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Disney Plays Dirty in Cablevision Spat


Customers are the losers yet again.


After Scripps Network Interactive's (SSP) HGTV and Food Network went dark on Cablevision (CVC) for three weeks earlier this year in a spat over retransmission fees, another one continues to rage on -- just in time for the Oscars.

Cablevision carries ABC, a Disney (DIS) network, as part of a basic package that costs consumers between $15 and $18 a month. Disney is asking for an additional $40 million a year, on top of the $200 million it already receives from Cablevision.

Unless the two sides reach an agreement by midnight Saturday -- a deadline with decidedly suspicious timing imposed by Disney -- 3.1 million subscribers in the New York Metro area will miss the Academy Awards on Sunday if Disney makes good on its threat to yank ABC off the air.

Not surprisingly, customers are irate.

"If Cablevision takes ABC off the air, they will lose another customer -- me," Michael Delaney told the Asbury Park Press.

Another Cablevision customer, Neil Schulman, said, "If Cablevision allows ABC to go off the air…I will never pay them another cent."

But, in this situation, it seems that Cablevision shouldn't be the one to shoulder all of the blame.

American Cable Association president and CEO Matthew Polka released a statement saying:

It's deplorable, but hardly surprising to small cable operators, that the Walt Disney Co. would engage in such an extreme tactic as pulling its ABC signal from 3.1 million Cablevision Systems Corp. customers on the eve of a major television event like the Oscars, simply to extract more cash from cable customers boxed in by a broken retransmission consent regime.

He went on to urge the FCC to revise the retransmission consent rules, which "unfairly allow broadcasters to demand much higher fees from smaller cable operators than larger ones in the same market, and then pull their signals when those unreasonable demands aren't met."

Cablevision agrees. "It is not fair to force Cablevision customers to pay a new TV tax for programming ABC/Disney gives away free, both over the air and on the Internet," Cablevision spokesman Charles Schueler said. "In tough economic times, it is shameful that ABC/Disney would hold viewers hostage by threatening to pull the plug, and we urge them to work with us to reach a fair agreement."

Meanwhile, WABC-TV President Rebecca Campbell came down on the other side in an interview with the New York Post. "When I think of our two companies, the word that comes to mind is trust," she said. "Our viewers trust us. When you say Cablevision, my bet is that not many people think trust."

However, trust isn't exactly the issue here. Profits are. Disney president Robert Iger was recently quoted as saying, "We know the value of these stations, and the value in their local markets," and that the company feels it has "an obligation" to "maximize return" on Disney's investment in content.

Disney has also been playing dirtier than many would likely expect. ABC personalities including Barbara Walters, Regis Philbin, and Kelly Ripa, were apparently pushed to present Disney's side of the dispute during their shows yesterday. Even Fox (NWS) didn't resort to such tactics when locked in a similar battle with Time Warner Cable (TWC) at the end of 2009 -- a situation which, if the negotiation deadline hadn't been extended, would have caused football fans to miss the NFL playoffs.

From an investor's perspective, analysts see both Cablevision and Disney as attractive stocks. Merrill Lynch (BAC) upgraded Disney from Neutral to Buy and raised its price target from $33 to $42, citing the company's "highly positive" risk/reward profile while calling it "one of the most compelling equities in Media and Entertainment."

Chris Marangi, Associate Portfolio Manager of the Gabelli Value Fund, has been "recommending Cablevision for some time, which is one of the best-run cable operators in the country, very highly penetrated and far down the capital investment curve."

But the situation at hand is a risk for all involved. Advertisers that bought airtime during the Oscars will be highly upset if they lose out on a market as important as New York, while Cablevision faces the possibility of angry customers switching to Verizon (VZ) FiOS or DirecTV (DTV).

Whatever happens, one thing is certain -- Oscar coverage will be available to everyone on Monday in the medium regarded by the bulk of the population as dead: newspapers.

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