Are Food Network’s Moves Getting Hard for Cablevision to Digest?

The carriage dispute between Cablevision and Scripps Networks Interactive (SNI) is continuing into its third week. Food Network and HGTV went dark on Cablevision’s systems on New Years Day when the carriage agreement expired. Since then, the battle has gone public. Cablevision is accusing SNI of being the ones that pulled the plug on the programming and asking for a 200% increase in license fees upon renewal. For its part, SNI maintains they are asking for “fair value” for their programming.

Since going dark on the Cablevision systems, SNI has been making some of their popular programming, like Food Network’s Iron Chef America, available on local NY stations WWOR and WPIX. Is seems that Cablevision is little impressed by SNI’s recent moves. Cablevision CEO James Dolan has proved to have an iron stomach when it comes to his appetite for tough, drawn out programming negotiations. Consider that Cablevision was the last cable operator in the New York market to launch the YES Network – and that when he was dealing with Yankees fans! Dolan’s critics (and the public posture of SNI) will say that the second generation cable mogul cares little about his customers and is just trying to cut the best business deal possible, while holding those customers hostage in the negotiations. Well, yes and no.

It may be sour table grapes on SNI’s part and the unwillingness of Dolan’s critics to forgive cable operators in general for years of rate increases in excess of inflation, but one must consider that one of the primary goals for the operator in driving the best business deal is to keep their costs low, enabling them to keep the rates to the consumer at a competitive level while still making a profit acceptable to its shareholders. You see, the free market is much more complicated than the simplistic public “he says, she says” finger pointing that often accompany these types of carriage battles. Dolan is taking a “get tough” stance, as a majority of Time Warner Cable subscribers encouraged their cable operator to do in its year end retransmission consent negotiations with FOX. The thing is, Jimmy Dolan is doing it without a website. It is likely that we will see many more of these battles as cable operators look to maintain a reasonable level of programming costs in the face of retransmission consent payments to broadcasters, but that’s a subject for another post. Unfortunately, it is the customer/viewer that invariably gets caught in the middle of these battles. Cablevision does not necessarily mean to “hold them hostage”. It’s just that cable subscribers happen to be part of the currency that video distributors trade in when negotiating with programmers.

While one would think that there is a propensity for consumer to switch to another provider (Verizon, DirecTV, Echostar’s Dish Network, etc.), such thinking ignores the power of the bundle. When a consumer is locked into a bundle of services that includes voice, video and data, the attraction of the “all for one low price” proposition makes each individual channel less important, especially the marginal “niche” channels. This is even more difficult if the customer is locked into a contract.

Chances are that MFNs (so called “most favored nations” clause that requires a programmer to offer lower rates to larger operators if they are give to smaller operators) are standing in the way of Cablevision getting the rates they want for the services. That being the case, Cablevision customers can expect the negotiations to drag on for some time unless both parties can find a creative solution to work around the MFNs. Until then, many CVC subscribers who are Food Network fans are going to wish they had packed a lunch.