Monday afternoon, content owner CBS (click ticker for report: ) and cable provider Time Warner Cable (click ticker for report: ) came to an agreement over retransmission fees, allowing CBS programming to resume for Time Warner Cable customers. The battle lasted for nearly a month, and as we predicted, the upcoming NFL season spurred a deal. We noted that anger from consumers regarding the situation seemed relatively subdued, but that can change quickly when a fan cannot view a game.
Unfortunately, no exact details of the agreement are available, so determining a winner and a loser becomes more difficult. However, commentary from the CEOs of both companies suggests the deal was more favorable for CBS than Time Warner. CBS made “some minor concessions” while Time Warner CEO Glenn Britt noted:
“While we certainly didn’t get everything we wanted, ultimately we ended up in a much better place than when we started. We are also encouraged by the 50+ consumer organizations and legislators that supported our call for Congress and the FCC to reassess the 1992 retransmission consent rules. The rules are woefully out of date, are the primary reason cable bills are rising, and too frequently leave our customers without the programming they love. We sincerely hope that policymakers heed that call and take action to prevent these unfortunate blackouts soon.”
We think it’s safe to assume that Time Warner isn’t paying $2/subscriber, but the deal likely represents a sizeable increase from the previous $1/subscriber rate. More importantly, Britt’s commentary suggests some future regulatory intervention may come into play that could cap retransmission fees in the name of consumer protection.
Although the primary battle was over retransmission fees, the companies also disagreed over digital content distribution, which CBS accused Time Warner of wanting to severely limit. CBS CEO Leslie Moonves informed employees that CBS had retained control of its digital content suggesting the deal was more favorable for CBS on this front.
Valuentum’s Take
Without specific details of the contract, it is difficult to quantify the exact financial implications of the deal, but the news flow surrounding the deal suggests CBS was a winner. However, Britt’s belief that the company is in a better position than where it started and claims that the dispute had ignited Congressional interest will likely mean more over the long-term than this single retransmission contract. If government regulators come to prevent rising cable bills for consumers, content owners could lose a great deal of negotiating leverage.
With the influx of competing services like Hulu and Netflix (click ticker for report: ), content prices have quickly escalated. Yet, we remain confident that the distribution mechanisms themselves like cable and satellite providers create value and save consumers money relative to an a la carte system. CBS clearly looks like the winner in the near-term, but long-term, the winner isn’t as clear, especially if regulators get involved.
Additionally, TV consumption continues to be the path of least resistance to media consumption, something we do not believe is likely to change in the near future. As a result, we’re happy to hold shares of DirecTV (click ticker for report: ) in the portfolio of our Best Ideas Newsletter.