Cable wars heat up as Fox and Time Warner fight over fees

Viewers are set to be the end-payers in Rupert Murdoch's latest drive to ensure media content brings in revenue, reports Stephen Foley

It promises to go down to the wire and be every bit as exciting as an episode of 24. As the clocks chime in the new year, Rupert Murdoch's main US television channel Fox – home to The Simpsons, American Idol and 24 – may disappear from millions of homes.

In one of the most vicious media disputes in years, Fox is threatening to stop allowing its programming to be shown on one of the nation's biggest cable-TV platforms unless it gets paid new fees. This is the latest front in Mr Murdoch's "war on free" – a battle to ensure that he is paid more, and in more ways, for the output of his media empire.

Viewers are being bombarded with propaganda from both sides in this war. Time Warner Cable (TWC), with 14.6 million subscribers the second-largest cable provider in the US, says Fox is demanding money with menaces. Meanwhile viewers of The Simpsons over Christmas had to endure a scrolling bar across the screen in which Fox asked them to join an internet campaign to pressure TWC.

With Mr Murdoch's News Corp breathlessly declaring on campaign websites that there are "Three days to save Fox", the dispute will in fact be settled in a boardroom in the coming days. The sound and fury of the campaign is designed only to subtly shift the balance of power in those negotiations.

TWC does not dispute that it ought to pay News Corp a fee per subscriber for carrying Fox – even though TWC used to have free access to carry the major networks (ABC, CBS, NBC and Fox) in return for giving them a premium spot among the first few channels on the dial.

Faced with a slump in advertising revenue – compounded by the recession, but also because viewing habits are fragmenting and there is greater competition from internet advertising – the major networks are now demanding that cable providers pay fees to carry their output, just as they already do to carry specialist cable channels. Those fees will inevitably be felt by cable subscribers in the form of higher monthly bills.

Fox says it spends five times as much on developing programmes such as Glee or House as does a smaller cable channel, TNT, on its dramas. TWC pays TNT $1 per subscriber to carry that channel, and Fox says it is being more than generous in likewise only asking for $1. "If one looks at the ratings that Fox and its stations get relative to cable networks, the value would actually be closer to $10 per subscriber," Fox argues. "Fox attracts more viewers than the five most expensive cable networks combined ... Fox stations feature some of the nation's most-watched programming, as well as the most compelling sports."

Some of the major networks have already won some subscriber fees from some cable providers, but the thunderous nature of the clash between Fox and TWC, whose existing carriage agreement expires on 31 December, reflects both TWC's decision last month to enlist viewer pressure in support of the negotiations, and Mr Murdoch's inclination to escalate any fight.

Certainly it comes at a time when Mr Murdoch is pushing himself forward as a warrior against "free" – the notion that media content can be provided to consumers without cost, supported by ad revenue alone.

The conversion has been nothing short of Damascene for the septuagenarian mogul. Three years ago, while bidding for The Wall Street Journal, he fully intended to scrap subscription charges for The Journal's website and to fund it by charging advertisers for access to what would then be a bigger audience. He was persuaded out of that, and now The Journal is held up as a beacon, one of the few papers that charges readers for online content. Mr Murdoch is working on plans to introduce charges for his other newspaper sites, from The Times in the UK, to the tabloid New York Post. Hulu.com, the US television-on-demand website, which is part-owned by News Corp and shows Fox hits including Family Guy, is also considering introducing fees.

Investors in television have always been less happy with companies that rely solely on advertising than on those, such as cable channels, which get less volatile subscription fees too.

The reason has been obvious this recession: Fox logged a 54 per cent drop in operating income at its advertising -supported broadcasting business in the quarter to 30 September. Its subscription cable channels, which include Fox News, grew their income by 41 per cent.

With advertising a fickle friend and the media landscape changing beneath his feet, Mr Murdoch is grabbing for fees where he can – from readers and viewers. "We realise this is going to be a tough challenge," he told shareholders at his most recent annual meeting, "but we're determined to take a leadership position in creating an economic template for the future."