the BBC, NPR, Reuters, several radio & TV stations, and the NGO Human Rights Watch.

Sources -  CBS Twitter Feeds Are Compromised,  TVNewsCheck
Syrian Electronic Army claims credit for CBS Twitter accounts hack,  SlashGear.com

CBS makes News

The latest quarterly report on CBS's financial health showed gains from the tail end of 2012 political advertising, and growing retrans fees from their O&O (owned and operated) broadcast TV stations.

  Total revenues for CBS were up slightly (2%), sparked by a 3% increase in advertising revenues.  However, the gains were centered on their broadcast station operations, rather than the national TV network.  Upfront sales for the network's 2013 Fall season fell below expectations, showing only a 9% increase over last year.  Political advertising went primarily to their O&O TV stations.  Still, advertising revenues were the leading income sector for CBS, earning $2.4 billion in the fourth quarter of 2012/

  Licensing and affiliation fees are becoming a major revenue source for CBS, coming in at $1.98 billion. CBS said O&O retrans fees were on track to reach $500 million; cable network affiliation and subscription revenues up 8.6% to $505 million, while revenues from content licensing and distribution deals (primarily with Hulu and Netflix) dropped 6.6% to $25 million.
  CBS's outdoor advertising business saw steady revenues, at $340 million for the quarter.  CBS said it was sticking with plans to sell off its international outdoor advertising business as opportunities presented, and restructure the US outdoor business as a real estate investment trust.

  In a separate announcement, CBS said it was expanding its interest in cable networks by becoming a minority partner in Mark Cuban's new AXS cable network.

Les Moonves, president/CEO of CBS Corp. stated: “This is an innovative way to use our tentpole programming to gain more ownership in the cable network business. AXS TV will now serve as a terrific complement to our existing broadcast television entertainment programming.”

Details on the proposed deal were not revealed at the time.

Sources - Moonves: CBS Revs, Retrans Fees Up, Cable Fees Rise 9%, Media Daily News
CBS Buys Into Cable, Secures Stake in Cuban's AXS,  Media Daily News