Online video streaming services like Netflix and Amazon became a new sticking point in the increasingly acrimonious talks between Time Warner Cable and CBS, as the companies squared off on Thursday about how to treat the new competitors.
Both companies confirmed they were back at the negotiating table. But little progress was made toward ending the blackout that had deprived more than 3 million Time Warner Cable customers of CBS shows in New York, Los Angeles and Dallas.
A CBS Corp executive told a New York City Council hearing on Thursday that negotiations with Time Warner Cable Inc have "gone badly off course" and accused the cable company of trying to negotiate terms that would limit CBS's ability to do business with such online TV services as Netflix Inc and Amazon.com Inc.
Martin Franks, an executive vice president at CBS, said Time Warner Cable has been insisting on securing the same terms and conditions of their last agreement which started in 2008 and expired in June.
These would supply the cable company with some CBS content for free, which online players such as Netflix pay "millions of dollars to distribute."
"Perhaps their real aim here is to use those outdated terms to hamstring our ability to do business with Netflix, Amazon, Hulu Plus and other new entrants that pose a new competitive threat to their former, cozy, unchallenged monopoly status," Franks said.
Martin added that "CBS is not going to become Time Warner Cable's accomplice in trying to throttle those new services," referring to companies such as Netflix and Amazon.
Time Warner Cable called CBS' comments "erroneous."
A spokesman said that its 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."
It also said it does limit CBS from giving its content away for free online on its website or through apps.
A CBS spokeswoman later responded that Time Warner Cable had given the broadcaster an ultimatum. Time Warner Cable either does not want CBS doing deals in the digital space with companies like Netflix or it wants to take all of CBS' online content for free, CBS said.
A Time Warner Cable spokesman then added that the cable company is willing to pay more for the same rights it had in a previous agreement and that "CBS is countering by taking some of those rights away and charging more and we don't think it's right for customers to pay more while getting less."
The debate around online content comes while cable operators are facing challenges from competitors such as Netflix that are making inroads with viewers who can pay less to watch shows online instead of paying for cable subscriptions. When a subscriber cancels their cable TV subscription, it is known as "cutting the cord."
"Cord cutting used to be an urban myth. It isn't anymore. The numbers aren't huge but they are statistically significant," said Moffett Research analyst Craig Moffett in a research note.
Moffett estimates that about 898,000 U.S. households have cut the cord in the past 12 months, up from 455,000 households the previous year.
If the two companies fail to strike an agreement by Sunday, Time Warner Cable customers in the affected cities will miss the final day of golf's PGA Championship, the last tournament of the four major golf events this year.
The blackout started last Friday when the two sides could not reach an agreement on the fees that Time Warner Cable pays CBS to carry some local stations owned by the broadcaster in some of the largest U.S. TV markets.
Rory Whelan, Time Warner Cable's regional vice president of government relations, in testimony at the same hearing about the blackout, accused CBS of "coercive bundling practices" and said CBS's blocking of Time Warner Cable's Internet content exhibits conduct "beyond the pale."
Earlier this week, Time Warner Cable's chief executive, Glenn Britt, made a proposal to CBS CEO Leslie Moonves to sell CBS as a single channel, rather than part of a package, a move Moonves dismissed as an empty gesture.
Aereo Inc, the online television venture backed by media executive Barry Diller, said on Thursday it was expanding service to Dallas, one of the cities affected by the blackout.
(Reporting by Liana B. Baker in New York; Editing by Ron Grover and Xavier Briand)