Moonves Says Digital Rights Worth Fighting For

CBS CEO Says Time Warner Cable Was Living In The Past

By: Jon Lafayette (Broadcasting & Cable) Sep 04 2013 - 11:50am

An important aspect of its month-long carriage battle with Time Warner Cable was securing the digital future of content, CBS CEO Les Moonves said.

“It was important we take a stand. This is a stand about content and how content is sold and how it goes to our consumers and how it will be sold in the future when digital viewing could eclipse more traditional forms of television," Moonves said in an appearance on CNBC Wednesday morning.

CBS and Time Warner Cable reached an agreement [1]and the broadcaster's programming -- signals for 13-owned stations, plus cable properties Showtime, TMC, Flix ad Smithsonian Channel -- was restored to Time Warner Cable subscribers Monday evening.

Terms of the deal were not disclosed, but Moonves said: “One of the things we won, one of the things we were fighting for, is the ability to slice and dice our content all over the place. To put it on Netflix, to put it on Amazon, to let people binge view. That’s our inherent right to do that,” he said.

Moonves said that was important as viewing via digital sources increases and potentially surpasses traditional distribution.

“I’ve been in the network television business for 30 years. I’ve been hearing about the death of network television and the death of our product. That’s not happening. It’s just changing,” he said. “Is it evolving? Absolutely. But at the core it’s still creating hits for both network and cable.”

Moonves noted that young viewers on college campuses have few TVs and watch their shows online. “But they are getting measured, we are putting more advertising in, we are getting paid for that,” he said.

“The important thing is exactly that. At the point—and that point is coming very soon—where the advertising [rates] online will be the same as they are on the network, we don’t care where you watch the shows.” He put that timeframe as within three to five years.

Moonves said that overall, he was “very pleased with the deal” with Time Warner Cable. He said that he understood that the public probably resented both sides, but that it was important to get fair value for the top rated broadcast network from cable operators via retransmission consent.

He insisted that CBS’s demands were reasonable, labeling Time Warner Cable as a company that “resented the fact that a broadcast network should get paid.”

He added that Time Warner Cable “was “looking back at a day that was gone 20 years ago that no longer exists where networks are over the air and free and everyone should be able to have them.”

Moonves said that he prefers CBS to be available over the air, but that if companies like web- based Aereo and Time Warner Cable find ways not to pay for CBS content, it might have to cease broadcast and become a pay channel.

“We could do that if we were placed into a corner because of business reasons because of an Aereo or a Time Warner Cable saying they don’t want to pay us,” he said. “I think it is highly doubtful that that will ever happen but that threat is out there.”

Moonves was asked about Time Warner Cable’s call for the government to review retransmission rules in the wake of the long CBS blackout. “To get the government involved is by far a really dumb thingm" he said. "That’s the last thing we want to do.”

1. http://www.multichannel.com/index.php?q=cable-operators/cbs-time-warner-cable-finally-sign- carriage-agreement/145231 What CBS and TWC Battle Could Mean for Future Retransmission Battles

TV | By Tony Maglio [1] and Brent Lang [2] on August 9, 2013 @ 12:12 pm

The network is in a position of power, but alternative platforms will truly determine the future of retransmission deals

CBS and Time Warner Cable's ugly battle over carrier fees could have long-term repercussions for the television industry as it grapples with proliferating digital platforms.

CBS programming has been off TWC in major markets for a week, and during that time the companies have accused each other of grandstanding and punitive conduct. Regardless how – and when – this battle gets resolved, experts expect more tussles between content creators and carriers as retransmission deals come up for renewal.

Also read: FCC Chief on CBS, TWC Battle: Settle, or We'll Step In [3]

Industry analysts say digital rights — not just the fees themselves — have become a big sticking point.

Indeed, CBS Corp. Executive Vice President Martin Franks testified before the New York City Council on this very issue Thursday, saying that TWC has placed the network between a digital rock and a hard place.

"Time Warner Cable has effectively given CBS the following choice: We can stop doing business in the digital space or give them all our content in that venue, absolutely for free," CBS followed up in its own statement. "We find both options unattractive.”

For its part, Time Warner Cable is maintaining that the issue is about greed, not distribution.

