Future Tense

The CBS-Time Warner Cable Blackout Battle: Time for Congress to Rescue the Hostages

Glenn Britt, chairman & CEO of Time Warner Cable

Photo by Larry Busacca/Getty Images for WICT

If you are among the more than 3 million Time Warner Cable TV subscribers in New York City, Los Angeles, Dallas and five other markets, you weren’t able to watch the CBS hit Under the Dome this week—and you are also likely to miss Tiger Woods and the PGA Championships on CBS Sports this weekend.

The reason: An impasse in negotiations between “America’s most-watched network” and the second-largest cable provider has blacked out CBS for millions of cable households. When viewers turn to CBS, an otherwise blank screen informs them that CBS is demanding outrageous increases in fees that threaten to steadily inflate cable bills.

In retaliation, CBS is blocking all Time Warner Internet subscribers from accessing video content on its website that is freely available to everyone else. When users (including those who don’t purchase cable TV from TWC) go to CBS.com, they get a message urging them to “Call Time Warner Cable and tell them you want your CBS shows back!”

This sort of brinksmanship between broadcasting and cable behemoths is becoming increasingly widespread—with consumers held hostage. Broadcast network blackouts on pay TV systems are at an all-time high, rising to 91 in 2012 from 12 in 2010. Currently, viewers in 52 markets can’t watch 75 separate stations.

At this point you may be wondering: Isn’t CBS-TV available free over the air to any home with a TV antenna? (Remember those?)

Well, yes. Decades ago the government gave CBS stations free use of public airwaves, a subsidy now worth billions in what is increasingly a spectrum-starved Twitterverse. In exchange, CBS stations have public interest obligations to offer their primary channel free over the air and to provide a certain amount of news, weather, and children’s programming, plus emergency alerts.

The current rash of TV channel blackouts result from a broken market that is itself a product of increasingly antiquated laws and regulatory neglect.

When cable TV came along, Congress decided to protect the broadcast industry by enacting rules that require cable providers to carry every local over-the-air broadcast station on its basic tier. This guaranteed broadcast stations continued access to 100 percent of the local viewing market. Broadcasters would continue to rely on advertising revenue—and cable companies could charge a fee in exchange for better reception and a bigger bundle non-broadcast channels, such as ESPN and CNN.

Unfortunately, “must carry” rules don’t work both ways. In the 1992 Cable Act, Congress also gave broadcasters the option to insist on payment for “retransmission consent.” This allows stations with leverage to deny cable systems permission to re-broadcast their otherwise free signal (as well as from satellite and telco TV services such as DirecTV and Verizon’s Fios TV, respectively).

The increasing number of delivery platforms for video content has emboldened the major broadcast networks to insist on a much larger share of the pay-TV pie. News reports state CBS is seeking to double its retrans fee from $1 to $2 per month for every TWC subscriber. Overall, broadcast retransmission fees rose from $500 million in 2008 to an estimated $2.4 billion last year, and are expected to reach $5.5 billion by 2017, according to data compiled by research firm SNL Kagan.* Consumer advocates believe pay-TV providers will pass these costs along in the form of steadily rising monthly rates.

Cable companies like TWC are uncharacteristically concerned these days about affordability, since younger people in particular are demonstrating a willingness to “cut the cord” and rely on online video offerings, such as Netflix, Hulu, and YouTube (so-called “over the top” video). In fact, yesterday CBS Executive Vice President Martin Franks told the New York City Council that the impasse in their negotiations was due primarily to TWC’s insistence that retransmission fees also include the right to make CBS programs available to subscribers online and on demand at no extra cost.

Ironically, broadcasters are threatened by a different type of online video delivery. TWC is encouraging its customers to watch CBS on Aereo, a disruptive new service bankrolled by billionaire Barry Diller that records and retransmits local TV stations online for $8 a month. Because it receives TV free over the air and records it on remote DVRs, thus far federal courts have found that Aereo is not a cable service and is not subject to retransmission consent.

Although online video and more consumer choice is the likely long-term trend, in the here and now consumers are hostage to an escalating series of both TV and broadband blackouts exacerbated by outdated regulation.

The Federal Communications Commission denies it has authority to reform the retransmission consent process. In reality, Congress gave the FCC the explicit authority to regulate retransmission consent “to ensure that the rates for the basic service tier are reasonable.” And certainly blocking Internet access to CBS.com to gain leverage in an unrelated retrans dispute involving a handful of markets violates the good-faith negotiating standard that the FCC adopted long ago. And yet the FCC cannot even bring itself to express outrage on behalf of consumers, let alone do anything about it.

Ultimately, Congress needs to revisit the rules. A promising start is the so-called “cable a la carte” legislation introduced by Sens. John McCain, R-Ariz., and Richard Blumenthal, D-Conn. Their Television Consumer Freedom Act would allow cable and other pay-TV providers to offer broadcast channels for a separate fee that would go to the broadcasters. This would allow consumers to decide whether they want to pay extra for channels they can already receive free with an antenna (or for $8 a month via an online service like Aereo).

The fairness of the McCain/Blumenthal approach seems undeniable. If CBS wants to be treated as a cable channel, they should return their public spectrum. At a minimum, consumers should be offered the transparency and choice promised by a la carte—so that they can escape the hostage scenario of repeated blackouts and pay only for the content they actually want to watch.

Correction, Aug. 10, 2013: This blog post originally misstated the total amount of broadcast retransmission fees paid in 2012. It was $2.4 billion, not $2.4 million.