Amid Standoff, Stocks of Time Warner Cable and CBS Fall

In the battle between content and distribution, investors thus far seem to be siding with the creative types.

Time Warner Cable and CBS are engaged in a titanic stand-off. And in the battle between a company in an industry that is universally disliked (cable), and one that gives Americans exactly what they want (television networks), it isn’t shocking to see CBS beating Time Warner Cable—at least in the stock market.

As Time Warner subscribers in major markets like New York, Los Angeles and Dallas go without CBS programming for the 19th day, neither side looks close to crying uncle. At the heart of the issue are retransmission fees—the amount of money cable companies pay broadcast networks to transmit their content to subscribers. According to reports, CBS is looking to double the amount it gets to $500 million. Meanwhile Time Warner is saying that if it concedes to the demands of CBS, it will have to do so for every network come negotiation-time. And if that happens, it’ll have to pass those higher costs on to consumers.

Also at issue are the fate of the large archive of shows that CBS sells to outlets like Netflix. Time Warner wants its subscribers to be able to access those as well.

And yet CBS is clearly ahead in the war of attrition between content and distribution. It’s still on top in the ratings game, despite being off the air in several major markets. According to Peter Lauria at Buzzfeed, Time Warner Cable will face heightened pressure during “connection season” in the fall. As college students (who will want to watch Homeland on CBS-owned Showtime) move into dorms and apartments, and as home buyers (who will want to watch NCIS) relocate, they’ll be making decisions on cable providers. Oh, and CBS also will have the NFL season kicking off in September. For some percentage of customers, the desire to access CBS and its cable sister networks will be decisive.

And the masses seem inclined to take out their wrath against Time Warner Cable (by choosing another provider) rather than expressing anger at CBS by boycotting their content. Donald Trump has tweeted his discontent with Time Warner Cable because he couldn’t watch golf on CBS one weekend.

As seen in the chart, Wall Street seems to agree with the common man and is betting on CBS over Time Warner Cable. Over the past month, the stock of CBS may be down 3 percent, but Time Warner has taken a hit of nearly 7 percent.

The reason is simple, “CBS is the content holder that consumers want. That gives them ultimately the upper hand when consumers have choice,” says Richard Greenfield, an analyst at BTIG LLC. A viewer leaving Time Warner because of the fight does not affect CBS, but it does cost Time Warner a subscriber.

Part of the problem for Time Warner is that CBS (as well as NBC and Disney) can leverage their broadcast and cable properties as well as its stations to get its way. In order for it to be an even playing field, says Greenfield, all the distributors like Time Warner, Verizon, Dish, etc., “could jointly negotiate retrans for NYC with CBS—essentially making 1:1 again.” His breakdown of how the 1992 Cable Act created this playing field is here.

Of course, this may all be moot. The number of cable-cutters and chord-nevers grows every year (I’m the former). Companies like Amazon and Netflix are developing their own content. And then there’s Aereo, which stands to benefit from protracted battles like this. Some time down the road, analysts may look back at the fall of 2013 as a staged match between two old media dinosaurs wrestling as the world evolves.