It was just another Tweet, one of hundreds of thousands fired off every minute, and it attracted little attention. Yet, it was notable not just for its author—Fred Wilson, the New York City-based venture capitalist responsible for funding some of the most high-profile tech startups in America—but for what it portended. Mr. Wilson had attached a photo of his television showing a professional basketball match. “Thanks everyone for your help on streaming the Knicks game,” he wrote, adding the kicker: “#screwcable.”
Mr. Wilson was one of about 2.8 million people who found themselves unable to watch the Knicks game on their usual platform, Time Warner Cable. With his legions of techie followers, he’d found a work-around. He was one of the lucky ones.
The cable provider, which is the largest in New York City, is currently locked in a licensing fee dispute with Madison Square Garden Entertainment, the company that owns the New York Knicks, New York Rangers, Madison Square Garden, and the MSG Channel, among other holdings.
The dispute involves the channel. In its most simple distillation, MSG wants Time Warner to pay a certain amount of money per subscriber to carry it, what’s known as a “licensing fee.” Time Warner wants to pay less than what MSG is asking. Ever since the previous licensing contract expired on January 2 without a new deal in place, Time Warner subscribers who have clicked over to MSG have found, well, nothing. Time Warner offered up a month of their $5.95 sports package to compensate.
The MSG Channel shows about 60 percent of the Knicks and Rangers games New York-based fans could watch; the remainder Time Warner claims, can be found elsewhere on its channel lineup. That still leaves Knicks fans in the dark most nights.
Such showdowns are not uncommon in the cable industry: Viacom (MTV, VH1, Comedy Central, Nickelodeon), the NFL Network, Starz!, and soccer channel GOL TV have all been involved in heated negotiations with TWC at one point or another.
The disputes tend to follow a familiar pattern: First, media stories about contracts expiring begin appearing. Then dueling ads turn up in print media blaming the other party for viewers’ deprivation of beloved programming and attempting to spark a deluge of phone calls. A local government official will usually condemn both parties and push the talks forward. Eventually, the dispute is resolved, stations flicker to life, and the earth spins on.
There have been a few other wrinkles this time around. Since the blackout started, MSG has been holding “viewing parties” at Manhattan bars, replete with free drinks, snacks, the MSG Network, and of course, staffers armed with iPads, directing attendees to sign petitions condemning Time Warner Cable via the website KeepMSG.com, which also suggests alternative cable providers. They even gave out T-shirts. In the run-up to the blackout, MSG began publishing full-page ads in local newspapers (which tend to be the beneficiaries of such battles).
What makes this particular licensing smackdown particularly interesting is the person on the opposite side of the negotiating table from Time Warner Cable: New York Knicks owner James Dolan.
Mr. Dolan is a well-known character. Tales of “his drug-and-drink-addled past, his volcanic temper, his shifting moods” were “legendary,” according to a Sports Illustrated profile that appeared in 2007, the same year he was successfully sued for $11.6M as a defendant alongside then-Knicks GM Isaiah Thomas in a sexual harassment complaint. He’s said to have instituted policies blacklisting any reporter or outlet critical of the New York Knicks, a motivation reportedly behind his firing of legendary Knicks sportscaster Marv Albert. He pulled a reported $1M. in advertising from The Village Voice in 2009, after this writer made an off-color remark about him on the newspaper’s website.
Mr. Dolan and MSG President Michael Bair did not respond to requests for comment for this article. An MSG spokesperson told The Observer that there has been “no meaningful dialogue between MSG and Time Warner Cable” during the continued negotiations.
Mr. Dolan is not only the president of the New York Knicks and MSG Entertainment, but he also happens to own Cablevision, a cable provider just like TWC, albeit with a much smaller market share. As such, he has been involved in licensing-fee disputes from both sides of the table: in his role as the president of MSG Entertainment, and as the president of Cablevision.
In one case, Cablevision subscribers in New York City and Philadelphia lost the ability to watch ABC the Sunday night of the 2010 Oscars. Service was restored at 8:50 PM, almost an hour into the ceremony. In October, subscribers lost access to all Fox-owned channels for 14 days, at which point Cablevision acquiesced to Fox’s demands “in principle.” By then, the Long Island-based cable provider’s subscribers had already missed the American League Championship Series—which the New York Yankees lost, by the way—and the first two games of the World Series.
Incidentally, Mr. Dolan was also front-and-center as one of the chief owners’ negotiators during the recent NBA lockout.
During TWC’s 2005 two-month contract dispute with the MSG Network, The New York Times called Cablevision, which then included MSG, “the G. Gordon Liddy of corporations, willing to hold a hand to the fire to maintain its principles.” Cable licensing-fee battles have been going on for three decades now. As detailed in James Andrew Miller and Tom Shales’ oral history of ESPN, Those Guys Have All The Fun, the first such beef happened in the early ’80s, when cable providers feared the entire industry was on the verge of collapse. Stocks were falling, and fledgling networks were dying off. ESPN decided to seize the moment and tap a new revenue stream by charging cable operators a fee. Their first target?
“They all got really pissed,” then-ESPN lawyer Andy Brilliant recalled of the Dolan family in the book. “There was a lot of walking out of the room and throwing stuff around.” James Dolan’s father, Charles—then-CEO of Cablevision—“kind of sat there,” ESPN CEO Bill Grimes recalled.
Eventually, Cablevision caved to ESPN’s demands, forking over ten cents per household to continue carrying the fledgling sports channel. Had the elder Mr. Dolan held out, the industry might look very different today. ESPN may not exist at all, and hard as it is to imagine, cable itself may have gone the way of Betamax. Instead, the new revenue model was born—along with a series of contract squabbles that bedevil us to this day.
So how much money is at stake? According to BusinessWeek, in 2011, ESPN charged $5.06, a 7.88% uptick from the year before. So what could MSG—which is certainly no ESPN—be charging for its own rate increase?
In an investor relations statement issued by TWC on New Year’s Day, the provider’s vice president of content acquisition Mike Angus stated, “We had a deal within reach earlier this year. Despite agreeing to the asked for 6.5% price increase on rates that MSG themselves deemed as fair market rates just last year, MSG reneged on the deal and instead, demanded a whopping 53% increase and refused to negotiate further.”
A bump like that, particularly in this economy, would explain why TWC balked. But the figure has been disputed by MSG, which nonetheless declined to offer a number of its own.
Some insight into MSG’s tough negotiating stance may be found in Time Warner Cable’s decision to drop the Fuse Network in December. Fuse, a music network owned by the Dolans, hasn’t had much success as of late: the network, which the New York Post called James Dolan’s “baby,” was also dropped by the Dish Network in 2010.
Maybe Mr. Dolan is harboring a bit of a grudge.
Earlier this week, MSG and Time Warner Cable returned to the table at the request of New York Attorney General Eric Schneiderman. Meanwhile, New York City comptroller John Liu has attempted to capitalize on the public outrage by asking the Department of Information Technology and Telecommunications to seek a $5.95 montly reimbursement for Time Warner customers who’ve lost out on the channels. “The least they could get is a break on their cable bill,” he fumed in a statement.
Despite taking a dip in October, Time Warner Cable stock has only risen since the onset of the dispute.
And although Cablevision was downgraded by five major bank analysts in December, it’s stock is beginning to gain on a two-point drop in October. Perhaps some investors were persuaded by a recent story by Matthew Flamm in Crain’s, which floated the notion that “Cablevision could peel off Time Warner subscribers in areas where the companies overlap.”
None of this will be any consolation to local Knicks fans, of course. By the way, they won last night. ’Melo looked great out there.
If only you could’ve seen it.
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