"We categorically deny that we are trying to keep CBS from doing business with any new entrant," Time Warner Cable responded to Franks in a statement. "Both our expired and proposed agreements with CBS place no restriction on their ability to sell all of their product to Netflix, Amazon, Intel or any other entity, or continue to give all of their best content away for free online, as they have to date."

But a rival network executive pointed to digital rights as a big area of contention. The executive pointed out that some retransmission agreements allow for these rights and some don’t. The older ones don't because the concept of "TV Everywhere" [4] didn't exist yet.

"Over the last year or so, in the newer ones, it's become part of the agreement," the network executive said. "That's why negotiations and agreements are taking longer now."

Also read: CBS Slams Time Warner Cable Over Broadcast Fees for L.A. Lakers, Dodgers Games [5] By the time each new retransmission dispute arises, the platforms have changed, said Philip Napoli (right), professor of communications and media management at Fordham University.

Content makers want flexibility to cut distribution deals with Netflix and other services. They also want any windows tied to distribution to be shorter, giving them the ability to capitalize on any new players who enter the space. Cable companies, meanwhile, are doing their best to prevent consumer cord cutting.

Also read: CBS' Les Moonves to TWC's Glenn Britt: This Is Not Negotiating It's Grandstanding [6]

"The cable operators and telcos are preparing for world when you can access programming over broadband, especially over mobile, but if they are going to make that investment they want to make sure that the content is delivered over their pipes," Larry Gerbrandt, a consultant and analyst at Media Valuation Partners, said.

Tensions have been rising on the broadcast side for some time, with major networks eyeing the money cable companies pay for cable channels.

Dennis Wharton, executive VP of communications for the National Association of Broadcasters, defends CBS, accusing Time Warner Cable, Dish Network and DirecTV of manufacturing a crisis in the hopes of drawing government intervention.

"Eighty percent of retrans issues this years have been caused by those three companies," Wharton told TheWrap [7].

The breakdown in negotiations is leading even major broadcast figures like Time Warner CEO Jeff Bewkes and 21st Century Fox COO Chase Carey (left) to at least acknowledge that the old cable order may be heading toward some kind of shake-up. In discussions with investors this week, Bewkes and Carey admitted that cable packages may shrink or morph.

But they both dismissed the possibility that subscribers will soon be able to pick and choose the channels they access on an individual basis. Sen. John McCain (R-Ariz.) has backed the so- called "a la carte" pricing model, but his efforts have built little traction. It seems unlikely that congress will step in to fundamentally alter the television business, and Carey said he did not expect bundling to change in the short to medium term.

"A la carte is a fantasy," Carey said at an investors event on Thursday. "Consumers want a bundle; they just want a different bundle."

Analysts say that any change will be spurred by customers themselves. If prices climb too high and enough customers actually end their cable service, it could force cable companies and networks to come to some sort of compromise.

There is some evidence that customers are ditching cable in the favor of internet. According to Moffett research founder and analyst Craig Moffett, pay TV companies lost a combined 382,000 subscribers [8] during the second-quarter of 2013.

See video: Wrap Battle: Our Reporters Take Sides in CBS-Time Warner Cable Feud [9]

"Content creators are not going to willingly change," Christopher Marangi, the associate portfolio manager of the Gabelli Asset Fund, said, "At some point the volume of customers you reach outweighs the price increases from retransmission fees. If subscribers leave then affiliate revenue will go down."

Napoli believes that each time retransmission disputes happen, they encourages broadcasters to pursue different platforms. It may increase the rate of the cord-cutting activities, which places the cable systems in a less tenable position than they used to be.

"You can almost make the argument that the cable companies are in a lose/lose here," Napoli said.

1. http://www.thewrap.com/author/tony-maglio/ 2. http://www.thewrap.com/author/brent-lang/

3. http://www.thewrap.com/tv/column-post/fcc-chief-cbs-twc-battle-settle-or-well-step-109701

4. http://en.wikipedia.org/wiki/TV_Everywhere

5. http://www.thewrap.com/tv/article/cbs-slams-time-warner-cable-over-broadcast-fees-la-lakers- dodgers-games-109096

6. http://www.thewrap.com/media/article/cbs-les-moonves-responds-twcs-glenn-britt-youre-not- negotiating-youre-grandstanding-108696

