Squabble between CBS and Time Warner Cable now affecting TV and online viewers

By Lisa Richwine and Liana B. Baker

(Reuters) - U.S. broadcaster CBS went dark for millions of Time Warner Cable subscribers on Friday in the nation's two largest markets and other cities after the cable operator and CBS Corp failed to reach an agreement over fees following weeks of contentious negotiations.

The blackout by Time Warner Cable of the No. 1-rated U.S. broadcast network followed an increasingly hostile and public battle between the two sides, which accused each other of making unreasonable demands in their talks over how much the cable operator will pay to carry CBS.

CBS hit back by suspending videos of full episodes on CBS.com for customers with Internet access provided by Time Warner Cable in the affected markets.

The network, home to hits such as "The Big Bang Theory" and "NCIS," is seen by an estimated 3.5 million customers in the affected markets, including the two biggest, New York and Los Angeles, and Dallas.

A source familiar with CBS' negotiating strategy said the company had offered to extend current terms and keep negotiating in the coming days. No new talks between the sides are scheduled, said the source who asked to be anonymous because the talks are private.

Time Warner Cable spokeswoman Maureen Huff said the operator offered a one-year extension before it blacked out the channels.

The companies issued dueling statements on Friday as Time Warner Cable began dropping CBS and its cable networks, including Showtime, from the company's systems in those markets.

The cable operator said it had agreed to extend talks until Tuesday morning but that CBS "refused to have a productive discussion."

"It's become clear that no matter how much time we give them, they're not willing to come to reasonable terms," said Huff. The company thanked customers for patience "as we continue to fight hard to keep prices down."

CBS shot back that Time Warner Cable "conducted negotiations in a combative and non-productive spirit, indulging in pointless brinkmanship and distorted public positioning."

The network "is eager to make an agreement in line with the kind it has struck with every other cable, satellite and telco provider, and has continually sought reasonable term extensions to get that job done," CBS said.

RETRANSMISSION FEES

The threat of blackouts has become increasingly common as networks, which provide programming, square off against cable operators that pay "retransmission fees" to transmit those programs into living rooms around the country.

The battle with CBS, one of the industry's toughest negotiators, represented a "once-in-a-lifetime opportunity to go dark and fight (retransmission) fees," BTIG analyst Rich Greenfield said. "Time Warner had to do it," he said.

CBS is seeking a monthly fee of $2 per subscriber, said RBC Capital Markets analyst David Bank, up from about $1 currently.

"Compared to others who get $1 per (subscriber)," they've (CBS) spent four to eight times as much on content," Bank said. "We think they'll prevail."

The loss of advertising dollars is relatively less painful during the summer, when networks air mostly reruns and audience numbers drop. This weekend, viewers will miss the Bridgestone Invitational golf tournament, currently led by Tiger Woods. Later this week, they could lose out on sci-fi hit "Under the Dome" and reality show "Big Brother."

If the blackout persists into August, CBS could lose audiences in the some of the largest U.S. markets for reliably popular National Football League games.

In a message to customers, Time Warner Cable said it would temporarily offer programming from Starz Kids and Family as a replacement for CBS.

It added it would provide credits on upcoming bills for subscribers to Showtime or the TMC movie channel.

The blackout was the latest set of negotiations between a broadcaster and a cable or satellite operator to break down, leaving subscribers of those services without their favorite programs.

Last summer, satellite operator DirecTV's 20 million customers were unable to see more than 20 of Viacom's cable networks, including Nickelodeon and MTV, for 10 days after those companies failed to strike a new deal.

Fox went dark for more than 3 million Cablevision customers in 2010. The two settled on October 31, 2010, restoring service for three Fox-owned TV stations, Fox Business Network, the National Geographic and other channels.

Cablevision blamed the 15-day blackout, which deprived its customers of most of the World Series, for the loss of many of the 35,000 subscribers who gave up their cable subscriptions during that quarter.

The CBS blackout caps weeks of aggressive marketing staged by both companies to get the public on their side. In TV commercials airing in the markets involved in the dispute, Time Warner Cable accused CBS of giving New York a "black eye," while CBS urged viewers in its own spot to "say no to Time Warner Cable," and gave them Time Warner Cable's phone number.

On Friday evening, CBS took its messages to billboards in New York's Times Square that urged customers to call Time Warner to "tell them you want what you paid for."

CBS Chief Executive Leslie Moonves, a former actor who played the heavy in crime shows like "Cannon," is one of the industry's toughest negotiators. He told analysts during a May 1 earnings call that CBS intended to generate $1 billion annually in retransmission fees from cable and satellite companies by 2017, "if not before."

(Reporting by Liana B. Baker in New York and Lisa Richwine and Susan Zeidler in Los Angeles; Editing by Bernard Orr and Peter Cooney)

[Image: "Sad Man With A Broken Retro Tv." via Shutterstock]