News Corp. and Time Warner Cable agree to extension in contract talks

News Corp.'s Fox TV stations and several of its cable networks remained on Time Warner Cable systems as executives from the two companies negotiated late into the New Year's Eve night on a new contract that would prevent the signals from going dark.

Representatives for both sides indicated that negotiations, which had been taking place over the last three days in a conference room on Fox's Century City lot, were cordial. Signaling that headway was appearing to be made, the two companies agreed to a three-hour extension of the contract after a midnight deadline passed on the East Coast.

If an agreement is not reached, however, millions of Time Warner Cable customers -- including many in Southern California -- could be sidelined in the coming days if they want to watch the Sugar Bowl, Cotton Bowl and NFL football games.

Cable viewers desperate to watch those or any other Fox shows will have to get a set of TV rabbit ears and possibly a digital converter box to get the network's signals over the air or subscribe to an alternative service such as satellite TV.

The standoff between the two media companies revolves around fees that Rupert Murdoch's News Corp.-owned Fox is demanding from the second-largest cable system operator in the country to retransmit Fox's local TV stations. Fox wants Time Warner Cable to pay about $1 per month for each of its 4 million cable subscribers within the markets of the Fox-owned TV stations, according to people close to the talks. Time Warner has countered with 25 cents to 30 cents, the people said.

Rather than leading to a clear winner, the game of corporate chicken could instead exact a toll on both companies.

For Fox, not having local TV stations carried on Time Warner Cable systems in Los Angeles, New York and Dallas -- among other big cities -- is likely to mean that fewer viewers will see its shows. That could force Fox to refund money to advertisers because ratings did not meet expectations. Typically, when an advertiser buys time, the network guarantees that the commercial will reach a specific number of viewers. Otherwise, the advertiser can be given additional free time or get its money back.

The risk for Time Warner Cable, which has 14 million subscribers overall, is that customers irate over losing Fox programming like "House" and "The Simpsons" may drop their service for a rival that has a deal with Fox.

Despite well-oiled PR machines, both companies face a backlash in the court of public opinion. In dueling media campaigns, Time Warner Cable has accused Fox of trying to gouge consumers with its "massive price increases," while Fox has alleged that the cable giant is not paying a fair price for its highly rated programming.

Clashes between programmers such as Fox and distributors such as Time Warner Cable are not uncommon. It is rare, however, for behind-the-scenes squabbles to spill into public view. Time Warner Cable said it was willing to extend the current contract and enter binding arbitration. But Fox, calculating that it has leverage, spurned the proposal.

Fox executives contend that securing fees from cable operators to carry Fox TV stations is crucial for the financial health of network television. Cable channels such as MTV, for example, have two sources of revenue -- advertising and subscriber fees. Broadcast channels, on the other hand, have only a single source of revenue: advertising.

In an interview this week, Fox Networks Group Chief Executive Tony Vinciquerra contended that without winning so-called retransmission fees, "the business won't survive."

Time Warner Cable already pays to carry CBS-owned TV stations and is worried that whatever it ends up granting Fox could trigger higher CBS payments, said people familiar with the matter. CBS' contract with the cable operator includes a "most favored nation" clause that would allow it to renegotiate if Fox ended up with a better deal.

More nasty negotiations between programmers and distributors could be on tap for later this year. Walt Disney Co.'s ABC network, whose carriage contract with Time Warner Cable expires in 2010, has swung its support behind Fox. General Electric Co.'s NBC Universal, which is in the process of merging with Comcast Corp., the nation's biggest cable distributor, had no comment on the Fox-Time Warner Cable spat.

Lawmakers and regulators have tried unsuccessfully to get both sides to extend their current contract while a new one is hammered out. Sen. John F. Kerry (D-Mass.), chairman of the Senate Commerce Subcommittee on Communication, Technology and the Internet, has been actively pushing for Fox to let Time Warner Cable continue carrying its stations. Earlier in the week he said if the Fox signals did come off Time Warner Cable, he'd ask the Federal Communications Commission to intervene.

On Thursday, FCC Chairman Julius Genachowski issued a statement urging "Fox and Time Warner Cable to agree to a temporary extension of carriage." However, whether the FCC will try to force both sides into a temporary pact remains to be seen. Traditionally, the regulatory agency tries to stay out of private business negotiations, and whether it has the authority to assert itself in the process is unclear.

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