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TWC Resumes CBS Service

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Time Warner Cable Inc. has finally reinstated CBS Corporation’s (CBS - Free Report) programs on its list by striking a new deal with the latter. However, the financial terms of the agreement were not revealed.

The deal brought respite to nearly 3.2 million customers across New York, Los Angeles and Dallas who were deprived from the popular shows on CBS network for a month. Moreover, the start of the NFL season from Sep 8 has induced Time Warner Cable to restore the channels, apprehending subscriber loss.

In Jul 2013, CBS had demanded higher fees from Time Warner Cable, which had compelled the cable giant to drop the former’s network from its program list. According to Time Warner Cable, CBS wanted to raise its retransmission fees from 56 cents to nearly $2, which is around a 250% hike. Such high program rates would have not only shoot up programming expenses but would also deteriorate margins for company. It would also force the company to raise service rates, which it has done in the beginning of 2013.

Similarly, last year, the largest satellite TV operator in the U.S. – DIRECTV – and TV network major, Viacom, Inc. (VIAB - Free Report) , differed on the issue of programming fees. This had led to channel blackout for DIRECTV customers. Finally, the satellite giant had to renew its contract for a period of seven years with a significant 20% rate hike.

Higher transmission fees escalate programming costs, forcing the cable and satellite service providers to charge higher service fees from customers. Thus, such contract renewals with channel operators do not favour the cable operators.

Hence, we believe it is high time that the FCC intervenes and prevents the cable operators from getting exploited.

Currently, Time Warner Cable has a Zacks Rank #3 (Hold).

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