In the past, TV companies like CBS used to make most of their money from advertising. Now they’re getting a lot of their revenues from content license fees charged to cable companies. That’s what the stand-off with Time Warner was about.
“CBS especially has been a leader in developing this licenses fee -- monthly license fee retransmission consent payment. And it can add up to hundreds of millions of dollars,” says Hal Vogel, who follows the industry for Vogel Capital Management.
Other TV networks see those millions, and want in on the action. But too much of a good thing could backfire for broadcasters.
“Investors shouldn’t necessarily assume that these revenue streams are going to continue forever,” says David McAdams, an economics professor at Duke University.
When networks charge cable companies higher fees, those costs get passed along to consumers. If fees get too high, consumers are more likely to disconnect their cable and use other technology to view TV shows.
“You can actually go to CBS’s website and watch some programs for free,” says McAdams. “More people are likely to do that as cable costs go up.”
For the time being, CBS has the advantage. But it may not last.
“Right now, the networks have the cable companies over their knee. If their channel is blacked-out, the cable company loses subscribers,” says McAdams. “But in the future, if it becomes much easier for consumers to access those network channels even without cable, there will be much less bargaining power [for the networks].”