(MoneyWatch) A dispute between CBS Corp. (CBS) and Time Warner (TWC) came to a head Friday when CBS said that the cable company has dropped the broadcaster's signal in Dallas, Los Angeles, New York and several other markets.
"We deeply regret this ill-advised action, which is injurious not only to our many affected viewers, but also to Time Warner Cable itself," CBS spokeswoman Shannon Jacobs said in a statement.
"Throughout this process, Time Warner Cable has conducted negotiations in a combative and non-productive spirit, indulging in pointless brinksmanship and distorted public positioning - such as the fictional and ridiculous 600 percent increase CBS supposedly demanded - while maintaining antiquated positions no longer held by any other programming distributor in the business."
CBS added that it hopes the blackout will be short and reiterated that it is only seeking "fair compensation" for its programming.
A spokeswoman for Time Warner Cable said by email that CBS cable outlets Showtime, TMC, FLIX and Smithsonian are also going dark.
"We agreed to an extension on Tuesday morning with the expectation that we would engage in a meaningful negotiation with CBS," Time Warner said in a statement. "Since then, CBS has refused to have a productive discussion. It's become clear that no matter how much time we give them, they're not willing to come to reasonable terms. We thank our customers for their patience and support as we continue to fight hard to keep their prices down."
Under a full blackout, roughly 3 million Time Warner customers in eight markets risk losing CBS programs, along with access to four cable stations owned by the network.
In a statement, Showtime said the "service interruption is not only completely unnecessary, but totally punitive to our subscribers, and will impact and inconvenience millions of Time Warner Cable and Bright House Networks subscribers in major markets across the country."
Negotiations between the companies stalled earlier this week when Time Warner briefly dropped CBS programming late Monday, calling the broadcaster's demands "out of line and unfair." But Time Warner quickly restored service, with the companies announcing that they had agreed to extend talks until 5 p.m. EDT today.
Speaking at a TV industry event that same day, CBS chief executive Les Moonves said that "we feel like we should be paid for our programming."
The dispute between CBS and Time Warner reflects a broader clash over the fees that pay-TV distributors pay to re-transmit broadcasters' TV signals. While networks want a good deal for their content, cable and satellite companies are seeking to limit cost hikes that could scare off customers.
That dynamic has caused considerable industry friction. In 2011, for example, the fight over these affiliate, or "carriage," fees led satellite provider DirectTV to threaten to drop Fox channels including FX, National Geographic and regional sports networks. The sides eventually reached a settlement.
Time Warner Cable also has clashed with Hearst, ABC and Fox over fees in recent years, while other distributors have periodically threatened to stop carrying a network's signals. Typically, an agreement is reached, averting blackouts.
Fees from licensing deals are important to broadcasters both as a way to drive growth and to smooth the rise and fall in their advertising revenue, which can swing sharply according to the strength of the economy. In announcing its latest earnings on Wednesday, CBS reported that non-advertising sales now represented 43 percent of the company's total revenue.
Viacom (VIA) on Friday attributed a 20 percent hike in operating income for its latest quarter partly to higher affiliate fees in the period.
Retransmission fees are expected to reach $3 billion in 2013 and to swell to $6 billion by 2016, according to media research firm SNL Kagan. Market research firm NPD Group predicts that the average pay-TV bill will reach $123 by 2015 and hit $200 by 2020.
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CBS provided the following Q&A regarding Time Warner's move to drop its stations:
Q: Whose decision was it to take CBS off the air?
A: Time Warner Cable's. We offered an extension that they chose to not accept.
Q: Why did Time Warner Cable Drop CBS?
A: Unfortunately, you will need to ask Time Warner Cable, as we offered an extension so that this wouldn't happen. Time Warner Cable refuses to fairly compensate us for being one of the most watched networks on their programming line-up.
Q: Is it true that CBS was asking for a 600% increase in its rates?
A: No. We are not looking for a 600% increase. We cannot discuss specifics, but we do want you to know that our requests are far more reasonable and well in line with what the industry is paying for content. While we are by far the most watched network in the country, there are many more networks that are much less viewed than CBS that Time Warner Cable pays considerably more money for. We are only seeking to be paid fairly for our quality, popular programming including such programs as Under The Dome, Big Brother, The Big Bang Theory, NCIS and others, plus a host of sports and news programming.
Q: Time Warner Cable told me that my bill will go up if they accepted your terms?
A: Time Warner Cable already charges you many, many times over what they pay for broadcast programming. If you look at your bill in Los Angeles, for example, where they are required to disclose it, you will see a $20 charge for broadcast programming. We receive far less, in fact a small percentage of that.
Q. How much should Time Warner Cable be crediting me for the loss of CBS?
A: The amount of any credit is up to Time Warner Cable.
Q: How can I get CBS back?
A: Call Time Warner at 855-345-5337 and ask them to get CBS back on their channel line-up. After all, you are already paying for CBS. If Time Warner Cable refuses your request, you do have other alternatives. For example, Direct TV, Verizon FiOS or AT&T Uverse may be available to you.
Q: When will CBS be back on Time Warner Cable?
A: Soon, we hope. But only Time Warner Cable can answer that question. We did not require them to take it down. We have never had one of our stations go dark with a cable company over a business negotiation before, so this is new territory for us. Time Warner Cable has had over 50 of these types of disputes in the last five years and sadly seems to do this quite often to their customers.
Q: Can I still get CBS Primetime on Demand?
A: While Time Warner is not offering the regular linear channel, then they won't have the on Demand content either.
Q: Why have they also taken down Showtime?
A: Showtime is owned by CBS. This is a wholly punitive measure by Time Warner Cable.
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