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CBS Shows Content Is King

7 September 2013 in Trading Ideas

It’s bad enough that people across the country have been missing telecasts of the US Open tennis championship, but were the powers-that-be really willing to deny a nation the last hurrah of How I Met Your Mother?

Thankfully not, as it turns out.

As Labor Day weekend wrapped up, CBS and Time Warner Cable agreed to end their month-long programming-fees dispute, with the cable company agreeing to restore CBS programming to three major US cities.

And CBS? They agreed to get pretty much everything they wanted. Actually, terms of the deal were not disclosed, but the dispute centered around two key elements: CBS wanted an increase in fees for the right to transmit CBS stations in the three cities, and it was looking to retain the rights to its digital content, which CBS wants to then sell to Web-based distributors like Netflix and Amazon.

As the New York Times reported, executives on both sides had acknowledged that CBS was seeking an increase to about $2 per subscriber, up from about $1. Separate statements from the CEOs of each company indicated that the ultimate outcome tipped heavily in favor of CBS, with that company’s president, Leslie Moonves, reportedly telling company staff in a memo that CBS secured “virtually all that it was seeking.”1

The victory by CBS appears to be yet another lesson in the leverage that the owners of important television content have over distributors like cable systems. It hardly seems a coincidence that the deal was announced just six days before pro football’s first weekend slate of games.

This current power dynamic was also reiterated quite nicely by RBC Capital Markets analyst David Bank, who told the Times, “With the content, especially the N.F.L. and CBS being the No. 1 network in the ratings, you just have to believe they are going to win every time.”

content is king motifThe perceived strength – both now, and in the future – of content providers is the thesis behind our Content Is King motif, which is off 2.5% in the past month, but is up 28.4% so far in 2013. (The S&P 500 has lost 1.9% in the past month, and is up 14.8% in 2013).

As if to drive home the point that it lost this latest battle, Time Warner Cable executives were left to publicly push for changes in the rules that grant TV stations the right to compensation from cable systems for their programming. “The rules are woefully out of date, and are the primary reason cable bills are rising,” said Time Warner chief Glen Britt, leaving unsaid that not passing the costs on to consumers is not an option he’s considering.

Naturally, not every maker of content will have the leverage of CBS with its football and high ratings, and the fate of content-company stocks will largely rest in demand for individual product staying high.

However, if you ever needed an explanation of why Fox, NBC and CBS combined to shell out $3 billion to extend their pro football partnerships through 2022 a couple of years ago, you now have Exhibit A.

1Bill Carter, “CBS Returns, Triumphantly, to Cable Box,” nytimes.com, Sept. 2, 2013, http://www.nytimes.com/2013/09/03/business/media/cbs-and-time-warner-cable-end-contract-dispute.html?ref=business, (accessed Sept. 5, 2013).