7. https://www.thewrap.com/

8. http://www.bizjournals.com/losangeles/news/2013/08/07/some-316000-pay-tv-subscribers-cut- cord.html

9. http://www.thewrap.com/tv/article/thewrap-reporters-choose-sides-cbstime-warner-cable-feud- video-109606 CBS, Time Warner Cable trade barbs on Day 7 of blackout

Thu Aug 8, 2013 1:44pm EDT

* CBS: Time Warner Cable trying to hurt its online content deals

* Time Warner Cable says CBS uses coercive practices

* Customers could miss PGA Championship if no deal reached

* Both parties confirm they are negotiating again

By Liana B. Baker

Aug 8 (Reuters) - A CBS Corp executive said on Thursday that negotiations with Time Warner Cable Inc have "gone badly off course" and accused the cable company of trying to negotiate terms that would limit CBS's ability to do business with such online TV services as Netflix Inc and Amazon.com Inc.

The comments, made at a New York City hearing on Thursday, came on the seventh day of a blackout that has deprived more than 3 million Time Warner Cable customers from watching CBS stations in large U.S. markets including New York and Los Angeles.

Despite the war of words, both companies confirmed on Thursday that they are negotiating again.

If the two companies fail to strike an agreement by Sunday, Time Warner Cable customers in the affected cities will miss golf's PGA Championship, the final tournament of the four major golf events this year.

Rory Whelan, Time Warner Cable's regional vice president of government relations, in testimony at the same hearing, accused CBS of "coercive bundling practices" and said CBS's blocking of Time Warner Cable's Internet content exhibits conduct "beyond the pale." Testimony from both executives was provided to Reuters by the companies.

Martin Franks, an executive vice president at CBS, said Time Warner Cable has been insisting on securing the same terms and conditions of their last agreement which started in 2008 and expired in June. He said Time Warner Cable is asking for terms that would supply it with some CBS content for free, which online players such as Netflix pay "millions of dollars to distribute."

"Perhaps their real aim here is to use those outdated terms to hamstring our ability to do business with Netflix, Amazon, Hulu Plus and other new entrants that pose a new competitive threat to their former, cozy, unchallenged monopoly status," Franks said.

He added that "CBS is not going to become Time Warner Cable's accomplice in trying to throttle those new services," referring to companies such as Netflix and Amazon.

Time Warner Cable said at the hearing that it had proposed two options for it to resume carrying CBS, which were both rejected by the broadcaster. Earlier this week, Time Warner Cable's chief executive, Glenn Britt, made a proposal to CBS CEO Leslie Moonves to sell CBS as a single channel, rather than part of a package, a move Moonves dismissed as an empty gesture. [ID: nL1N0G70LX}

Time Warner Cable also said in its testimony on Thursday that it offered a new proposal for CBS to carry its signal temporarily until the two companies can hash out a new deal. It said that CBS refused the offer, and that it hopes the broadcaster reconsiders.

Aereo Inc, the online television venture backed by Barry Diller, said on Thursday it was expanding service to Dallas, one of the cities affected by the blackout.

Aereo is controversial within the industry because it pays no licensing fees to broadcasters. The TV industry is concerned that Aereo, which allows subscribers to live-stream broadcasts of TV channels, could threaten the traditional business model.

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on- stories/ [1]

Comments (2) thebigdog [2] wrote:

Funny that in most major markets you don’t need cable to get CBS HD go buy a cheap antenna… you will be shocked….

Aug 08, 2013 3:20pm EDT -- Report as abuse [3] ilovemymiracle [4] wrote:

CBS sucks anyways. But Showtime has a couple of good shows. Dexter/Homeland and Ray Donavan

Aug 08, 2013 4:16pm EDT -- Report as abuse [5]

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1. http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on- stories/

2. http://www.reuters.com/profile/thebigdog

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4. http://www.reuters.com/profile/ilovemymiracle

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Digital Video Rights Are Hurdle in CBS-Time Warner Cable Fight

Online Services Add Tension to Dealings Between Content Owners and Distributors

Associated Press Time Warner Cable customers in some major cities have been without access to CBS programming since last Friday. Shown, CBS President Les Moonves, left, with TV host David Letterman at an event in New York in May.

