Cablevision, Fox Fuel Fire That Could Burn the Cable Industry

The two companies are risking government intervention and cord cutting by letting their retransmission fight bleed over into a fourth day

Rupert Murdoch's News Corp. and James Dolan's Cablevision are playing with fire, and the whole cable industry could get burned.

The two companies continued to squabble late into the day on Monday about the price the cable provider pays to rebroadcast Fox content, as some 3 million residents in New York, New Jersey, Connecticut and Pennsylvania have been forced to forgo Fox, Fox Deportes, Nat Geo Wild, and Fox Business Network.

At stake are not only tens of millions of dollars in fees and lost advertising, but the specter of government intervention in what are becoming increasingly nasty carriage disputes.

Also read: "What the Fox-Cablevision Fight Is All About"

“There’s no road map for these kind of negotiations,” said Larry Gerbrandt, a cable analyst and consultant with Media Valuation Partners. “These talks are going out of control because of the personalities involved.”

In one corner is News Corp. Chief Murdoch, armed with a sprawling media empire that gives him the power to hemorrhage ad revenue in the service of a cause.

At the other side of the ring is Cablevision CEO Dolan, who has come to view escalating network fees as a personal bete noire. Under Dolan, Cablevision, more so than any other cable provider, has shown a willingness to go to the mat during carriage disputes.

In the past year alone, Cablevision customers have endured pulled signals by Scripps and the Walt Disney Co. when negotiations went off the rails. But while Cablevision customers may have seen this show before, the chances for a quick wrap up to the dispute with Fox are looking slim.

Already, Phillies fans have been unable to watch their team in the National League Championship Series, and last Sunday's football game between the New York Giants and the Detroit Lions was blocked out.

The 800-pound gorilla, however, will be the World Series, which will kick off on Fox Oct. 27, and could very well include the hometown New York Yankees.

“This is sudden death, and both sides know a lot is at stake,” Gerbrandt said. “If Fox caves, then everybody will expect it to cave going forward, but the reality is, it is a deflationary marketplace. That means Cablevision can’t afford to keep passing costs along to consumers.”

In many respects there’s a third unseen player affecting the outcome of this latest flare up — Dish Network. The satellite company is engaged in its own dispute with News Corp. over retransmission fees. Dish and its 14 million subscribers are racing to hammer out a new pact by Nov. 1. If News Corp. bows to Cablevision’s demands, it could weaken its hand in a possible standoff against Dish.

“We are hopeful Fox’s blackout of 3 million Cablevision customers this weekend will shed light on our own dispute with Fox and News Corp,” Francie Bauer, a Dish spokesperson, said in a statement. “We are pleased that so many consumers, political leaders, and public policy groups have recognized the need for government intervention to protect consumer rights."

The problem with the kind of brinkmanship that’s currently taking place is that it centers on the type of events that people pony up their $70 monthly cables fees in order to see.

Over the past year, TV watchers have looked on in horror as fights between companies such as Time Warner and Fox, AT&T and Rainbow Media and Disney and Cablevision have raged on. In most cases, disaster has been averted before the threatened plug pulling — though the disagreement between Cablevision and Disney went so far down to the wire that customers missed the first 15 minutes of this year's Academy Awards.

Almost worse, it has become standard practice for the media companies involved to prey on their customers' fears or sympathies by launching attack ads or dueling websites that plead their respective cases.

All of which is grating more and more on the victims — the subscribers, who may more and more vote with their feet as negotiations grow lengthy and shrill. Indeed, it's not as if Cablevision, for example, doesn't have its share of regional competition. Even the Federal Communications Commission (FCC) reminded viewers that if Cablevision customers got too fed up, they could always switch to Verizon's FiOS, DirecTV, Dish Network or AT&T's U-verse to access the sports events.

“Fox is being a bully, and it’s unreasonable because they have an inflated view of what their content is worth,” said Laura Martin, a media analyst with Needham and Company. “They should just take the money, because otherwise they’re going to attract the government’s attention.”

Also read: "Politicians Respond to the Fox/Cablevision Battle."

It may be too late for that. The FCC has said that the talks should be resolved between the two parties, but Congress is getting more impatient. Prominent politicians have been falling all over themselves to condemn the blackout, among them U.S. Senators Frank R. Lautenberg (D-NJ), Robert Menendez (D-NJ), and John Kerry (D-Mass.).

"I think we need new rules of the road. We need to change the law that governs this market for the new environment we face," Kerry said in a statement.

Kerry announced almost immediately after Fox pulled its signal that he planned to introduce legislation that will force cable companies and content providers into binding arbitration to avoid a blackout in the future.

Ironically, that could be just what Cablevision wants. Almost every statement it has issued on the subject has centered on the company’s willingness to enter into arbitration. “They are clearly trying to ingratiate themselves with politicians, and in election year, this is an easy bipartisan issue for politicians to get behind,” Christopher Marangi, a media analyst with GAMCO Investors, told TheWrap.

“It is increasingly clear that Cablevision’s real intention is to continue making this their subscribers’ problem in the hope that with enough inconvenience, politicians will intervene to protect Cablevision’s huge profits — nearly $795 per subscriber last year,” the company said in a statement on Monday.

At this point, the real losers could be the two companies themselves.

“There is a lot of risk for both sides,” Robin Flynn, a cable and media analyst at SNL Kagan told TheWrap. “They could alienate advertisers, they could alienate customers, and the public is losing the stomach for these fights.”