(Updates with closing shares in fifth paragraph.)
Sept. 3 (Bloomberg) -- CBS Corp. programming returned to Time Warner Cable Inc. in time for the start of the National Football League season, as the companies ended a one-month dispute that blocked service to pay-TV subscribers in New York, Los Angeles and Dallas.
Time Warner Cable agreed to pay a significant increase for the right to carry CBS, though still below $2 per subscriber per month, according to people with knowledge of the situation who asked not to be identified because the terms are private.
The accord ends a stalemate that left more than 3 million Time Warner Cable subscribers without access to shows ranging from “Under the Dome” to U.S. Open tennis. CBS and other TV networks are demanding higher fees for broadcast signals and looking for new ways to sell digital rights. That’s squeezing pay-TV carriers like Time Warner Cable, which also are grappling with competition from Web-based services such as Netflix Inc.
“Hard to believe this isn’t a CBS victory,” said Richard Greenfield, an analyst with BTIG LLC in New York.
CBS shares rose 4.7 percent to $53.50 at the close in New York, its biggest one-day gain in more than seven months. Time Warner Cable rose 1.8 percent to $109.25.
Time Warner Cable will resume carrying local CBS stations and channels such as Smithsonian, CBS Sports and Showtime on its systems, according to a statement yesterday. The companies didn’t announce terms of the deal, which also covers Showtime Anytime and video-on-demand for stations in New York, Los Angeles and Dallas.
Showtime Anytime allows subscribers to view the premium channel anywhere on tablets and mobile phones. Time Warner Cable failed to obtain other out-of-home rights to CBS’s programming, the people said. CBS may later try to sell those rights exclusively to an online player like Google Inc. or Apple Inc., they said.
“While we certainly didn’t get everything we wanted, ultimately we ended up in a much better place than when we started,” Time Warner Cable Chief Executive Officer Glenn Britt said in a statement.
Britt called on Congress and the U.S Federal Communications Commission, which got involved in resolving the dispute, to reassess the 1992 retransmission consent rules that allow broadcasters such as CBS to charge cable companies for signals that are delivered free over government-owned airwaves.
‘Out of Date’
“The rules are woefully out of date, are the primary reason cable bills are rising, and too frequently leave our customers without the programming they love,” Britt said.
While the FCC didn’t take action, the dispute may have planted the seeds for an update of the rules, Greenfield said.
“The disequilibrium that currently exists is not sustainable,” Greenfield said. “We expect change.”
While costs rise for U.S. pay-TV providers, they’re seeing customers defect. Cable providers lost 607,000 customers in the second quarter, according to research firm SNL Kagan, with Time Warner Cable alone dropping about 190,000. The quarterly decline for Time Warner Cable was its largest since 2009, according to data compiled by Bloomberg.
CBS is the highest-rated broadcast channel, ahead of Comcast Corp.’s NBC, Walt Disney Co.’s ABC and 21st Century Fox Inc.’s Fox. The network, which begins broadcasting Sunday NFL games for the new season this coming weekend, had asked for prices that were 600 percent higher than other affiliates receive for the same programming, Time Warner Cable said before the blackout.
The network retains flexibility in selling its content to new Web-based providers, CBS CEO Leslie Moonves said in a memo to employees.
“We are receiving fair compensation for CBS content and we also have the ability to monetize our content going forward on all the new, developing platforms that are right now transforming the way people watch television,” Moonves said.
Sony Corp., Intel Corp., Apple and Google are all developing pay-TV systems that would deliver cable-like programming packages over the Web.
Time Warner Cable shut off CBS in Dallas, New York and Los Angeles on Aug. 2 and blacked out other networks it owns -- Showtime, TMC, Flix and Smithsonian -- across the country. The move followed weeks of negotiations and extended deadlines.
During the blackout, shares of New York-based CBS, controlled by Chairman Sumner Redstone, declined 6.3 percent, while Time Warner Cable dropped 8.3 percent. Both stocks are still up for the year, with CBS gaining 41 percent and Time Warner Cable climbing 12 percent.
Time Warner Cable, based in New York, also had threatened to remove CBS from its prominent position at Channel 2 in New York and Los Angeles even if a deal was struck. The cable provider aired the Starz Kids & Family network in its place for the majority of the blackout.
The public disagreement focused on retransmission fees, which have become a frequent sticking point in negotiations between pay-TV providers and broadcasters. Last quarter, CBS reported an 18 percent gain from a year earlier in affiliate and subscription revenue, which includes retransmission fees. It didn’t specify how much retransmission fees grew alone. In the previous quarter, retransmission revenue had jumped 62 percent.
Pay-TV operators will pay more than $3 billion in retransmission fees this year, according to Kagan.
“This deal again demonstrates the value of content and the leverage owners have when negotiating value,” John Janedis, an analyst with UBS Investment Research in New York, said in a note. CBS is positioned to meet a goal of $1 billion in retransmission fees by 2016, he said.
The dispute touched on a number of issues that may influence future negotiations between programmers and distributors. Britt said in a public letter to CBS that the network could offer its channels with a la carte pricing, a proposal that Moonves called a “public relations gesture.”
Time Warner Cable also encouraged customers to sign up for Aereo Inc.’s online service, which gives users access to broadcast networks over the Internet for $8 per month with the first month free. CBS has battled Aereo in court, alleging copyright infringement.
The dispute also revolved around mobile rights. CBS agreed to a three-year extension of its contract with Verizon Communications Inc.’s FiOS to on Aug. 23 in a deal that didn’t expand FiOS’s ability to show CBS in and out of the home. Time Warner Cable initially sought more access to CBS’s mobile rights.
--With assistance from Andy Fixmer in Los Angeles. Editors: Anthony Palazzo, Crayton Harrison, Nick Turner