As the economy slows and competition intensifies, the always-contentious negotiations between programmers and cable-TV operators may be entering a bitter new phase. And with a federal mandate to transition to digital television just four months away, the stakes may even be higher.In one of the biggest and most hostile battles in recent years, on Friday local broadcaster LIN TV Corp.'s stations were pulled from Time Warner Cable Inc. The move followed heated but thus-far unsuccessful negotiations about retransmission fees -- a charge per subscriber LIN TV is demanding for its local stations -- and affects 2.7 million Time Warner Cable homes. That represents about 30% of LIN TV's footprint.
Shares of Time Warner Cable had dropped about 15% in the previous five days, in part because investors feared the contract with LIN TV would lead to customer losses, said Thomas Eagan, an analyst at Collins Stewart. Shares of Time Warner Cable rose slightly Friday, up less than 1% to close at $22.46 in 4 p.m. composite trading on the New York Stock Exchange. LIN TV shares slipped 11% to $3.80.
Facing declining ratings and a ravaged local ad market, broadcasters like LIN TV are "going to have to play hardball like this," Mr. Eagan said.
To be sure, negotiations between programmers and cable systems over issues like retransmission are always bitter affairs involving posturing and brinksmanship.
But given the transition to digital TV mandated by the Federal Communications Commission in February 2009, the stakes are higher. Analysts widely expect many customers who currently receive on-air broadcasts to switch to cable, satellite or phone operators offering pay television rather than go through the complicated process of procuring the equipment required to receive digital broadcasts. Cable executives have said they are creating special discount packages aimed at these potential customers.
The stakes are particularly high for Time Warner Cable, as the company is preparing for other major negotiations with broadcasters including Univision Communications Inc. this year. "Time Warner Cable has the most to lose because if they give in here, they may end up having to give in down the road also," said Mr. Eagan.
LIN TV Chief Executive Vincent Sandusky said the company needed to secure higher retransmission fees when the dispute first surfaced a month ago. "If we weren't able to be successful in getting subscription fees, I think our local broadcast business would really be jeopardized," Mr. Sandusky said at the time.
Time Warner Cable spokesman Alex Dudley said broadcasters like LIN TV will have to look elsewhere. "They are not gong to prop up their failing business model on our customers' backs," Mr. Dudley said.
By: Vishesh Kumar and Sam Schechner
Wall Street Journal; October 5, 2008