Digital video rights have become a major sticking point in the carriage dispute between Time Warner Cable [1] Inc. TWC +0.93% [2] and CBS [3] Corp., CBS +0.23% [4] highlighting how new online TV services are adding more tension and complexity to the dealings between content owners and distributors. Some three million Time Warner Cable customers in Los Angeles, Dallas and New York have been without access to CBS programming since last Friday because the companies haven't reached a new carriage agreement. Talks have resumed as the blackout continues, the companies said Thursday.

Digital video rights have become a sticking point in the dispute between Time Warner Cable and CBS, highlighting how new online TV services are adding more tension and complexity to the dealings between content owners and distributors. Amol Sharma has more. Photo: AP.

In their negotiations, the companies made significant progress on the money Time Warner Cable would pay to carry the CBS TV signals, but one big roadblock was that the cable operator believes those fees should also buy it the rights to distribute content via on-demand platforms, people familiar with the talks say.

Under the companies' now-expired TV carriage deal, struck in 2008, CBS had granted Time Warner Cable expansive on-demand rights. For example, the cable operator could automatically have the rights—at no additional cost—to any programming licensed to streaming video players like Netflix [5] Inc. NFLX +1.76% [6] and Amazon.com [7] Inc. AMZN +1.19% [8]

Now CBS wants to roll back those rights to give itself more flexibility to strike lucrative licensing deals with the online video players and new entrants like Intel Corp. that are vying to offer cable TV channels over the Internet, the people say. In CBS's view, the TV world has changed fundamentally since 2008 and the old terms are outdated.

In a sign of how far apart the companies have been, Time Warner Cable wanted at one point the rights, at no incremental cost, to put entire current or past seasons of CBS shows on its video on-demand service, compared with the current offering of just a few recent episodes, a person familiar with the situation said. Those are the type of rights CBS and other TV networks have begun selling to Netflix for large sums. Martin Franks, CBS's executive vice president of planning, policy and government relations, told a New York City Council committee on Thursday that Time Warner Cable's aim is to "use those outdated terms to hamstring our ability to do business with Netflix, Amazon, Hulu Plus and other new entrants that pose a new competitive threat" to the cable company.

Time Warner Cable has been dropping CBS, as the companies battle over fees. Why cause such a massive disruption over what amounts to pennies-per-day per per subscriber? What's at stake for the cable and broadcast industries? WSJ's Jason Bellini has #TheShortAnswer.

Time Warner Cable says it is willing to agree to a fee increase for carriage of CBS but only if the old terms for on-demand rights remain in place. The cable operator believes CBS should be happy to grant it expansive digital rights since it is already a big customer of the broadcaster by virtue of buying traditional TV rights, a person familiar with the situation said.

The cable company denies it is trying to crowd out CBS from doing deals with new entrants. "CBS wants us to pay a lot more for a lot less and take content away from our customers so that they can give it to someone else exclusively," a Time Warner Cable spokeswoman said in an emailed statement. "We want our customers to get what they pay for."

At one stage Time Warner Cable also wanted to make recent TV episodes on CBS.com available only to pay TV subscribers, who would gain access with a username and password, a person familiar with the situation said. Other consumers could only access those shows eight days after they air. That request isn't in Time Warner Cable's most recent proposal to end the blackout.

Currently, CBS puts shows up on its website the day after they air, without restrictions on who can access them, and generates about $100 million per year in online ads, a growing revenue stream it doesn't want to jeopardize, the person familiar with the matter said.

Digital rights have been part of negotiations between programmers and distributors for years. But the prominence of the issue in the Time Warner Cable and CBS dispute reflects how much the online video marketplace has matured since the companies last negotiated a carriage agreement five years ago.

"The original deal was struck in 2008—a lot of digital distribution as we know it now didn't exist then," said Mike Morris, an analyst at Davenport & Co. Media companies, seeking to adapt to changing consumer viewing habits and generate new sources of revenue, have become more aggressive about licensing their content to digital platforms, he said.

Like others in the cable industry, Time Warner Cable has been losing video subscribers and has blamed programming costs for driving up consumers' bills. It has received support during the standoff with CBS from rival distributors.

"We do not have the profit margins to absorb those costs and are forced to pass them on to consumers," said Dave Shull, chief commercial officer of Dish Network Corp., in a statement Thursday. Dish is involved in a blackout dispute with broadcaster Raycom Media in 36 smaller markets.

