Time Warner Cable subscribers could lose Fox channels on New Year’s Eve

Don’t panic if you’re watching Fox’s New Year’s Eve special and the screen goes black moments before host Carmen Electra finishes screaming “Happy New Year.” There’s nothing wrong with your TV. You’re just caught in a brawl between two media giants.

At issue are the fees that News Corp., Rupert Murdoch’s sprawling media empire, is demanding that Time Warner Cable pay for transmitting its Fox stations -- including KTTV-TV Channel 11 and KCOP-TV Channel 13 in Los Angeles -- as well as cable networks such as FX, Fox Sports West and Prime Ticket.

The current deal between Fox and Time Warner Cable, the nation’s second-biggest cable operator with more than 1 million subscribers in Southern California, expires at midnight Thursday.

If the contract is not renewed, viewers will have to scramble to find an alternative TV service or risk missing the network’s coverage of important college football games, including the Sugar, Fiesta and Orange bowls. If the spat drags on, fans of “American Idol,” “24" and “House” may be out of luck too.

Add cable TV along with the cost of healthcare and taxes to the list of things that cash-strapped consumers probably are going to have to pay more for in 2010. Any deal between Time Warner and Fox will set a new benchmark for content producers to charge cable operators to carry their networks. Cable operators in turn will pass along the fee hikes in the form of higher cable TV bills.

“This isn’t good public relations for either company,” warned Andy Donchin, director of media investments for advertising firm Carat, whose clients include Radio Shack and Papa John’s International Inc. “Ultimately, whatever agreement they come to, the consumer will pay for it.”

Feuds over fees between content producers and distributors usually are resolved without consumers getting caught in the crossfire. The last major programming blackout was in 2000, when Time Warner Cable stopped carrying Walt Disney Co.'s ABC for almost two days and deprived millions of viewers of Regis Philbin’s then hit show “Who Wants to Be a Millionaire.”

Even by the standards of a jaded media industry, however, the showdown between News Corp. and Time Warner Cable has turned unusually hostile. Time Warner Cable has unleashed a media campaign accusing Fox of holding consumers hostage “unless we give in to their demand for massive price increases.” News Corp., meanwhile, is goading Time Warner Cable subscribers to sign up for a competing TV service so they won’t miss any Fox shows.

The rhetoric has become so heated that Washington politicos are getting into the act.

Last week, Sen. John F. Kerry (D-Mass.), chairman of the powerful Senate Commerce Subcommittee on Communication, Technology and the Internet, sent a missive to top executives of both Time Warner Cable and News Corp. urging them to make peace. Making a veiled threat, Kerry reminded the executives that they were “leaders of major companies that are Federal Communications Commission licensees and are obligated to serve the public interest.”

A lot is at stake for both companies. Fox could see ratings fall and advertising revenue tumble for its programming if Time Warner Cable stops carrying its TV stations and cable networks. Time Warner Cable, on the other hand, is likely to see its phone lines light up with calls from irate subscribers threatening to drop cable and switch to satellite broadcasters DirecTV and Dish Network or phone company Verizon’s Fios.

Although Fox and Time Warner Cable are haggling over a bundle of channels, the crux of the matter is determining fees for Fox’s local TV stations. Ever since a law was passed in 1992 giving broadcasters the right to seek payment from cable operators to retransmit the signals of their stations, the two industries have been at loggerheads.

The cable industry contends that because TV stations broadcast over the air for free, it shouldn’t pay to retransmit their signals over cable lines. Broadcasters counter that most consumers wouldn’t even subscribe to cable if local channels weren’t in the package.

In the past, broadcast networks have forgone demanding fees in exchange for room on the dial to launch new programming services. Fox, for example, bargained for channel space to launch FX, and NBC began MSNBC, rather than wring payment from cable operators for retransmitting their locally owned stations.

But the system capacity for new cable channels has been tapped out. At the same time, the broadcast networks, which have seen their audience erode and advertising growth slow, are desperate for new sources of revenue. They see the fees from cable and satellite operators as a way to rejuvenate their fortunes.

“It really and truly is the future,” said Tony Vinciquerra, chief executive of the Fox Networks Group. Without those fees, he warned, “the business won’t survive.”

Specifically, Fox seeks $1 per subscriber each month to carry its TV stations, people involved in the talks said. That’s in the range charged by TNT and Disney Channel, but much less than the $4-per-subscriber fee that ESPN commands.

Fox says on a website set up to argue its side of the dispute that the fee it’s seeking is reasonable. “Fox attracts more viewers than the five most expensive cable networks combined (ESPN, TNT, USA, ESPN2 and NFL Net),” the site proclaims.

Time Warner Cable says the fee Fox is seeking is “unreasonable and excessive, especially in this economic climate.” The company has countered with an offer closer to 30 cents per subscriber, people familiar with the matter said. Industry analysts expect that Fox will settle for 50 cents to 70 cents per subscriber.

Other broadcast networks, including CBS, NBC and ABC, are closely watching how this dispute plays out in anticipation that if Fox succeeds, they’re next in line to benefit.

If the Fox signals go off Time Warner Cable’s system, there is a risk that Washington regulators may weigh in. A spokeswoman for FCC Chairman Julius Genachowski declined to comment on the situation.

But Fox’s Vinciquerra, for one, isn’t worried about Washington. “I don’t know what the government could do. We are following the law.”

As of late Tuesday, the two sides were still huddled in talks. New York-based Time Warner Cable flew in top executives, who set up shop at the tony Peninsula Hotel in Beverly Hills. There is a chance that Fox’s TV signals could stay on the air even if New Year’s Eve passes without a new deal, if each side believes it is close.

“We hope Fox won’t punish our customers by taking their programming away while we try to reach an agreement,” Time Warner Cable Vice President Patricia Fregoso said.

“I assume negotiations will continue,” Vinciquerra said. “Nobody has their guns out.”