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CBS’ long game in battle with Time Warner Cable

One of the more baffling questions in CBS’ retransmission fight with Time Warner Cable is why the network has gone so far as to block TWC broadband subscribers from accessing its content online.

That step, more than any other aspect of the dispute, has focused the attention and risked the ire of the FCC and Congress, without any clear benefit to CBS. Why cut off consumer access to your own programming on a platform that is not at issue in the negotiation over traditional cable carriage? Isn’t that like cutting off your nose to spite your face? What does it gain CBS, especially given the heat it is drawing from regulators?

Here’s one possibility: Maybe CBS wants to make broadband access an issue in re-trans negotiations.

One hint of what the network might be playing at came in CBS executive VP of planning, policy and government relations Martin Franks’ testimony last week before the New York City Council. In response to a claim that MVPDs do not have the profit margins to absorb the price hikes being demanded by CBS and other networks, Franks pointed to the “handsome profit margins” cable operators earn from the broadband side of their business.

“They could easily choose to absorb these programming costs and still be very profitable,” he said.

Re-trans fights are ultimately about dividing a pie. The fees paid to cable and satellite providers by video subscribers results in a pool of money from which operators must pay programmers, their own operating costs and shareholders. That pool isn’t getting any bigger these days; in fact it’s shrinking, making the division of the pie a less-than-zero sum game For networks with ambitions for higher re-trans fees, the shrinking pie means a fiercer fight for their slice.

Networks have made rhetorical use of the hefty margins and robust growth cable operators are earning from their broadband business in previous re-trans fights, and no doubt covet some of that revenue. But by cutting off TWC broadband subscribers’ access to its content, CBS is going beyond mere rhetoric.

In effect, it’s treating TWC’s ISP business as simply another form of retransmission of CBS content, and demanding that the revenue the operator generates from that business be put on the table as part of the re-trans negotiations.

That’s not what retransmission consent was designed to do. The consent requirement concerns the retransmission of broadcast signals, not broadcasters’ content. By cutting off online access to its content, however, CBS has effectively blurred the line between the two.