In his testimony Thursday, CBS's Mr. Franks said Time Warner Cable can afford to pay higher programming fees without passing on costs to customers, citing the cable operator's "handsome profit margins" from its high-speed Internet business. "They could easily choose to absorb these programming costs," he said, "and still be very profitable."

Write to Amol Sharma at [email protected] [9] and Shalini Ramachandran at [email protected] [10]

A version of this article appeared August 9, 2013, on page B3 in the U.S. edition of The Wall Street Journal, with the headline: Digital Rights Are Hurdle in TV Fight.

1. http://online.wsj.com/public/quotes/main.html?type=djn&symbol=TWC

2. http://online.wsj.com/public/quotes/main.html?type=djn&symbol=TWC?mod=inlineTicker

3. http://online.wsj.com/public/quotes/main.html?type=djn&symbol=CBS

4. http://online.wsj.com/public/quotes/main.html?type=djn&symbol=CBS?mod=inlineTicker

5. http://online.wsj.com/public/quotes/main.html?type=djn&symbol=NFLX 6. http://online.wsj.com/public/quotes/main.html?type=djn&symbol=NFLX?mod=inlineTicker

7. http://online.wsj.com/public/quotes/main.html?type=djn&symbol=AMZN

8. http://online.wsj.com/public/quotes/main.html?type=djn&symbol=AMZN?mod=inlineTicker

9. mailto:[email protected]

10. mailto:[email protected] CBS Blackout on Time Warner Cable May Last Until N.F.L. Season

By BILL CARTER [1]

Published: August 15, 2013

More and more, it is looking like the blackout of CBS stations in more than three million homes subscribing to Time Warner Cable could last until the start of the National Football League season on Sept. 8, analysts who are monitoring the situation said this week.

That would mean three more weeks without CBS programming for the cable subscribers. The contract dispute is approaching the two-week mark with no hint of an imminent settlement.

“I really think these guys are going to need the N.F.L. to add a sense of urgency to this,” said David Bank, a media analyst with RBC Capital Markets.

Neither side in the standoff has mentioned any progress over the last several days. Both have continued to level charges and accusations of blame for Time Warner Cable’s decision to remove CBS’s stations in areas the cable company covers, which include subscribers in New York, Los Angeles and Dallas.

The issue centers on fees that cable companies are obligated to pay to broadcast stations for the right to retransmit them on their cable systems. CBS has asked for a substantial increase, widely estimated at a $1 per subscriber raise. Time Warner Cable has declared the demands exorbitant.

But the focus of the dispute is now additional rights to packages of programming that CBS sells to on-demand subscription video services like Netflix and Amazon. Time Warner Cable wants to gain access to that content; CBS insists it would mean Time Warner Cable was getting for free something it sells for hundreds of millions of dollars to on-demand services.

The only action on the conflict taking place in recent days has involved parties outside the negotiations. Three residents in Southern California filed a class-action suit against Time Warner Cable on Wednesday saying the plaintiffs would not have signed up with the operator had they known programming would be denied to them.

Several politicians including both California senators have urged the Federal Communications Commission to step in, but the agency’s avenues of input are limited. If either side makes a complaint of bad-faith negotiating, the F.C.C. could potentially intercede but neither side has made such a complaint.

While representatives of both sides have said the negotiations continue, no one is predicting the end is in sight.

The N.F.L. season has been cited frequently as the bridge too far because of expected vociferous protests from customers missing games. The cable operator acknowledged at the start of the blackout that it was removing the CBS stations well ahead of the football season because it would lose leverage in the talks once the season began.

But Mr. Bank said the lack of progress thus far points to the need for the N.F.L. season to provide a deadline to generate movement. “We’re going to follow this like a ping-pong game,” he said, but added, “I would think now that it’s going to take another several weeks.”

1. http://topics.nytimes.com/top/reference/timestopics/people/c/bill_carter/index.html Time Warner Cable Content Incentives Thwart New Web TV

By Andy Fixmer and Alex Sherman - Jun 12, 2013

Time Warner Cable Inc. (TWC) and other pay-TV operators are offering incentives to media companies that agree to withhold content from Web-based entertainment services such as those pursued by Intel Corp. (INTC) and Apple Inc. (AAPL), people with knowledge of the matter said.

