Analysis: Cable consumers face more blackouts, higher prices
By Liana B. Baker
(Reuters) - Cable and satellite customers beware. Prepare for more blackouts of major stations and keep a close eye on that cable bill.
The cost of a deal announced Monday between Time Warner Cable and CBS, that ended a month-long blackout of the main CBS channel and its Showtime cable offering in New York and Los Angeles, is likely to be passed onto the consumer.
And as video programming costs climb across the board, there are likely to be many similar disputes leading to a disruption of service in various parts of the country.
This year so far, there have already been blackouts in 80 markets, putting cable and satellite companies on a path to beat last year's count of blackouts in 91 markets, according to the American Television Alliance, which tracks such disputes.
The broadcaster usually wins. Time Warner Cable's fees for CBS channels and programming will likely triple over the next few years, media analysts said. Time Warner Cable's blacking out of CBS channels slowed but didn't significantly curb the retransmission fees that CBS was seeking, they said.
The two sides came to an agreement only four days before the start of the highly popular National Football League's regular season. CBS has rights to broadcast top games on Sunday afternoons.
Time Warner Cable's hard line could embolden other players to be just as aggressive at dropping popular channels, said Barry Parr, an analyst at research firm Outsell who follows the television industry.
They may have little choice. Video margins for cable companies have been shrinking. Barclays' analyst Kannan Venkateshwar estimates video programming costs grew to 44 percent of operators' video revenue in 2012 from 35 percent in 2005.
The squeeze has gotten so intense that Time Warner Cable's recent standoff prompted supportive statements from satellite operator DirecTV, which usually would see a blackout as a chance to poach subscribers.
Terms of the CBS-Time Warner Cable dispute were not disclosed but analysts estimate CBS secured the $2 per subscriber fee per month it was aiming to get for its broadcast network from about 56 cents. That will only spur other broadcasters such as Fox, Walt Disney Co's ABC and Comcast's NBC to seek large increases of their own when contracts come up.
"There is a new template here. Two dollars is the new holy grail," said Wunderlich Securities analyst Matthew Harrigan.
He estimates Fox currently pockets close to $1.25 per month per subscriber on average, while ABC receives 50 to 65 cents and NBC less than that.
Time Warner Cable will likely be forced to raise prices early next year to make up for the increased costs of the CBS deal, Harrigan said.