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Time Warner Cable – CBS Standoff Drags On: Will NFL Games Get Blacked Out?

Daily Ticker

Tiger Woods’ dominating performance last weekend at the Bridgestone Invitational was invisible to Time Warner Cable Inc. (TWC) subscribers in New York, Los Angeles, Dallas and Denver, after a bitter fee dispute blacked out CBS Inc. (CBS) programming on the Time Warner network Friday night.

Will the standoff drag on long enough to keep football fans from enjoying CBS’ heavy slate of pro football games come the start of the regular season in a month?

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It’s doubtful that Time Warner and CBS will continue playing chicken over CBS’ demands for larger fees for its broadcast signal quite that long, if only because NFL football is the most lucrative TV programming on the planet for all involved.

Yet this isolated, mostly regional skirmish in a long drawn-out war between cable carriers and networks over content costs might just represent a preview of the endgame ahead for the current pay-TV “ecosystem.”

For decades, cable companies have paid networks for their programming, and bundled it for sale to monthly subscribers. For a while now, it’s been common to predict the imminent breakdown of this arrangement. Networks were paying too much for sports rights and other content, charging pay-TV providers ever-escalating fees, which were passed along to consumers, who constantly groused about their outrageous cable bills.

Yet it has worked fine to date, because Americans love their TV, cable outfits have invested in high-speed networks to convey broadband services to the home and it has remained cumbersome or expensive to match the “cable bundle” by purchasing shows or network streams a la carte.

Now, though, with the likes of Netflix Inc. (NFLX) offering a broad menu of shows and movies to 30 million streaming customers and counting, and Amazon.com (AMZN) getting aggressive in the same market, and with nearly every tech company working on a TV device to scale the cable-and-satellite wall, the reckoning point may be near. Meantime, CBS has set the tone for networks with an aggressive posture in demanding more for its content – to the point where some believe regulators might take a dim view of the stance as consumer-unfriendly.

These are the dynamics that led Cablevision Inc. (CVC) Chief Executive James Dolan to tell the Wall Street Journal that “there could come a day” when his company, serving much of the New York suburbs and other markets, stops offering TV service and becomes a broadband utility, charging merely for high-speed network access.

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This moment is in sight in part because the line between the Web and television has been smudged badly. Kannan Venkat, a media analyst at Barclays Capital, points out that already 68% of all “downstream” Internet traffic reaching consumer eyeballs is video. Viewers are increasingly indifferent about what device they use to watch what they want, and through what service.

These forces are impelling cable companies to merge, so as to defray the cost of programming and reap a better return on their heavy investments in network architecture. A broader media-merger phase might well unfold, as well, now that the threat of consumers going “over the top” to buy programs directly has migrated from the early adopters to the mainstream.

Marriages of reconciliation between distributors and content providers could be among the deals, now that the divide between them has begun eroding, as Netflix gets into original programming and the likes of HBO start reaching out directly to consumers.

All of this media ferment comes as the industry is enjoying the fond embrace of investors, who have bid most industry stocks to new highs on enthusiasm over consumer demand for entertainment and the companies’ success – so far – in profiting from it.

It might seem paradoxical that Netflix shares could be soaring at the same time those of Comcast Corp. (CMCSA) and Walt Disney Co. (DIS) are, given the popular notion that they are playing a zero-sum game. In reality, they are all enjoying an enlarging pie. The coming fight is over which among them gets the larger pieces.

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