It pays to know your BATNA

Time Warner Cable (TWC) is a cable operator in the US much like Starhub and Singtel Mio are in Singapore. On October 31 this year, TWC reported a huge quarterly loss of television subscribers: 306,000 of its 11.7 million subscribers dropped the company, the New York Times reports. This is the largest ever drop in its 24-year history.

Here’s what happened.

CBS is one of the largest networks in the US which produces content like NCIS, 60 Minutes, Under the Dome and The Big Bang Theory. Cable operators like TWC distribute these content to their subscribers for a fee. The fee had long been a few cents per subscriber, but it has been rising over time. CBS felt that their fees should be higher given that they produce top-rated programs. They were asking for more than $2 per subscriber. TWC was not willing to pay more than $1. This led to an impasse that dragged on for 2 months. Without a deal in sight, TWC threw down the gauntlet and imposed a 2 Aug, 5pm deadline for CBS to accept the offer or face being blacked out.

The deadline passed without a word from CBS and so TWC blacked out the CBS channels in 8 markets including New York City, Los Angeles and Dallas. TWC held out the blackout for one month hoping to force CBS’ hand. However, in the end, TWC had to halt the blackout and concede to CBS’ demands, which was a promise of significantly higher fees for its programming in the blacked-out cities, from about $1 per subscriber to $2, as well as the digital rights to sell its content to Web-based distributors such as Netflix. They did this in large part because they feared a mass exodus of subscribers if the dispute interrupted the start of Monday night football on CBS.

TWC’s disastrous negotiation highlights why attempts to punish a counterpart into conceding often backfire. With its blackout, TWC played hardball with CBS in an attempt to frighten the network into conceding. But its focus on the pain it was inflicting on CBS blinded them to fact that they too might suffer from the blackout by at least as much. Talk about cutting off the nose to spite the face!

With the benefit of hindsight, it appears that Time Warner’s BATNA (Best Alternative to a Negotiated Agreement) —to blackout CBS programs —was a bad one from the start with. It wasn’t until TWC began losing significant numbers of subscribers that it recognized this fact—and the fact that its BATNA was going from bad to worse!

In negotiations and disputes, punishment and threats may seem like a good way to win concessions. But business negotiators would do well to remember how Time Warner’s gambit unfolded. Rather than bringing about agreement, such hardball tactics tend to escalate disputes and drive parties even farther apart.

Negotiations is a strategic tool and it pays to apply strategic thinking to ensure that you have what it takes to make your position strong. It pays to know – really know – your BATNA.

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