* Time Warner Cable offers risky a la carte proposal
* CBS calls offer a "sham," "empty gesture"
* Verizon FiOS seeing increase in requests from Time Warner
By Liana B. Baker and Sinead Carew
Aug 5 Time Warner Cable Inc Chief
Executive Glenn Britt sent a letter to CBS Corp CEO Les
Moonves on Monday offering a controversial new proposal to end
the blackout of CBS shows in large TV markets including New York
and Los Angeles.
Britt proposed selling CBS to customers as a single channel
on an "a la carte" basis, an idea dismissed by CBS as a "sham."
The exchange was the latest development in a contentious
public battle between the No. 1 rated U.S. broadcast network and
the No. 2 cable provider that has left millions of customers
unable to watch the summer hit "Under the Dome" and live sports
that airs on CBS such as golf.
As the blackout that began late Friday stretched into its
third day, rival TV provider Verizon FiOS said it was
receiving requests for service from Time Warner Cable customers
who couldn't watch CBS.
To end the standoff, Britt said Time Warner Cable could
offer customers the chance to pay for the CBS network "a la
carte," an idea viewed as risky in the U.S. cable industry.
"Rather than our debating the point, we would allow
customers to decide for themselves how much value they ascribe
to CBS programming," Britt said.
CBS, meanwhile, called the proposal "a sham" and "a public
relations vehicle designed to distract from the fact that Time
Warner Cable is not negotiating in good faith."
Time Warner said it was "disappointed" by a "lack of
responsiveness" from CBS.
"Our efforts to get CBS programming back for our customers
are sincere, and we have offered two proposals to accomplish
that, while CBS has offered nothing in return," the company said
in a statement.
Media companies like CBS sell packages of channels to
operators, a common practice in the cable industry. CBS cable
channels such as Showtime also went dark in the dispute with
Time Warner Cable because the company negotiates its programming
deals in one bundle.
Letting customers cherry pick the channels they want could
cut revenue of media companies. Needham & Co estimated in July
that the cable industry including media content providers could
lose 50 percent of its revenue, about $70 billion, if the a la
carte was widely adopted.
Time Warner Cable said CBS could choose the price for the a
la carte channels and the broadcaster could collect all the
This is not the first time Time Warner Cable has used this
tactic. In 2007, Britt offered to sell NFL games separately to
customers when his company could not agree to terms to carry the
NFL Network cable channel.
"A la carte is never going to happen," BTIG analyst Rich
Greenfield said. CBS added that "anyone familiar with the
entertainment business knows the economics and structure of the
cable industry doesn't work that way and isn't likely to for
Time Warner Cable also offered to increase the fees it would
to pay to CBS but it did not elaborate on the specifics.
RBC Capital Markets analyst David Bank estimates that CBS
currently receives $1 per month, per subscriber and is seeking
to double that to $2 per subscriber.
The latest proposal from Time Warner Cable would not include
digital rights, which it said CBS had provided to other cable
companies. Those rights include CBS's premium channel Showtime's
digital app, which competes with HBO GO, said a source familiar
with the matter.
Recent history shows these fights can hurt pay TV providers,
who lose subscribers when they sign with rivals. Last summer,
satellite operator DirecTV said its cancellation rate
increased when Viacom's networks including Nickelodeon
and MTV went dark for 10 days.
Cablevision blamed its 15-day blackout of Fox in 2010, which
deprived its customers of most of the World Series, for its loss
of many of the 35,000 subscribers during that quarter.
Verizon FiOS, one of Time Warner Cable's fiercest
competitors in New York, said it was receiving "an increasing
number of requests for service from Time Warner Cable customers
unable to watch CBS content."
Verizon spokesman Bill Kula did not specify how many Time
Warner Cable subscribers had contacted FiOS. He said that FiOS,
a fiber based service that competes with cable operators for
television, Internet and telephone customers, feels "very well
positioned to take advantage of the situation."
Verizon's FiOS service has been one of Time Warner Cable's
biggest threats in New York, and has made serious inroads
against the cable company in local markets such as Staten
Island, said Moffett research analyst Craig Moffett.
He estimated that Time Warner Cable competes with FiOS in
about 14 percent of its footprint nationally, with about half of
that overlap from their head to head competition in New York
City. FiOS also has a presence in Dallas, another Time Warner
Cable market that is blacking out CBS.
ISI analyst Vijay Jayant said Time Warner Cable will lose
some customers in the dispute but it is too early to tell how
many will depart.