Time Warner Cable clearly picked the wrong fight when it decided to resist CBS’s demands for higher retransmission fees and a narrower bundle of rights. By the time the stare-down ended on Sept. 2, and the 32-day blackout of CBS stations on TWC systems in New York, Los Angeles and Dallas was lifted, the broadcaster got nearly all of what it wanted and the cable operator had suffered severe financial and strategic damage.
Just how severe became clear this week, with the release of TWC’s third-quarter results, which covered the blackout period. The MSO lost 306,000 video subscribers in the period covering July 1-Sept. 30 — the largest quarterly loss in the company’s history and nearly double Wall Street’s consensus estimate. Subscriber revenue fell by 5 percent in the quarter, or $122 million.
While it’s not possible to attribute all of those subscriber losses to the blackout — Comcast wasn’t affected by the blackout and also lost subscribers in the quarter — the magnitude of the hit TWC took was out of proportion to the rest of the industry, suggesting the CBS dispute had significant impact.
Certainly, other pay-TV providers and broadcasters will interpret it that way as they approach their own carriage and retransmission consent negotiations. As MoffetNathanson analyst Craig Moffet put it in a research note, “The CBS dispute apparently took a much larger toll than anyone would have imagined, and this colored all of the results.That’s bad news for future programming negotiations, and not just for TWC. Every cable operator now goes to the table knowing that CBS not only won the war, but left TWC badly damaged even for having fought the fight.”
Yet while CBS was winning its fights over distribution fees with Time Warner Cable it’s looking increasingly vulnerable in what used to be considered the core piece of its business: prime time programming. According to Nielsen, CBS, NBC and ABC are drawing record-low live-plus-same-day ratings so far this fall TV season, particularly during the 10pm to 11pm time block. While the shortfall could have multiple causes, one leading cause, according to Nielsen, appears to be that viewers are spending that time watching shows they recorded earlier in the evening or on other nights.
DVR viewing gets counted by Nielsen as part of its C-3 and C-7 ratings system, of course, but advertisers, who provide most of the networks’ prime-time revenue, greatly prefer live viewing because it’s harder to avoid the commercials that way. According to Nielsen, only 56 percent of broadcast programming is now viewed live.
Another problem for the networks is the aging of the audience they still have at 10pm. The median age of a network viewer at that time is 56.4 years, well outside the standard 25-54 year old demo TV advertisers generally target.
Time Warner Cable and other pay-TV providers may be tempted to indulge in a bit of Schadenfreude over the broadcasters’ struggles in prime time, but it actually increases the danger to distributors. The less leverage the networks have with advertisers the more they are likely to try to squeeze revenue out of the distribution side of the business, where they still have most of the leverage.
Update: A different takes; http://www.forbes.com/sites/merrillbarr/2013/11/01/in-a-world-of-dvr-monsters-do-time-slots-still-matter/.
Unless Congress does something to change the current retransmission consent regime, pay-TV providers can expect to face ongoing and escalating demands for higher retransmission fees, even if it continues to cost the industry paying subscribers.