Time Warner and CBS Avert Programming Dispute

By TIM ARANGO
The New York Times
Published: Jan 07, 2009

The CBS Corporation reached a new deal on Tuesday to be paid for something that has long been free: access to its shows by cable companies.

CBS and Time Warner Cable announced a pact that includes higher fees for CBS and Showtime, its sibling premium channel, and that makes available CBS shows for Time Warner Cable’s video-on-demand services. Financial terms were not disclosed, but the deal opens a new revenue stream for broadcast television — subscriber fees, which have long been enjoyed by cable networks like ESPN or TNT.

For several years, Leslie Moonves, the chief executive of CBS, has used the soapbox of investor conferences to argue that cable companies should pony up millions of dollars a year for access to CBS shows. But cable companies have resisted paying for something that has always been free.

So the two sides have settled on a wink-and-nod approach by raising the fees that cable companies will pay to deliver cable networks owned by broadcasters — in CBS’s case, Showtime, which offers movies and original shows like “Weeds” and “Californication” — or by obtaining promises from cable companies to buy television advertising.

Both sides get what they want. CBS may claim it is receiving value for its shows, while Time Warner Cable can say it is not paying for retransmission, because the money being exchanged is not explicitly for access to shows like the CBS hit “CSI”; it is in the form of a higher payment to Showtime.

The process amounts to opaque financial shuffling that confounds analysts.

“I’ve given up even trying to figure out what anyone has paid for these things,” said Craig Moffett, an analyst at Sanford C. Bernstein & Company who follows the cable industry.

Mr. Moffett’s colleague, Michael Nathanson, who follows CBS for Bernstein & Company, wrote in a research note on Tuesday that “it is intriguing and surprising” that the sides reached a deal, which came two years before an existing deal was set to expire.

He also wrote: “The frustrating reality is that we will likely never know the full details of this deal. All distribution agreements include nondisclosure clauses, and deal terms rarely see the light of day.”

Executives from other broadcasters, like ABC and NBC, have not been as vocal as CBS in urging such payments because they are already well paid for the cable networks they own. ABC is part of the Walt Disney Company, which owns ESPN, while NBC Universal owns the USA and Sci Fi cable networks.

The deal is the first of any significant size in which CBS will be paid for retransmission by a cable company; CBS has previously signed several deals with small cable companies.

“Time Warner was significant, in the size and power of it,” Mr. Moonves said on Tuesday. “I think it opens the door for more of these deals. It sets a template, and people now know we will get paid for our content.”

The leverage held by CBS is the threat of turning off the signal. Last month, Mr. Moonves said that over the next two or three years, such fees from cable companies would add more than $200 million to CBS’s bottom line.

“We have yet to pull our signal off any cable system,” he said then. “I hope it doesn’t come to that. I don’t think it will.”

But the cable industry will not acknowledge making direct payments for carrying CBS, creating what Mr. Moffett calls a “ridiculous dance.”

“Time Warner does not want to advertise that they are paying because of fear of contaminating future negotiations,” he said.

© The New York Times. All rights reserved. This article originally appeared in The New York Times.