CBS Undercuts Sinclair in the Local-TV Giant's Battle With Hulu

(Bloomberg) -- Sinclair Broadcast Group Inc., the largest owner of local TV stations in the U.S., just lost a bargaining chip in its negotiations with streaming service Hulu LLC.

Sinclair had refused to let Hulu offer live CBS programming in two dozen markets across the U.S. unless the online TV platform also agreed to carry another Sinclair property, the Tennis Channel. But Hulu instead reached a deal with CBS Corp. to offer a national feed of the network in the markets where Sinclair operates a local affiliate.

The workaround will let Hulu customers in cities such as Cincinnati and Salt Lake City watch CBS in time for the fall TV season, when the network airs new episodes of popular shows “The Big Bang Theory” and “Young Sheldon.” The national feed features 14 1/2 hours of programming that normally air on CBS, including prime-time entertainment, nightly news and daytime talk shows. CBS will fill what would normally be local-affiliate time -- 9 1/2 hours -- with CBSN, the company’s digital news network.

The skirmish reflects the tensions and complexities of an era where TV viewership is shifting online. Hulu created a live TV service to offer consumers a cheaper alternative to traditional cable or satellite packages, but it still needs the consent of local TV stations to carry their programming.

Blanketing Country

“The goal is to provide our network to 100 percent of the country,” Ray Hopkins, CBS’s head of distribution, said in an interview.

Hopkins said CBS has given Hulu and Sinclair a year and a half to work out their disagreement, and could wait no longer. The fall TV season begins in the coming weeks, and the college football season, which provides some of the most-watched events on CBS, started a couple weeks ago.

Sinclair can opt in to the live TV service at any time. The Hunt Valley, Maryland-based company declined to comment on the dispute.

Large media companies such as CBS, which also owns the Showtime premium cable network, have looked to online TV packages, known colloquially as skinny bundles, to offset the declining popularity of traditional cable TV. The number of people who pay for a cable or satellite package has declined for more than five years, according to research firm MoffettNathanson LLC. That number has fallen because of expensive packages that include channels many consumers don’t want.

Skinny Surge

Yet the number of people paying for a TV service of some kind increased last quarter for the first time in a couple years, thanks to these skinny bundles. Hulu’s live TV service has signed up more than 800,000 customers since its debut last May. AT&T’s DirecTV, Alphabet Inc.’s YouTube and Dish Network Corp. offer similar packages.

CBS has said it gets paid a higher monthly fee by online services than cable, and it has secured a position in almost all of the major skinny bundles. “No matter the size of the bundle, we continue to negotiate deals with the distributors at higher rates that better reflect the fair value of our content,” Les Moonves, CBS’s now-ousted chief executive officer, told analysts in August.

CBS gives the owners of its local affiliates the opportunity to opt in to these online services. And Sinclair is the only owner of local CBS stations that hasn’t participated in Hulu’s live TV service, which costs $39.99 a month and includes more than 50 channels. Sinclair operates more than 190 stations across the U.S., and has also declined to make a deal with Hulu for stations that carry NBC and ABC.

Sports Programming

Hulu, which also offers an on-demand video service similar to Netflix Inc., has marketed its live product heavily to sports fans. Hulu sponsored the Stanley Cup Playoffs, as well as NBA playoffs games. Live sports is the most-watched programming on TV, and the service includes the networks that offer the biggest events.

The Tennis Channel didn’t make the cut. Sinclair acquired the Tennis Channel for $350 million in 2016, believing it could use the power of its local station portfolio to get the channel carried by more pay-TV providers. YouTube TV has agreed to accept the network, as has DirecTV Now.

But networks like the Tennis Channel have suffered steep declines in subscribers, and the cost of putting them on streaming services adds up. For Hulu, a company on pace to lose $1.5 billion this year, the price was deemed too high.

©2018 Bloomberg L.P.