There's a provocative Wall Street analyst who might say Verizon exhibited a substantial degree of selfishness last week. He might argue Verizon allowed itself to be a pawn in the
Time Warner Cable-CBS battle, using questionable judgment in pursuit of an immediate gain that's a long-term mistake.
The analyst, BTIG’s Richard Greenfield, has suggested fellow distributors should support Time Warner Cable (TWC) in its efforts to keep content-acquisition costs down while fighting CBS. Circling the wagons is the “only way to begin to shift leverage in these content negotiations” with programmers.
If TWC succeeds in landing a certain pricing level, that could have a ripple effect throughout the industry. Deals between programmers and distributors often contain “most favored nation” clauses, which effectively mean one distributor can’t receive a markedly better offer than another.
During bitter disputes that bring blackouts, Greenfield suggests distributors shouldn’t try to poach customers from competitors dealing with darkness. TWC is susceptible now. The cable operator has been unable to reach a deal on retransmission rights for CBS-owned stations in New York, Los Angeles and Dallas. Stations have been dark on its systems for weeks.
DirecTV has publicly backed TWC. Cox senior vice president Bob Wilson told BTIG: “The industry has to find a way to work together to address the path we are on with respect to rising content fees, especially for retransmission consent of broadcast stations and sports programming, in a way that responds to consumer needs.”
Yet, Verizon didn’t move in anything close to lockstep last week. It
didn’t heed Greenfield’s call for distributors to “resist the urge to pursue each other’s subscribers," so as to "put the long-term health of the business first."
"Now is the time for tacit cooperation,” he writes.
In what seems like an extraordinary coincidence, Verizon happened to reach a new deal with CBS as the TWC blackouts continued. The agreement gave CBS the chance to jab TWC with an announcement that CBS-owned stations would continue to be made available by Verizon in – wouldn’t you know it -- New York, Los Angeles and Dallas. The announcement also mentioned Showtime would still be on Verizon – Showtime is blacked out in every TWC home.
Terms of the deal weren’t disclosed, but the only new aspect – outside any financial re-engineering -- appears to be Verizon providing increased distribution of the CBS Sports Network. A cynic might suggest CBS gave Verizon the greater reach for a pittance, wanting to make the announcement that effectively has Verizon telling TWC customers to come on over.
It also gave CBS CEO Leslie Moonves the opportunity to position TWC as greedy, saying that TWC has been offered about the same terms as Verizon took.
DirecTV CEO Mike White never misses a chance to blast content companies for inflating prices. So, if he wants to amplify his support for TWC now, Greenfield has a bold suggestion: help its cable competitor ward off customer defections because of NFL programming.
There are suggestions TWC could lose customers en masse once the NFL returns to CBS unless the two sides settle. But Greenfield says to “weaken CBS’s leverage,” DirecTV should offer TWC customers free online streaming of its NFL “Sunday Ticket,” the package with out-of-market games. The offer would hold for homes impacted by the blackout and continue until the CBS stations are restored.
Wouldn’t that mean a huge financial loss for DirecTV? Greenfield says no since it
pays a fixed rate for “Sunday Ticket” rights.
Besides, he says, the freebie could help DirecTV gain customers down the line. He writes the satellite operator hasn’t had much success in offering online access to its exclusive NFL package.
So, the blackout opportunity could spur interest among TWC customers if DirecTV decides to offer certain streaming-only offerings to non-subscribers.
Greenfield also suggests TWC customers may become enthralled enough with "Sunday Ticket" access that they may switch to DirecTV once the CBS standoff is settled.
(Separately, he suggests TWC might be able to halt customer losses by offering subscribers with blackouts free access to the NFL Red Zone, which offers highlights of every game on Sundays.)
Greenfield’s advice that DirecTV help TWC as part of an industry unified front may be sound. But does it make sense for DirecTV to make that kind of sacrifice when Verizon apparently is unwilling?