The incentives can take the form of higher payments, or they can include threats to drop programming, said the people, who asked not to be identified because the discussions are private.

Cable companies are seeking to keep customers by ensuring access to exclusive content while fending off competition from upstart Web providers. Time Warner Cable has more than 300 contracts, and some of them may bar media outlets from providing content to online pay-TV services, Chief Executive Officer Glenn Britt said yesterday in a meeting with analysts at the National Cable & Telecommunications Association show.

“We may well have ones that have that prohibition,” Britt said at the conference in Washington. “This is not a cookie-cutter kind of business.”

Some agreements require media companies that license content to Web-based systems to offer the same online rights to Time Warner Cable, Britt said.

Brewing Battle

There’s a brewing battle being waged against incumbent cable-TV companies and telecommunications providers, which already have the rights to distribute TV and movies over their networks.

Arrayed against them are technology companies such as Intel, Apple and Google Inc. (GOOG), which are eager to cut deals that would let them provide programming over the Web. These newcomers have been working for years on devices, software and services that have failed to loosen the grip of cable and satellite distributors because they haven’t secured enough content to woo customers. Charter Communications Inc. (CHTR), the fourth-largest cable company, seeks to protect the existing pay-TV “ecosystem,” Chief Financial Officer Chris Winfrey said at the conference yesterday.

“It’s in everybody’s mutual interest that we are protecting the ecosystem in a way that continues to keep the value of that programming that we have and the way it’s delivered to our subscribers today,” Winfrey said, declining to comment on specific agreements.

‘Mutual Interest’

Alex Dudley, a spokesman for Charter Communications, headquartered in Stamford, Connecticut, declined to say more on Winfrey’s comments.

“Exclusivities and windows are extremely common in the entertainment industry,” Maureen Huff, a spokeswoman for New York-based Time Warner Cable, said in an e-mailed statement today. “It’s absurd to suggest that, in today’s highly competitive video marketplace, obtaining some level of exclusivity is anticompetitive.”

AT&T Inc. (T), the largest U.S. phone company and the owner of the U-Verse fiber-optic TV service, is negotiating paying less to media companies that also provide content to Internet-based services, Jeff Weber, president of content, said last month at an investor conference.

‘Anticompetitive’ Actions

“If they’re going to go over-the-top, then that’s a very different conversation and a very different value for our customers,” Weber said. “Exclusive versus non-exclusive has materially different value for our customers. And I think we would want that reflected.”

Mark Siegel, a spokesman for Dallas-based AT&T, declined to comment beyond Weber’s remarks.

The U.S. Justice Department is investigating whether cable companies are violating antitrust laws by limiting competition from Internet video providers, people familiar with the matter said in June 2012.

The pay-TV companies’ actions are anticompetitive, said Gigi Sohn, president and co-founder of Public Knowledge, a Washington-based consumer-rights group that focuses on communications and technology issues.

“Is it anticompetitive generally? Of course it is, they are keeping programming from their competitors,” Sohn said in an interview. “Does it rise to the level of antitrust violation? That’s something for the Department of Justice to decide.”

Satellite Companies The plight of the Internet-based services is similar to when satellite companies couldn’t get access to media companies’ content until Congress passed legislation in 1992, Sohn said. Government regulators may need to get involved to grant technology companies similar access, she said.

“These sorts of practices are as old as the hills,” she said. “Over-the-top providers are in regulatory No Man’s Land and they can’t get access to the programming.”

The U.S. Federal Trade Commission should investigate whether pay-TV companies’ arrangements violate antitrust laws, Rich Greenfield, an analyst at BTIG LLC, said in a report yesterday.

“Virtual cable systems, or over-the-top providers, would be wonderful for consumers,” Greenfield said in a phone interview. “It appears certain pay-TV operators don’t want that to happen.”

Time Warner Cable fell 2.2 percent to $93.90 at the close in New York. The stock has slipped 3.4 percent this year, compared with a 13 percent gain for the Standard & Poor’s 500 Index. Charter Communications fell 1 percent to $111.39, taking its gain this year to 46 percent.

