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Get ready to see the “Glee” kids cry. News Corp. (s nws) today threatened to drop its broadcast and regional sports programming from Time Warner Cable (s twc) entirely unless the cable provider forks over more money. (“Fox News” and “Fox Business,” however, are in the clear.) TWC and the owner of the Fox television channels are engaged in a heated battle that pit content against the pipe. But it’s a fight that if it continues, will cause both players to lose.
Cable companies pay for every specialty channel they offer by way of a carriage fee, and in some cases pay retransmission fees for broadcast channels. Those costs are negotiated between the cable company and the content owner, but in recent years such negotiations have grown increasingly nasty, especially over retransmission fees.
Last year, TWC went to the wire during negotiations with Viacom (S via) over carriage fees, prompting Viacom to run ads telling cable subscribers they were in danger of losing MTV and “The Daily Show.” Last year here in Austin, our NBC (S ge) channels were turned off as TWC fought Sinclair Broadcasting (s sgbi) over retransmission fees.
Such negotiations are escalating into full-blown fights against the background of web and television convergence that’s shifting the power between content owners and cable providers. The while content owners are gaining ground because they now have a second pipe into the home through a broadband connection, the cable guys still have the audiences and the cachet with advertisers.
If Fox does drop its broadcast lineup from TWC’s 14 million customers, it will likely buy ads telling TWC customers they can find some of the content online at places the Fox web site or Hulu — which would benefit Hulu, in which Fox has a stake, immensely. Fox may also encourage subscribers to purchase an HD antenna for about $50 to get the broadcast channels in HDTV over the air for free.
Either would hurt TWC. Customers that try out web TV and HD antennas and realize it works for them will ask themselves the logical question: “Why pay for cable?” And all that web TV-watching could cause some serious congestion on TWC’s broadband network. Considering how little investment TWC has so far been willing to make in its network, such congestion would be a negative for both the cable provider and its customers.
But Fox would lose, too, as it would have to forfeit the ad revenue (in addition to the carriage fees) that comes with broadcasting such shows on oldteevee. Indeed, until Fox can figure out how to better monetize its web audience, it needs cable.
In the meantime, there’s also a threat that the federal government will get involved, according to a note out today from Pali Research:
While Retrans negotiations are all about leverage, the benefits of leverage to a broadcaster could evaporate if the government chooses to get involved going forward – in turn, a fine line must be walked. Remember, broadcasters are using public spectrum to broadcast and a now Democratic-majority FCC may not be as willing to let consumers pay the penalty for retrans battles the way prior administrations did (whether it be via higher video pricing and/or signal loss).
The entire drama makes Comcast (s cmcsa), with its recently inked joint venture and subsequent control over NBC Universal, look pretty smart, as it’s given the cable company a stake in a content company just as content gains the upper hand in these negotiations. It also gives Comcast a revenue stream as this playing field shifts. Without content, TWC is backed up against the ropes and ready to fight.
Thumbnail image courtesy of Time Warner Cable; “Glee” image courtesy of Fox.