NEW YORK (AdAge.com) -- There's nothing new about fee disputes between TV networks and cable and satellite operators, but now they've got an added wrinkle: Cable operators contending that TV networks should forfeit big fee increases when they put shows online free on their own sites and third-party distributors such as Hulu, Joost and Veoh.
That's one of the central arguments being made by Time Warner Cable executives in their dispute with Viacom, which threatens to remove a group of 18 networks that includes MTV, Comedy Central, Noggin and Nickelodeon from Time Warner's 13.5 million subscribers in big markets such as New York, Los Angeles and Dallas.
Connecting TV to computer
As part of the talks, Time Warner Cable execs put together a document outlining which shows Viacom is distributing online and where. If the stalemate continues, Time Warner Cable said it will start instructing subscribers how to connect their TVs to a computer and watch Viacom content online, a strategy it tried during a carriage dispute with LIN TV last fall.
"If everybody starts watching content online, why would they pay subscription fees for it?" Time Warner Cable spokesman Alex Dudley said.
In response, MTV Networks is threatening to block access to the shows online if the dispute is not resolved by Jan. 1. Spokesman Mark Jafar said not only will all Viacom networks be blocked to Time Warner subscribers on TV, they will also not be accessible online to any Time Warner broadband subscriber.
Using an enemy to get message out
The irony of this is that MTV Networks has taken a far more conservative approach to distributing online than, say, NBC Universal, News Corp. or even Turner Networks, largely to avoid conflict with cable and satellite partners in hopes of landing large annual fee increases.
Indeed, the company took the most aggressive stance against unauthorized distribution of any of the big media conglomerates when it sued YouTube and Google for $1 billion in 2007. (In fact, underscoring the enmity of the fight, Viacom is using arch-enemy YouTube to distribute its anti-Time Warner message.)
In addition, Viacom said it purchased media from sites including iVillage, Kaboose, TV Guide, Parenthood, New York Post, CBS News, Rolling Stone.com, NHL, and Hollywood.com to run its ads warning that Time Warner subscribers may lose its networks. The push was geo-targeted in 13 different markets, the company said, with a focus on adults age 25 to 54 -- though it reached plenty of kids, too.
Viacom: Ratings not hurt
After its initial reticence, Viacom has started distributing more shows online over the past year. Comedy Central started airing full episodes of "The Daily Show with Jon Stewart" online in 2007 and "The Colbert Report" and "South Park" earlier in 2008. In June, Viacom started offering episodes of "Stewart" and "Colbert" on the NBC Universal-News Corp. joint venture Hulu.com. MTV.com has episodes of "The Hills" and clips of a number of shows are available on Veoh and Joost.
Viacom makes the case that online distribution hasn't hurt ratings. Comedy Central, for example, had its best month ever in November after the presidential election fueled ratings, even while though the shows are widely available online.
Nickelodeon finished 2008 as the highest-rated basic cable network and Noggin is up 29%. But beyond Nickelodeon and Comedy Central, ratings at other networks included in the negotiations like MTV, BET and VH-1 are down this year.
'Guess what? We do mind'
As cable operators continue to push for online distribution, relations with cable operators will get more contentious. Time Warner Cable CEO Glenn Britt said as much last summer when asked about networks streaming shows online. "Guess what? We do mind," he said.
Viacom said it is asking Time Warner for rate increases of 23 cents per month, per subscriber, or $2.76 per annually, an increase of 12%. "Also, given that under our existing agreement they're handing subscribers $3 monthly increases in Raleigh, Orange County, Los Angeles, and New York City as of tomorrow, there's no need to pass this cost on to consumers," the company added.
Online distributors such as Hulu see themselves as the cable operators of the future, and are working hard to engineer a seamless connection to the TV set and take over the living room. But it's not just the networks distributing online. Comcast, the nation's-largest cable operator, is distributing web video through Fancast, which has content deals with Hulu, CBS and ABC, not to mention Viacom networks MTV and Comedy Central.
Derek Baine, a senior cable analyst for SNL Kagan, argues that the audience for TV content online is still very fragmented demographically. "Teenagers are starting to move into their 20s who have never bought a multichannel subscription probably never plan to. They watch all their content online. We see that slice as a problem. But then you see people in their 40s, 50s and 60s who aren't switching a lot of their viewing to online. Once you see the demographic bubble burst, it'll hurt viewership."
Nickelodeon, Mr. Baine added, could be considered "very under-priced, even when you compare it to Time Warner Inc.'s channels. There's a very good argument to raise the rate on Nickelodeon. But they're in a weak position on networks with declining ratings."
On New Year's Eve, Viacom CEO Philippe Dauman was at work at Viacom headquarters in Times' Square, and said through a spokesman that Time Warner Cable was unwilling to meet.
Disputes have short lifespans
The center of Viacom's argument is that it accounts for 20% of the viewing on Time Warner Cable, but only accounts for 8% of the subscriber fees it pays to TV networks. Time Warner Cable argues that in the past, Viacom has traded lower increases for analog channel positions for low-rated networks such as TVLand.
Because of the potential disastrous effects for all parties, cable disputes don't typically last very long. This one in particular would hit both Time Warner and Viacom where it hurts. Time Warner Cable is under new competition from Verizon FiOS in addition to DirectTV and Dish Network, and Viacom because the last thing it needs is to lose ratings points in its two biggest TV markets. Time Warner Cable has 13.3 million subscribers.