To contact the reporters on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net; Alex Sherman in New York at [email protected]

To contact the editors responsible for this story: Anthony Palazzo at [email protected]; Nick Turner at [email protected]

®2013 BLOOMBERG L.P. ALL RIGHTS RESERVED. Time Warner Cable Defends Contracts That Hamper Internet Video Rivals

June 12, 2013 | 02:05PM PT

Operator defends CEO's comments indicating programming pacts have provisions to keep cable nets off Internet video services

A day after Time Warner Cable [1] CEO Glenn Britt [2] indicated the MSO has contractual provisions to keep cable networks out of the hands of over-the-top video providers [3], the cable operator issued a statement comparing the practice to Hollywood’s movie windowing and Netflix’s relaunch of “Arrested Development.”

Get Time Warner Cable News and alerts free to your inbox “The amount and scope of exclusivity and windowing in Time Warner Cable’s arrangements with programmers pales by comparison to that found between other players in the entertainment ecosystem,” the cable operator said.

At a Tuesday session at the Cable Show in Washington, Britt said the cable operator “may well have (programming contracts) that have that prohibition” barring TV networks from distributing their services to online video providers. In addition, some carriage deals would give TWC rights to nationwide Internet-video distribution if programmers license networks to an online video provider, he said.

The exclusivity clause would effectively shut out Internet-based distributors, by forcing cable networks to choose between having their channels carried by TWC, the second-biggest cable operator in the U.S., or an upstart online service like the one Intel is developing.

Such restrictions are “anticompetitive” and should perhaps be investigated by the Federal Trade Commission, BTIG Research analyst Rich Greenfield opined in a blog post [4] Tuesday prior to Britt’s remarks.

TWC fired back in a statement Wednesday, saying, “It is absurd to suggest that, in today’s highly competitive video marketplace, obtaining some level of exclusivity is anticompetitive.”

The cable operator continued, “Exclusivities and windows are extremely common in the entertainment industry; that’s exactly how entertainment companies compete. This is why, for example, you can only watch ‘Fast and Furious 6’ in a movie theater (not in your living room), Sunday Ticket on DirecTV and the new ‘Arrested Development’ episodes on Netflix.”

But TW Cable’s comparisons are apples and oranges, Greenfield said. Whereas the MSO does not restrict deals with satellite or telco rivals, the prohibition on Internet distributors is aimed at a specific class of competitors, he wrote in an email.

Other pay TV providers that have programming contracts that discourage cable nets from striking deals with “virtual cable operator” services include DirecTV, Dish Network and Cablevision Systems, according to industry sources.

However, it is unclear how widely other distributors employ the exclusivity provisions TWC has acknowledged using to block over-the-top providers’ access to cable TV networks.

SEE ALSO: Pay TV Ops Set Conditions on Cable Nets in Inking Internet Video Pacts [5]

1. http://variety.com/t/time-warner-cable/

2. http://variety.com/t/glenn-britt/

3. http://variety.com/2013/digital/news/pay-tv-ops-set-conditions-on-cable-nets-in-inking-internet- video-pacts-1200495726/

4. http://www.btigresearch.com/2013/06/11/does-the-ftc-need-to-investigate-the-multichannel- video-industry-tied-to-non-facilities-based-competition/

5. http://variety.com/2013/digital/news/pay-tv-ops-set-conditions-on-cable-nets-in-inking-internet- video-pacts-1200495726/ Gatekeepers of Cable TV Try to Stop Intel

By BRIAN STELTER [1]

Published: June 12, 2013

WASHINGTON — As Intel [2] tries something audacious — the creation of a virtual cable service that would sell a bundle of television channels to subscribers over the Internet — it is running up against a multibillion-dollar barricade.

That barricade is guarded by Time Warner Cable and other cable and satellite distributors, which are trying to make it difficult — if not impossible — for Intel to go through with its plan. The distributors are using a variety of methods to pressure the owners of cable channels, with whom they have lucrative long-term contracts, not to sign contracts with upstarts like Intel, that way preserving the status quo.

Intel, however, is undeterred, and its executives intend to begin its TV service by the end of the year. They are ready and willing to pay more than existing distributors do for channels. But to date the company has not announced any deals with channel owners.

To Intel, and to some analysts, the behavior by the existing distributors — in some cases giving financial incentives to friendly channel owners, in other cases including punitive measures in contracts — has an anticompetitive whiff. The antitrust division of the Justice Department is looking into the issue as part of a broad investigation into cable and satellite company practices, according to people contacted by the department, who spoke on condition of anonymity because they were not authorized to speak publicly. A department spokeswoman declined to comment.

