Time Warner vs. CBS: A Business Model Quandary

Please turn on your television set. Can you find the CBS television network there?

Two days ago, three million viewers from New York to Los Angeles lost access to CBS. Time Warner, their cable television provider, has refused to accept the network’s contract renewal offer, and CBS has responded by blocking its transmission.

So what is Time Warner advising its customers to do? They’re actually recommending that their viewers should use computers to view shows on the CBS web site, and should use antennae to capture signals over the public air waves! In other words, Time Warner is recommending that its cable customers should utilize competitor offerings to view CBS television programs.

Such a strategy may prove to be self-defeating in the long run, considering that the cable television industry’s business model is focused on selling a comprehensive collection of television channels at a single monthly price. The industry has resisted numerous entreaties by politicians and consumer advocates to sell access to individual channels on an a la carte basis.

Because most cable television customers actually watch relatively few channels, many pundits have speculated that the industry might fail to generate sufficient profits with an a la carte business model. Other commentators, meanwhile, have defended these business practices by emphasizing various benefits that customers supposedly enjoy when purchasing comprehensive packages of channels.

These benefits, though, are severely impacted when customers are forced to turn off their cable boxes and raise their antennas or turn on their computers to access popular programs. In other words, Time Warner may be undermining its own business model by recommending such activities to their customers.

And what if customers drop their cable television services entirely? Apple, Google and Intel are reportedly developing their own web based television platforms, and will undoubtedly find ways to offer alternative options.

So Time Warner might wish to settle with CBS as soon as possible. Although the network is taking a hard line in negotiations with CBS, upcoming battles with more formidable opponents may ultimately pose far greater challenges to the cable firm.