So What Was The Point Of The Whole Time Warner Cable, CBS Blackout?

bbtheory1When Time Warner Cable pulled CBS from subscribers in L.A., NYC, Dallas, and others on Aug. 2, everyone knew it was inevitable the cable company would cave and make a deal with the broadcaster resulting in it paying higher fees — and subscribers paying higher rates. So was there any point to the month-long staring contest?

While TWC will most certainly jack up its subscription rates to customers all over the country, it doesn’t need the excuse of a carriage fee fight to do so. After all, the company has yet to offer up an explanation for the cable modem rental fee that it began slapping on customers in 2012 — and which it just jacked up to $5.99.

Time Warner Cable, like most terrestrial cable providers, operates in regional monopolies, so it can, and does, raise its price at whim, effectively telling customers that if they don’t want to pay, they will have to only get over-the-air TV, go Internet-only, or get service from a satellite provider. Of course, in those last two options, consumers in TWC-serviced areas will still likely need to get their Internet from TWC, so that cord isn’t truly severed.

Was the point of the blackout to prove a point that CBS charges too much for programming that is already free over the airwaves to anyone with an antenna? Perhaps, and TWC CEO Glenn Britt did make a spectacle about his offer to CBS to let it operate as an a la carte cable offering that could charge whatever fee it wanted directly to the consumer.

But Britt never really meant that as a serious offer, and it’s a huge case of the pot calling the kettle black, as consumers are completely in the dark about what portion of their basic cable bill goes to which channels, and how much of that is being kept by the cable provider. Much like how cable companies don’t want to have to buy bundles of channels from broadcasters just to get the few people watch, but aren’t willing to pass that notion on to the consumers, who only tend to watch a handful of channels but often pay for hundreds.

Deadline.com’s David Lieberman tries to make the case that Time Warner Cable knew this blackout was a short-term loser’s bet and that Britt’s long-term goal was to highlight just how outdated the FCC’s 1992 retransmission consent rules are, and that Britt’s goal was to cause a huge disruption that would pressure regulators to ultimately respond, especially as the FCC currently only has three of its five commissioner spots filled, including the Chair position.

That may very well have been TWC’s intention, but at a time when cable companies are losing TV subscribers at a rapid clip, it’s a huge risk that may not pay off. If it believes the incoming FCC Chair will be favorable to revisiting these rules, than it need not have pulled off such a high-profile blackout. If TWC is unsure about where the FCC will be leaning on this topic in the near future, then perhaps it should have truly dug in its heels and not given up as soon as the new TV and football seasons were on the horizon, or filed an actual complaint with the FCC that would have compelled the agency to look into the matter.

Let’s also not forget that the wheels of government bureaucracy move incredibly slowly, and that TWC will most certainly find itself embroiled in another round of tough negotiations with a broadcaster it can not feasibly drop from its lineup. The cable company’s capitulation to CBS certainly won’t help it look like a steely negotiator the next time around, meaning broadcasters will continue to jack up their fees — which will then be passed on to customers.

David McAdams, Professor of business and economics at Duke University’s Fuqua School of Business, says that Time Warner Cable could have won if it had taken a different tactic, one that’s not all that far off from the stunt Britt pulled about pricing transparency.

McAdams suggests that broadcasters be allowed to charge whatever rate they want, but that cable companies should be able to let consumers opt out if they believe the price is unreasonable.

“Inform subscribers of their opt-out options and make sure that the opt-out process is simple and transparent,” he explains. “If few subscribers opt out of a channel, you will have learned that that channel’s demand wasn’t so unreasonable after all. But if many do opt out, you’ll have a powerful argument in hand when the next negotiation rolls around.”

This is, of course, another take on a la carte cable pricing that many have been dreaming about for years, but others say would be a financial — and logistical — nightmare for cable companies.