In an ongoing dispute over retransmission fees, Time Warner Cable (NYSE:TWC) blacked out CBS (NYSE:CBS) networks in three cities on August 2, affecting 3.2 million viewers. The two companies are in a feud over how much money the cable operator will pay for CBS’ programming. According to the recent ratings published by Nielsen, the impact of the blackout on the network was minimal.  It appears that CBS has an upper hand in the feud due to its content advantage. However, a longer blackout may eventually hamper CBS’ ratings, as it is losing viewership of 3% of the nation’s 115.6 million TV households.
Higher Retransmission Fees
Broadcasters charge retransmission fees to cable operators for carrying their networks. Overall, broadcast retransmission fees rose from $500 million in 2008 to an estimated $2.4 billion in 2012, and is expected to reach $6 billion by 2018.  The contract between the two companies expired in the last week of July, but both the companies couldn’t reach a deal. While Time Warner Cable says that CBS is demanding a 600% premium in the affected markets over what it charges in other cities, CBS has maintained that it is seeking fair value for its content. CBS is the most watched broadcasting network in the U.S. and it has never faced a blackout in history while Time Warner Cable has a history of more than 50 public disputes and subscriber disruptions.  The growing number of delivery platforms for video content has led the major broadcast networks to demand for a much larger share of the pay-TV pie. CBS reportedly seeking to double its retrans fee from $1 to $2 per month for every Time Warner Cable subscriber. 
CBS’ Ratings Stays Firm
Despite the blackout for Time Warner Cable’s 3.2 million customers, CBS once again finished on top of the ratings for the week ending August 11, first full week the network was blacked out on Time Warner Cable’s systems. CBS’ currently popular series - Under The Dome was the most viewed program for the week with 10.42 million viewers. Big Brother also ranked high in ratings bringing in 6.43 million viewers on Wednesday, August 7, 6.61 million on Thursday, August 8, and 7.14 million on Sunday, August 11. However, the network has seen a minor decline in prime time ratings, which averaged 5.51 million viewers, down from 5.78 million in the previous seven days. 
CBS said that the ratings impact from the blackout is estimated at only 1%. In terms of ratings and ad-revenue, August is relatively one of the lowest months of the year. It appears CBS has an upper hand in the feud due to the content advantage. However, Los Angeles, New York and Dallas, where the network is blacked out are the three of the nation’s five most populous television markets and a longer blackout may eventually hurt the network’s ratings. It will be interesting to see how long the dispute continues and who wins the fight. The NFL season will kick in September and it could bring some urgency between the two companies to settle the dispute.
Our price estimate for CBS stands at $53, roughly in line with the market price.Notes:
- CBS wins ratings in first full week of Time Warner Cable blackout, LA Times, Aug 13, 2013 [↩] [↩]
- Kagan: Retrans to Top $6 Billion by 2018, Broadcasting Cable, Nov 5, 2012 [↩]
- Time Warner Cable and CBS Are Scolded Over Blackout, The New York Times, Aug 8, 2013 [↩]
- The CBS-Time Warner Cable Blackout Battle: Time for Congress to Rescue the Hostages, Slate, Aug 9, 2013 [↩]