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CBS reaches deal to end blackout — but it’s no solution for a broken TV model

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CBS(s cbs) and Time Warner Cable(s twc) reached a fee arrangement over the weekend, ending a dispute that saw the network go dark in millions of homes for more than a month. The deal means blacked-out viewers will now get to see NFL football next week, but it also means the two sides punted on the underlying issues — concerning bundles and sports rights — that has made the overall economics of TV increasingly unviable.

In case you’re not a TWC subscriber, the crux of the dispute was this: since the sides couldn’t agree on how much the cable company should pay CBS for its content, Time Warner blacked out the popular channel and CBS’s Showtime offerings as well. CBS upped the ante by blocking TWC subscribers from getting online access to its shows.

Such blackouts are nothing new in the TV business, of course. But this one stood out because it involved a major network and went on for an inordinately long time — and because, as blackouts become far more frequent, it highlighted more than ever why the traditional TV business is in crisis. So who’s to blame?

The most obvious culprit for the blackout is the NFL and other sports leagues, which keep demanding more money for the rights to show their games. The TV companies keep agreeing to pay the spiraling prices because, in an era of DVR’s and ad-skipping, live sports are one of the last forums where advertisers can reach a mass audience. The overall result is the price of TV programming increasing much faster than the rate of inflation, leaving networks like CBS and distributors like Time Warner to fight — and engage in petty tactics like blackouts — over who has to pick up the tab. Ultimately, it’s not really important which side wins because it’s viewers, including the half of the country who aren’t sports fans, who pay in the end.

And while sports rights directly drive the increase in cable and satellite prices, they also have an indirect effect: encouraging the TV industry to persist with its obnoxious “bundle” model in which viewers are forced to buy channels they don’t want to watch in the first place. In this model, the extra channels (keep in mind most people watch only about 10 or 15 channels) funnel extra money to the TV programmers — which they use to pay for more sports rights. And so the vicious circle continues.

The solution here, of course, is some sort of “a la carte” model in which viewers can choose to pay for a group of channels they want to watch. Skeptics argue that this would be just as expensive as existing cable prices, but this seems unlikely given that the price of current cable bundles can break $100; there also seems room to create what the founder of Aereo, a mobile TV service for $8 a month, calls a “rational bundle.”

Meanwhile, as a growing host of “over-the-top” TV providers like Roku, Intel, Google(s goog) and Apple(s aapl) nibble at the edges of the industry, it appears increasingly inevitable that the archaic bundle model will get blown up once and for all. Indeed, it appears even the likes of CBS are aware of this; it was the network’s demands to slice and dice programming into various digital and mobile pies that was reportedly a key reason for the prolonged blackout.

The bottom line is that the deal between CBS and Time Warner Cable was no solution, but will simply inflict more costs on TV consumers who are unable to pay much more. And, in the bigger picture, the fight in ten years time will likely be seen as one of the last gasps of an out-dated TV model. A new model will emerge soon enough but, in the meantime, the FCC should consider using its considerable regulatory power to ensure that viewers aren’t caught in the middle through future blackouts.

(Image by Refat via Shutterstock)

4 Responses to “CBS reaches deal to end blackout — but it’s no solution for a broken TV model”

  1. Dail Whiteley

    when this topic comes up , there is always a hole that’s left out. there is the basic lineup that runs lets say 60$. and it gives you the most popular channels espn fx the news ones. then you have expanded which has all the crap you really don’t need so they toss in the encore channels and some sports for 20 more which i realized i don’t watch so i dropped it from my line up. i saved 20 bucks but i love sports well there’s the sports package that runs 10 and i dont get that crap so im still saving. what im getting at is there are ways to save with cable. and if you cant afford it , dont get it. dont want it , dont get it.

  2. Chuck Dotson

    While I like the idea of a la carte programming, the reality is that (1) the savings won’t be as much as people think; and (2) a lot of cable networks will go out of business.

    Right now ESPN gets, what, $5 per subscriber? There is no way that they can be profitable charging that a la carte because, as big a deal as sports is, the number of people who will pay it for it separately is a significantly smaller subset of the entire cable subscriber population. If half of cable subscribers want ESPN then it would be $10 a month. But what if it’s only a quarter? $20 a month isn’t bad for Single Guy who really only watches sports. But for a family where dad watches sports ($20 for ESPN), mom watches Food Network and HGTV ($10 and $10), and the kids watch Disney ($20) and Cartoon Network ($20) the savings aren’t great. And that’s if the family *only* wants those channels. Plus, what about internet service?

    I’m not saying that I don’t prefer a la carte, or that it won’t be cheaper, but I don’t think that a la carte will instantly bring about tele-topia.

    • The thing that you are overlooking is that ESPN is going to be the one losing revenue because the NFL, SEC and Big 12 are not going to cave in to their demand for payment to justify the salaries, stadiums and coaches salaries that have just exploded the model. When Universities go bankrupt because people can’t afford to attend, pay tuition and continue to support these institutions of higher learning and their off shoot the pros then the cards will collapse. Mark Cuban has an interesting article on his blog titled “Will your College be bankrupt before you graduate”. All sports are just about to price themselves out of the market with their greed.