Blackout looms in Time Warner, Viacom standoff

Viacom has taken its case to the public in an ad campaign.

"Why is Dora crying?" read an advertisement Viacom placed in The New York Times. "Time Warner is taking Dora off the air tonight! Along with 19 of your favorite channels."

HIGH STAKES STANDOFF

Affiliate fees have become even more important as the recession has crimped advertising revenue.

But neither side is well-positioned for a long standoff. Time Warner Cable is about to lose the protection of parent company Time Warner Inc with a planned split off in early 2009. Viacom has come under scrutiny as its controlling shareholder, mogul Sumner Redstone, faces his own debt crunch.

"As has been the norm, we would expect a settlement -- terms undisclosed -- in a relatively quick manner, as both sides may not want to see if this battle results in mutually assured destruction, as Viacom loses ad dollars and Time Warner loses subscribers," wrote Bernstein analyst Michael Nathanson.

Viacom is arguing that it deserves more money because viewers spend more than 20 percent of their time with its networks, but its fees amount to less than 2.5 percent of Time Warner's revenues from customers.

"We sympathize with the fact that Viacom`s advertising business is suffering and that their networks` ratings have largely been declining," Time Warner's Britt said in a statement. "However, we can't abide their attempt to make up their lost revenue on the backs of Time Warner Cable customers."

Like other cable and satellite operators, Time Warner has been under pressure from program makers who are keen to increase their fees. Until now, it has largely been broadcasters like CBS who have complained.