Time Warner OKs Arbitration With Fox

Dec. 30, 2009 — -- The battle of wills between Fox and Time Warner Cable continues.

In the latest twist of a fee dispute that has raged publicly for weeks, Time Warner Cable has offered to submit to binding arbitration by the Federal Communications Commission and take any other necessary steps to spare its customers a Fox blackout.

"We are willing to commence an arbitration proceeding immediately before the FCC," Time Warner Cable CEO Glenn Britt wrote in a letter to Sen. John Kerry, D-Mass., who, as chair of a Senate subcommittee that deals with television, has been pleading with both companies to reach a deal.

A copy of Britt's letter also was sent to Chase Carey, chief operating officer of Fox parent company News Corp.

News Corp. and Time Warner Cable, the No. 2 U.S. cable operator, are in the midst of negotiating a fee contract that expires at midnight on Dec. 31. If a deal can't be reached, News Corp. threatens to pull its content from Time Warner customers, including hit shows such as "American Idol," "House" and the NFL playoffs.

News Corp. reportedly is asking for an increase of $1 per month per subscriber. With 13 million subscribers, this would hit Time Warner with a $13 million monthly rate hike.

News Corp. CEO Carey sent a memo today to his staff indicating little hope that a deal will be reached.

"At this time, it looks like we will not reach an agreement and our channels may very well go off the air," Carey wrote in the memo.

He added that any extension to the negotiations simply would give Time Warner more cheap access to Fox shows.

"The fact is we've been trying since the summer to negotiate a fair deal and that further extensions simply extend the period of time that Time Warner profits from our marquee programming," Carey wrote.

A spokeswoman for Time Warner Cable said her company still is hoping for the best.

"From our point of view, negotiations are ongoing and we continue to hope that Fox won't punish our customers by taking their programming off the air," said Time Warner spokeswoman Maureen Huff.

These negotiations have been making headlines for months now, in part because of an ad battle between the two companies.

This week, Time Warner started running dramatic ads in ransom-style lettering in newspapers around the country.

"Pay our price or you'll never see Fox again," reads a Time Warner Cable ad.

Fox responded with ads of its own: "No Fox? No Way," read News Corp.'s ads over a collage of pictures featuring its hit shows, including "NFL on Fox," "American Idol," "24," "House" and "The Simpsons."

The public spat began in November, when Time Warner launched an ad campaign airing its grievances against programmers and asked viewers to vote on whether Time Warner should "roll over" and cough up the higher fees, or whether it should "get tough."

Kerry has been trying to help both sides reach a deal.

"Fox and Time Warner need to strike a deal," Kerry recently said. "Millions of football fans are depending on it."

If Fox pulls its content in January, it wouldn't be the first time a programmer used viewers -- who usually direct their anger at their cable company, not the content provider -- as a pawn in negotiations.

"It's an ongoing war," said Carl Howe, director of media consumer research at the Yankee Group. "Distributors want as much of the money as possible, and the people who create the content want their share."

Tough Times for TV

The dispute comes at a difficult time for both companies. Cable operators such as Time Warner Cable are beginning to lose leverage with their customers because more Americans are getting their content for free on Internet sites such as Hulu.

Programmers such as Fox, meanwhile, have seen advertising revenues drop because of changes in the advertising industry and the recession.

To replace lost income, programmers have begun asking cable distributors for a higher cut of subscription revenues.

Time Warner Cable, which has several contracts in addition to the Fox deal expiring at the end of the year, said that some programmers have asked for fee increases of up to 300 percent.

"When a programmer comes to us and asks us for a 300 percent price increase for their content, that's what causes your cable bill to go up," said Alex Dudley, a spokesman for Time Warner Cable, arguing that programmers already get their fair cut.

Time Warner Cable recently split off from its former parent, Time Warner Inc., which owns Time magazine, CNN and Warner Brothers.

Last year, Time Warner received $16.3 billion from subscribers, and paid $3.7 billion -- almost a quarter of that -- to content providers such as Fox.

While that seems like a small percentage, cable operators point out that maintaining a national network to deliver content is costly.