Next cable TV battle pits Time Warner against Disney
TUESDAY, 20 JULY 2010 14:46
BY EVAN WEINER
You probably have heard or seen the new ad campaign warning Time Warner Cable TV customers that you better circle the wagons and switch to some alternative mode of TV delivery system soon or else. You see Time Warner and the Disney Corporation are engaging in a very public negotiation about the future of WABC, ESPN and other Disney products on that multiple systems operator's channel lineup. Disney wants more money for their product, Time Warner is "holding the line" to protect their customers from rate hike.
If the talks breakdown over money, there is a chance that Time Warner cable subscribers might be deprived of Regis and Kelly along with ESPN programming and other Disney cable networks on September 1. Disney will just stop providing Time Warner with programming.
If you think you have heard this before you are correct. Last winter, it was the Dolan family's Cablevision versus the Disney Company and at stake was the Academy Awards. The Dolans and the Disneys reached a carriage deal during the Academy Awards and suddenly Channel 7 in New York magically reappeared after the two sides agreed on a money package.
Time Warner, like Cablevision, is both a multiple systems operator and a cable TV programmer. Normally this would be a conflict of interest but seemingly there are no rules in the cable TV industry and ultimately the losers are cable TV consumers who have to pay more and more money for a product that is non-essential — cable TV. People could live without cable TV but both cable TV multiple system operators and cable TV programmers know that the majority of their consumers might complain but very few actually get rid of the product. So both sides seek sympathy while they line their pockets with cable fees that are never broken down in bills and don't allow much freedom of choice as there is a basic tier and an expanded basic tier and then other channels.
Time Warner collects billions of dollars from consumers for CNN, Headline News, the Cartoon Network and TNT along with other products. But Time Warner decided to launch a "Roll Over or Get Tough" website trying to make a case in informing consumers that Time Warner is on patrol and will remain ever vigilant against companies like Disney who want to raise the price of ESPN and other networks.
Time Warner claims that the multiple systems operating company keeps just six cents of every dollar collected for net income, 54 cents goes to operational costs and network operators like Time Warner (oops), Comcast, Disney, NBC Universal, FOX and CBS get 40 cents of every dollar for their programming.
On the website, Time Warner asks. "What do you suppose would happen if that $.40 (of the money that Time Warner collects from customers for programming) in the example above rose by 300%? Simple math would tell you that the price that Time Warner Cable pays for programming would rise from $.40 to $1.60 (oops, someone failed math at Time Warner U as 300 percent would be a $1.20)... and that would clearly impact the price you have to pay.
"But, in recent years, that's exactly what has happened. Some of those broadcast TV stations and cable networks have been demanding enormous price increases — as much as 300% more. And if we don't pay up? Then they threaten to pull the plug on the sports, entertainment and news that you rely on.
"This puts us in a tough position — roll over and raise your prices or get tough and risk losing the programming you love"
The cable operators and other delivery systems are now banding together to fight the programmers who want to pull their signals in contract disputes. Time Warner Cable, Cablevision, DirecTV and Verizon asked the Federal Communications Commission in March to consider requiring broadcasters to maintain their signals during disputes and to go to arbitration when the two sides cannot agree on the fees on retransmission consent.
This is a case of big boys fighting over money and the public is being used as a prop to justify Time Warner's position. Consumers are paying top dollar for Time Warner properties and are helping to pay Larry King more than six million dollars a year on CNN (CNN's on air "talent" doesn't come cheaply) and hundreds of millions of dollars to the National Basketball Association. (It is estimated that the NBA may be getting as much as $930 million a year from United States national TV rights which are owned by two cable networks — Time Warner's Turner Sports and Disney's ESPN). TBS also signed big contract entertainment deals for comedy and drama TV along with Conan O'Brien and George Lopez.
Last April, the National Collegiate Athletic Association-CBS and Time Warner signed an agreement that will give the over-the-air network, CBS, and the cable/broadband/wireless distributor Turner Broadcasting, the right to show the Division 1 Men's Basketball Championship between 2011 and 2024 on their delivery systems. The distributors, CBS and Turner Sports, will pay the NCAA members about $10.8 billion over the life of that contract. All the tournament games will be shown live across four national networks, beginning in 2010. CBS Sports and Turner Broadcasting will help out on the NCAA's corporate marketing program.
Just how will CBS and Turner Sports pay the actual bill? Sumner Redstone's CBS has to hope that there will not be a deep recession anytime in the next 14 years which will scare advertisers away from the TV, because over-the-air TV has just one revenue source to cover the bills — sponsorship or marketing partners — while Turner Broadcasting (Time Warner) has a dual revenue stream, user fees and advertising.
Most of the money needed to pay off the cable/satellite TV bill will come from consumers. Although Time Warner will never give exact figures as to how much they charge consumers for TNT, TBS or truTV, those numbers are believed to be a dollar a subscriber for TNT, fifty cents for TBS and about a dime for the ratings-challenged truTV, which used to be the ratings-challenged Court TV.
Time Warner is actually footing the bill; with CBS paying Time Warner back as much as $670 million a year. CBS will show the Final Four until 2015 and then the over-the-air network, CBS and the dual revenue cable company Time Warner, will alternate coverage on an annual basis.
In the fall of 2006, Major League Baseball signed a seven-year agreement with Turner Broadcasting System, which gave TBS the exclusive rights to the National League Championship Series in 2007, 2009, 2011 and 2013 and the American League Championship Series in 2008, 2010 and 2012. TBS also was given the rights to all regular season tie-breaker games, all Division Series games and the All-Star Game Selection Show. In 2008, TBS was allowed to carry Major League Baseball games on 26 Sunday afternoons. Time Warner (TBS) has a local deal with the Atlanta Braves and has a piece of the New York regional sports cable channel, SNY, along with the Mets ownership and another cable company Comcast. The deal with Major League Baseball is estimated to be worth between $300 and 420 million.
Who do you think is paying for the programming?
Ted Turner? Of course not. He is not even at Turner anymore. Overall consumers might be paying more for Time Warner news-sports and entertainment than Disney's ESPN.
Disney has spent billions for National Football League, National Basketball Association, Major League Baseball and college sports contracts. ESPN just gave what is believed to be a 12-year, $1.86 billion contract to the Atlantic Coast Conference for the rights to college football and basketball games held in the conference. ESPN and the ESPN channels have the highest carriage fees in the business at over $4 a month per subscriber. While the big boys fight, the consumer gets no say unless the consumer decides to get rid of cable TV.
The cable industry has all sorts of anti-consumer protection thanks to the 1984 Cable TV Act passed by both bodies of Congress and signed into law by President Ronald Reagan. Cable networks can be bundled by the multiple systems operator and consumers cannot pick and choose what channel they want to purchase. The last pro-choice attempt that Congress made to help consumers took place in 2004. Georgia House member (Republican) Nathan Deal's proposed legislation that went nowhere.
Representative Deal had a very unusual coalition of support for his bill. The Concerned Women for America, along with the Parents Television Council, the Consumers Union and the Consumer Federation of America, petitioned Congress, asking for pro-choice when it comes to cable-television options and threw its weight behind the Video Programming Choice and Decency Act of 2004, which would have given all cable subscribers the right to pick and choose what programming they want.
Time Warner may want to "Roll Over or Get Tough" but before they start complaining about The Disney Company (and there is a laundry list of problems associated with Disney), they ought to be a little more honest about their accusations. Time Warner is as much a culprit in rising cable TV costs as anyone in the business.
Evan Weiner is an author, radio-TV commentator and speaker on "The Business of Sports" and can be reached at firstname.lastname@example.org