Co-Opetition - Adam M. Brandenburger [115]
CBS Gets a Black Eye In the last weeks of the Bush presidency, Congress overrode the president’s veto—for the first and only time during his administration—to pass the Cable Television Consumer Protection Act of 1992. Cable television had been partially deregulated in 1984, and since then rates had been rising at three times the inflation rate. The 1992 Act was designed to reregulate cable. It also contained a little-noticed provision allowing the nation’s 1,152 commercial broadcast stations to choose between “must-carry” status and “retransmission consent.”
Stations choosing must-carry status were guaranteed a slot on cable but then couldn’t charge cable operators for carrying their programming. Stations choosing retransmission consent gave up an automatic right to be carried but were free to negotiate a fee for their programming. If no deal could be struck, the station could then withhold its consent, and the local cable operator would have to stop retransmitting the station’s signal. Most of the ABC, CBS, NBC, and Fox stations chose the retransmission-consent option.
Broadcasters had lobbied for the retransmission-consent provision to be put into the 1992 Act. And when the bill was passed, they were very enthusiastic. CBS Chairman Larry Tisch boasted that television stations could potentially “wring $1 billion a year in royalties from cable.”26
Cable operators, led by Tele-Communications, Inc. (TCI), and Time Warner Cable, declared that under no circumstances would they pay for the broadcasters’ signals. Nor were they willing to pass these costs along to their customers.27 “We will listen to any scheme that adds value to the consumer. We are not willing to do a zero-sum game of transferring wealth from our consumers to CBS Chairman Larry Tisch,” was the response of TCI Chairman John Malone.28
To present its case to the public, Time Warner Cable hired communication strategists Shepardson Stern and Kaminsky. Lenny Stern explained to us how he stirred up some fog. His market research showed that consumers had a visceral reaction when told of Tisch’s billion-dollar boast. They fully expected that Tisch’s billion would come straight out of their pockets. When asked to estimate the damage, people feared they’d have to pay an extra $15 a month in cable fees. It was all seen as extremely unfair: why should cable subscribers have to pay for something their neighbors with rabbit ears could get for free off the air?
Whether customers were doing their arithmetic right or wrong, or whether paying the networks was really fair or unfair, was beside the point. As always, the game was all about perceptions. By tossing out the billion-dollar figure without explanation, Tisch had left the door wide open for people to put their own spin on the situation. Time Warner Cable and Stern seized the opportunity to cast the conflict in a light that favored the cable companies: if broadcasters got their way, consumers would pay. Here’s a representative ad from their campaign:
Tisch would have done better had he framed things differently. Consumers’ fears of an extra $15 a month in cable fees were ungrounded. There are 60 million cable households. On a per-sub-scriber basis, Tisch’s billion translated into an extra payment by the cable companies of just 35 cents per month for each of the four networks. That’s the number Tisch should have emphasized. As for fairness, Tisch could have pointed to cable-only networks such as CNN and ESPN, which were charging the cable operators monthly fees of 10–40 cents per subscriber, depending on popularity. CBS, which was much more popular than any of the cable-only networks, would be a bargain at 35 cents a month.
Tisch might even have turned the tables. Up to that point, the four networks were giving away their programming to the cable companies, who were then charging subscribers up to 75 cents a month per channel. Tisch could have publicly challenged the cable companies: “I’ll continue to provide CBS programming for free if you lower the customers