Why Time Warner Cable is like a newspaper

By Adam L. Penenberg , written on August 5, 2013

From The News Desk

Time Warner Cable (TWC) and CBS’s spat over retransmission fees has spilled into a fourth day. CBS, the highest rated television broadcast network, seeks to double the amount it receives to $2 a subscriber (contrast to ESPN, which gets $5) while TWC, which has been experiencing defections from cord cutters, wants to keep costs down. After negotiations stalled late last week TWC pulled CBS and Showtime from its system, leaving more than 3 million subscribers without their favorite zzzz xapqydgu Xh deCHdiw…

Sorry, I fell asleep and banged my head against the keyboard.

It’s hard to feign interest in CBS, which I already don’t watch. Nudge me awake when football season or the third season of "Homeland" begins. By then, if the two corporate behemoths aren’t playing nice, maybe I’ll spring for an Aero or simply tune into something else – Netflix, Hulu, Amazon Video, and so on. It’s not like there aren’t plenty of alternatives.

The real problem that Time Warner, and by extension CBS, has is that its entire business is in the midst of creatively destructing. Over the years TWC has raked in money by asserting largely monopolistic control over what its millions of subscribers watched. Subscribers subsidize channels they rarely, if ever, watch but which are bundled together. If a subscriber wants ESPN, he gets Lifetime. That’s just for the basic package. Then you also are charged extra for premium channels like HBO, Showtime, and the Tennis Channel.

The plight of cable systems like Time Warner reminds me, in some ways, of print newspapers. In the past, when you bought, say, a New York Times or USA Today to read on your morning commute, you were a captive audience. You either read what you held in your ink-stained hands, chatted with the guy sitting next to you, or stared out the window and watched the scenery go by.

Newspapers maintained a monopoly over your time and attention, and because of geographic relevance, acted as local information monopolies. Journalists didn’t sell news. They attract an audience that publishers can sell to advertisers -- and earn a few bucks in the process. The news is simply a lure to aggregate eyeballs so that someone with something to sell can try to reach them. Reporters write, readers pay a pittance for access to their writings, and someone else gets stuck with the bill. It’s amazing the system persisted for more than a century.

These days, though, newspapers don’t hold your attention like they once did. On this same commute, with your smartphone, you can skip the news entirely and check email, play "Dots," shop on eBay or Amazon, read material from potentially hundreds of other media outlets, watch Youtube videos, listen to music. Suddenly newspapers weren’t competing with other newspapers for your attention. They are competing against, well, everything.

Adding to this, certain parts of the paper have always subsidized others. For a long time classifieds supported the entire business model until craigslist ate them. Still, more popular sections, like the opinion pages in The New York Times and sports in other newspapers, subsidize foreign coverage. As advertising revenue has trended down and digital earnings haven’t made up the shortfall, newspapers have had to cut. As with digital music in which singles have been extracted from the entire album, sections have been delaminated from the rest of the paper, too.

A similar dynamic is occurring with cable systems, which need to hold the line on retransmission costs to prevent price increases that would encourage more subscribers to cut the cord. In one recent quarter Times Warner lost 119,000 subscribers. Cable companies can’t count on acting as attention monopolies much longer, and services they offer in addition to programming can be replicated elsewhere. Phone service? We have mobile phones that may lack audio quality and reliability but are vastly more convenient. Internet access? There’s DSL, among other options.

As for programming, the crux of a cable company’s offerings, there’s AppleTV and Roku, which carry Netflix, Hulu and a host of other content, Aero, and surely others that will be coming down the pike. It’s not like TWC has any brand loyalty. In fact, many of its customers despise the company.

And in the end Time Warner Cable, whether it prevails in this latest skirmish with CBS or not, will likely lose the war – and its customers will, in the end, be better off for it.

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