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What CBS and TWC Battle Could Mean for Future Retransmission Battles

The network is in a position of power, but alternative platforms will truly determine the future of retransmission deals

CBS and Time Warner Cable's ugly battle over carrier fees could have long-term repercussions for the television industry as it grapples with proliferating digital platforms.  

CBS programming has been off TWC in major markets for a week, and during that time the companies have accused each other of grandstanding and punitive conduct. Regardless how – and when – this battle gets resolved, experts expect more tussles between content creators and carriers as retransmission deals come up for renewal.

Also read: FCC Chief on CBS, TWC Battle: Settle, or We'll Step In

Industry analysts say digital rights — not just the fees themselves — have become a big sticking point.

Indeed, CBS Corp. Executive Vice President Martin Franks testified before the New York City Council on this very issue Thursday, saying that TWC has placed the network between a digital rock and a hard place.

"Time Warner Cable has effectively given CBS the following choice: We can stop doing business in the digital space or give them all our content in that venue, absolutely for free," CBS followed up in its own statement. "We find both options unattractive.”

For its part, Time Warner Cable is maintaining that the issue is about greed, not distribution.

"We categorically deny that we are trying to keep CBS from doing business with any new entrant," Time Warner Cable responded to Franks in a statement. "Both our expired and proposed agreements with CBS place no restriction on their ability to sell all of their product to Netflix, Amazon, Intel or any other entity, or continue to give all of their best content away for free online, as they have to date."

But a rival network executive pointed to digital rights as a big area of contention. The executive pointed out that some retransmission agreements allow for these rights and some don’t. The older ones don't because the concept of "TV Everywhere" didn't exist yet.

"Over the last year or so, in the newer ones, it's become part of the agreement," the network executive said. "That's why negotiations and agreements are taking longer now."

Also read: CBS Slams Time Warner Cable Over Broadcast Fees for L.A. Lakers, Dodgers Games

By the time each new retransmission dispute arises, the platforms have changed, said Philip Napoli (right), professor of communications and media management at Fordham University.

Content makers want flexibility to cut distribution deals with Netflix and other services. They also want any windows tied to distribution to be shorter, giving them the ability to capitalize on any new players who enter the space. Cable companies, meanwhile, are doing their best to prevent consumer cord cutting.

Also read: CBS' Les Moonves to TWC's Glenn Britt: This Is Not Negotiating It's Grandstanding

"The cable operators and telcos are preparing for world when you can access programming over broadband, especially over mobile, but if they are going to make that investment they want to make sure that the content is delivered over their pipes," Larry Gerbrandt, a consultant and analyst at Media Valuation Partners, said.

Tensions have been rising on the broadcast side for some time, with major networks eyeing the money cable companies pay for cable channels.

Dennis Wharton, executive VP of communications for the National Association of Broadcasters, defends CBS, accusing Time Warner Cable, Dish Network and DirecTV of manufacturing a crisis in the hopes of drawing government intervention.

"Eighty percent of retrans issues this years have been caused by those three companies," Wharton told TheWrap.

The breakdown in negotiations is leading even major broadcast figures like Time Warner CEO Jeff Bewkes and 21st Century Fox COO Chase Carey (left) to at least acknowledge that the old cable order may be heading toward some kind of shake-up. In discussions with investors this week, Bewkes and Carey admitted that cable packages may shrink or morph.

But they both dismissed the possibility that subscribers will soon be able to pick and choose the channels they access on an individual basis. Sen. John McCain (R-Ariz.) has backed the so-called "a la carte" pricing model, but his efforts have built little traction. It seems unlikely that congress will step in to fundamentally alter the television business, and Carey said he did not expect bundling to change in the short to medium term.

"A la carte is a fantasy," Carey said at an investors event on Thursday. "Consumers want a bundle; they just want a different bundle."

Analysts say that any change will be spurred by customers themselves. If prices climb too high and enough customers actually end their cable service, it could force cable companies and networks to come to some sort of compromise.

There is some evidence that customers are ditching cable in the favor of internet. According to Moffett research founder and analyst Craig Moffett, pay TV companies lost a combined 382,000 subscribers during the second-quarter of 2013.

See video: Wrap Battle: Our Reporters Take Sides in CBS-Time Warner Cable Feud

"Content creators are not going to willingly change," Christopher Marangi, the associate portfolio manager of the Gabelli Asset Fund, said, "At some point the volume of customers you reach outweighs the price increases from retransmission fees. If subscribers leave then affiliate revenue will go down."

Napoli believes that each time retransmission disputes happen, they encourages broadcasters to pursue different platforms. It may increase the rate of the cord-cutting activities, which places the cable systems in a less tenable position than they used to be.

"You can almost make the argument that the cable companies are in a lose/lose here," Napoli said.