Public attention about the issue, which gained new life this week during the cable industry’s annual conference here, might also spur the Federal Communications Commission to afford would-be Internet distributors like Intel the same legal protections as those that already exist. The commission has been considering such a change for more than a year. “The government has to step up and protect these companies, or the incumbents are going to kill them in their cradles,” said Gigi B. Sohn, the president of the public interest group Public Knowledge.

Prospective products like Intel TV, delivered through the broadband Internet infrastructure of Comcast, Time Warner Cable or another provider and sometimes called “over the top TV,” have the potential to radically alter the media marketplace in the United States.

Unlike Netflix, which sells a library of TV episodes and mainly supplements cable, a service like Intel’s — with dozens of channels, big and small, streaming through a modern interface — could cause more consumers to cancel their cable subscriptions. (They would have to keep a broadband subscription, however, unless or until wireless capacity improves.)

It could also stir further innovation within the industry. If Intel’s service ever goes on sale, industry executives predict that others will quickly follow — either because they want to, or they feel they have no choice.

Apple, Microsoft and Sony are often mentioned as possibilities, but the more immediate competition might come from Comcast, Time Warner Cable and other major distributors, which could suddenly compete directly in markets all across the country. Comcast has quietly been working on an “over the top” service for well over a year.

“Suddenly there’d be a whole new world of competition,” said one of the executives, who declined to express support for the “over the top” option for fear of angering the existing distributors.

Most of those companies declined to comment on the record, but some representatives said privately that they are taking common-sense steps to protect their businesses. Each confidential contract between a distributor and a channel owner is different, they said.

Some contracts include clauses that expressly prohibit the channels to be sold to an Internet distributor like Intel, while other contracts merely discourage such competition by including financial incentives or penalties. So-called most favored nation clauses, which are common, exist to ensure that if another distributor receives a cheaper rate for a channel later, that rate applies across the board. Some of these provisions have been in place for years.

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Published: June 12, 2013

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But critics said that the contractual language makes it much harder for new companies to enter the marketplace. A Justice Department official said in a presentation last year that “contracts that reference rivals” have the potential to harm competition.

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Within the cable industry, the practice of discouraging new Internet distributors has been suspected but not widely documented. The issue attracted new attention on Tuesday during the cable industry’s conference when Richard Greenfield, an analyst at BTIG Research, wrote in a blog post that at least one unnamed distributor had prevented a channel owner from selling to a service like Intel. Whether illegal or not, “it most certainly is bad for consumers, as it limits competition and prevents the emergence of distributors who can provide revolutionary new ways of experiencing” TV, he wrote.

Mr. Greenfield did not name any names, but several channel owners and smaller distributors said Time Warner Cable, the nation’s second-largest cable company after Comcast, had been by far the most aggressive in its dealings with channels. When Comcast acquired NBCUniversal in 2011, it signed a consent decree with the government that prohibited it from trying to block budding Internet distributors. Time Warner Cable declined to elaborate on its practices on Wednesday, but said in a statement that “it is absurd to suggest that, in today’s highly competitive video marketplace, obtaining some level of exclusivity is anticompetitive. Exclusivities and windows are extremely common in the entertainment industry; that’s exactly how entertainment companies compete.” It cited the N.F.L. deal with DirecTV and the Netflix distribution of the former cable show “Arrested Development,” among other examples.

Mr. Greenfield rejected that explanation. “They are not paying for exclusivity,” he said. “They are saying you can sell to X, to Y and Z, but you are forbidden from selling to this new class, called A.”

A spokesman for Intel declined to comment. But this week the company had a suite at a hotel, one block from the cable conference site, and held demonstrations of its service for potential partners. What Intel needs, according to people briefed on their plans, is the support of a critical mass of channels — not the entire universe that Comcast or DirecTV has, but enough to have a viable service. Intel will not introduce the service without that.

1. http://topics.nytimes.com/top/reference/timestopics/people/s/brian_stelter/index.html

2. http://topics.nytimes.com/top/news/business/companies/intel_corporation/index.html?inline=nyt- org

3. http://www.nytimes.com/roomfordebate/2013/06/12/televisions-next-frontier/?ref=media