NEW YORK – On Monday CBS (NYSE:CBS) and Time Warner (NYSE:TWX) agreed to end their contract dispute with CBS winning not only a significant financial increase for its programming, but also its stake in the digital future. The agreement ended a month long blackout by restoring the CBS network and its associated cable channels, including Showtime, to Time Warner subscribers in New York, Los Angeles, and Dallas.
According to Bill Carter of the New York Times, the outcome illustrated the leverage that content providers, like CBS, have over distributors, like Time Warner as viewers simply switched to alternative channels such as satellite and streaming to watch their favorite programs, such as the National Football League (NFL) on CBS.
In many ways, Time Warner entered the donnybrook with little or no leverage and the closer the blackout crept towards the NFL season, what little leverage that was left was lost. According to David Bank, a media analyst at RBC Capital Markets, ‘with the content, especially the N.F.L. and CBS being the No. 1 network in the ratings, you just have to believe they are going to win every time.’
Neither side released the specifics of the deal; it would appear that CBS won out in their demand to increase fees for the rights to rebroadcast their programs. Another critical issue was the right to resell the digital broadcast rights web-based distributors such as Hulu (which CBS also announced a deal to broadcast certain shows), Netflix (NASDAQ:NFLX), and Amazon (NASDAQ:AMZN).
In a memo to the company’s staff, CBS President Leslie Moonves said that the network had won on almost over issue; claiming ‘we are receiving fair compensation for CBS content’ specifically mentioning additional fees for and the retention of digital rights. While Time Warner CEO was less that jubilant, claiming ‘we certainly didn’t get everything we wanted.’ However, CBS did make ‘some minor concessions’ adding that we (Time Warner) ‘ended up in a much better place than when we started.’
Aiding CBS in the dispute was the lack of pressure from the Federal Communications Commission (FCC), according to media analysts the commission’s options were limited because the right of a station owner to seek retransmission compensation was granted in a law passed by Congress in 1992. The deal might have made it easier to networks to press cable and satellite operators in favor of other models, such as streaming as CBS quietly renegotiated a deal with the FiOS bundled Internet phone and television service owned by Verizon. According to Bank, ‘I think the Verizon deal happening when it did was not helpful to Time Warner.’