A few weeks ago, CBS Corporation (NYSE:CBS) and Time Warner Cable (NYSE:TWC) took their disagreement over carriage fees to another level, as each firm’s existing carriage fee agreement expired, effectively blacking out Time Warner Cable (NYSE:TWC) subscribers from viewing the network.
Since then, Valuentum has seen really no signs of the companies coming to any sort of agreement. The Federal Communications Commission warned on Aug. 9 that, if the two firms didn’t reach an agreement, the government could get involved and force a resolution . Such an event would be an incremental negative to CBS Corporation (NYSE:CBS) because Valuentum doubts the FCC would see a reason why consumers should be forced to pay more for a network they can otherwise access for free.
How is viewership trending?
CBS Corporation (NYSE:CBS) won last week’s national ratings war, but reported that it lost about 46,000 viewers (last week’s average viewers: 5.55 million), or less than 1% of its total audience. Therefore, either Time Warner Cable (NYSE:TWC)’s 3.2 million subscribers weren’t watching CBS Corporation (NYSE:CBS) in the first place, or they resorted to using the traditional TV antennae. Valuentum tends to believe they simply hopped over to the antennae since it really isn’t a large inconvenience for many viewers.
On the flip side of the situation, CBS Corporation (NYSE:CBS) local viewership has experienced a fairly steep decline in the wake of the blackout. Viewership for KCBS-TV in Los Angeles declined 33% for the 5 p.m. hour and 25% for the 11 p.m. hour from the previous week . That’s a large swing for a relatively stable news market, and a decline in viewership impacts local station revenue. Smaller, local advertisement spending may shift toward stations with strong local viewership, and away from the CBS affiliates. Whether this will have a large impact on CBS Corporation (NYSE:CBS)’ top or bottom line remains to be seen.
Who’s hurting most?
Though we have heard much from individuals on both sides of the battle, it is hard to quantify where the balance of power lies. Though some consumers have left Time Warner Cable (NYSE:TWC) for competitors such as DIRECTV (NASDAQ:DTV), Valuentum thinks it is hard to say if the blackout caused the change or simply provided a catalyst for those who were going to switch services anyway.
If the CBS blackout is causing inflated and unmanageable subscriber churn, Time Warner Cable (NYSE:TWC) will be forced to accept higher retransmission fees. However, if churn remains relatively in-line with historical rates and expectations, then there is no pressure on Time Warner Cable (NYSE:TWC) to accept higher fees. In fact, if CBS’ ratings are only down marginally and Time Warner is not losing customers, then what incentive is there for a deal?