CBS' Ship Comes In

It just might be that CBS' (NYSE:CBS) ship has finally arrived at port. In the newest development in the emerging battle between the operators of broadcast television stations and the cable operators, the former Columbia Broadcasting System last week announced that it had completed a series of agreements with cable systems companies involving payments by cable for the retransmission of the network's programs.

For years, broadcasters have attempted to gain compensation from the cable operators for the retransmission of their content. And for just about as many years, the cable operators have essentially stonewalled the broadcasters, who were reluctant to invoke their figurative power of the switch and cut cable subscribers off from broadcast programming. In late 2005, however, things began to change when Viacom (NYSE:VIA, VIAb) was divided into two companies: the new Viacom and CBS, with the latter consisting of, among other things, most of Viacom's television programming and station operations.

After that, it became important to Leslie Moonves, CBS CEO, to convince the investment community that his company had real growth potential and was not simply a collection of becalmed television operations. Tapping into a meaningful new income stream comprising payments from cable clearly would help to make the company's case.

In 2006, the battle between cable and the broadcasters intensified when Sinclair Broadcasting (NASDAQ:SBGI) threatened to cut off programming from its stations that was being delivered to medium-sized cable operator Mediacom (NASDAQ:MCCC). That battle continued for months, until a looming threat of Super Bowl transmission being withheld from its subscribers caused Mediacom to capitulate, although the terms of the subsequent agreement between the two companies still has not been disclosed. Similarly, the terms of yet another agreement between Time Warner (NYSE:TWX) and Sinclair are not being discussed.

To cast them in their proper light, CBS' newly disclosed agreements apparently involve nine small cable operators and a total of about 1 million total subscribers. As such, the large broadcaster clearly has been able to flex its muscle with small cable operators and perhaps gain the $0.50 per subscriber each month it had sought.

But a much larger and more meaningful battle is on the horizon between Sinclair and Comcast (NASDAQ:CMCSA), which is easily the largest of the cable operators, with about 24 million subscribers. Comcast executives long have expressed a determination not to be forced to compensate the broadcasters for retransmission of their programming, but a showdown between the two companies could occur with the next several weeks, with Sinclair using shows from 30 of its stations as leverage.

This fight likely will prove interesting before it is resolved. In the process, it could have a meaningful impact on the share prices of the companies involved. I urge Fools to stay tuned.

For related Foolishness:

• Eye on CBS
• The Television Giants Are Rumbling
• Time Warner's Double Play

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Fool contributor David Lee Smith does not own shares in any of the companies mentioned. He welcomes your questions or comments.