USA

CBS Is Blacked Out for 6.5 Million AT&T Customers. Here’s Why.

CBS, the nation’s most-watched television network, went dark for more than 6.5 million AT&T customers early Saturday after the two companies couldn’t agree on a new contract.

The network, with hits like “Big Brother,” was cut off from AT&T’s satellite service DirecTV as well as the landline-delivered U-verse and DirecTV Now, the live streaming product.

The companies had been negotiating for several weeks but failed to agree on pricing and streaming rights before the contract expired on Saturday at 2 a.m., Eastern time.

AT&T television customers in at least 14 markets, including New York, Los Angeles, Chicago and San Francisco, lost their feeds to CBS. The network is carried in about 119 million homes across the country, either on a pay television service or free over the air. The affected customers account for tens of millions of dollars in monthly revenue to CBS.

Broadcasters like CBS receive what’s known as retransmission consent fees — the equivalent of a monthly licensing fee — from distributors like DirecTV. CBS is asking for an increase over the rate it last negotiated in 2012, when market conditions were different and pay-television bills were cheaper.

Since CBS is a broadcast network, it’s still free to watch over the air using an antenna. But it and other broadcasters also sell their rights to pay-TV operators like AT&T, which carry the network on their systems.

CBS had been paid an average of a little over $2 for each AT&T subscriber every month, and it is now seeking a fee in the range of $3, three people familiar with the matter said. They spoke on the condition of anonymity because the contract negotiations are considered private.

In addition to a smaller fee increase, AT&T is pushing for the ability to sell CBS’s streaming service as a separate option, which could give it more flexibility and lower costs by potentially removing the channel from its basic bundle.

Both AT&T and CBS are in the midst of significant transformations. CBS has been bruised by scandal. It ousted its chief executive, Leslie Moonves, in September after a dozen women said he had sexually abused them. He has denied the charges. The network is also discussing a potential merger with its sister company, Viacom, the cable network giant that oversees MTV and Comedy Central. Both companies are controlled by the Redstone family, now led by Shari Redstone.

AT&T, in a bid to distinguish itself from its rival Verizon, spent more than $80 billion to acquire Time Warner last year. The deal gave it a suite of content providers, including HBO, CNN and the Warner Bros. film studio. The company plans on offering a major streaming service to compete with Netflix, Hulu and others, based largely on the brand clout of HBO. The service would also help AT&T offer special discounts to its customers, potentially keeping them from defecting to other services.

AT&T was close to a blackout with Viacom this year after a heated renewal negotiation. AT&T is separately involved in a dispute with Nexstar, which owns CBS affiliate stations in 35 markets. Nexstar-owned stations have been blacked out on AT&T systems since July 4.

Carriage disputes are not uncommon. Networks want more money, and distributors want to keep fees down. But cord cutting and the rise of streaming services have added to the plight of cable and satellite companies.

AT&T, already under immense financial pressure with debt exceeding $175 billion, is steadily losing television customers. In the 12 months through March, it lost more than 1.5 million subscribers, or about 6 percent, leaving it with about 23 million television customers.

That explains the industry’s shift to streaming. CBS’s digital product, All Access, costs $6 a month and has more than four million subscribers, with that figure expected to triple over the next three years.

But the network’s online success has also complicated its negotiations with AT&T. AT&T would prefer to sell All Access to its customers as an à la carte option, instead of having to carry CBS for all its subscribers in a bundle, the people familiar with the matter said.

In that case, AT&T would simply take a cut of each digital subscription, an arrangement that CBS has with Amazon through its Prime video service. The onus would then be on AT&T’s subscribers to request CBS instead of expecting it as part of a basic package.

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