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Another tangle for cable TV

Any deal between News Corp. and Time Warner to settle their dispute over cable TV subscriber fees is likely only to lead to more pressure to overhaul the business model.

December 29, 2009

Adispute between News Corp. and Time Warner Cable threatens to remove Fox, FX and Fox's regional sports channels from Time Warner's systems across the country on Jan. 1, just as Fox prepares to broadcast four major bowl games, almost half of the NFL playoffs and the new season of "American Idol." Although it's a big deal to 13 million cable subscribers -- more than a million of whom live in Los Angeles -- the rumpus is just the latest in the seemingly endless conflicts between content producers and cable operators over the value of television programming. And if history is any guide, this one will be settled shortly before the new year dawns. After all, Time Warner has already indicated its willingness to start paying Fox for the right to retransmit its broadcasts. But a deal won't bring peace to the TV industry. Instead, it will simply raise the pressure to overhaul the existing business models.

Broadcasters have long been able to demand payment for their programming, but cable operators traditionally provided a different form of compensation: They agreed to carry the fledgling cable channels the broadcasters were trying to launch. That's how several channels owned by News Corp., such as FX, won distribution deals from cable operators across the country. Those networks grew in popularity to the point where they could command monthly fees from cable in addition to revenue from advertisers.

In recent years, however, cable systems have become packed with hundreds of channels that split audiences into ever-smaller (and less valuable) groups. Three years ago, CBS started collecting fees for its broadcasts in lieu of launching new cable networks. Now Fox is raising the stakes, reportedly demanding about $1 per month per subscriber -- twice what CBS reportedly collects. If it prevails, the other broadcast networks are certain to follow.

The broadcasters have numbers on their side: Their programs attract far bigger audiences than comparable fare on cable-only networks. But with competition intensifying from the Internet, video games and other forms of entertainment, cable operators will be hard-pressed to stick their customers with higher programming fees, as they have in the past. And if they try, they might provoke Washington into re-regulating cable rates, forcing operators to give subscribers the option of paying only for the channels they want. Such an a la carte approach is anathema to cable operators and some Hollywood studios, but it's where Internet-savvy consumers are heading. If cable keeps charging more for the same channels, it will drive consumers more quickly to alternatives that charge them only for what they actually watch.

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