UPDATE 2-Time Warner Cable offers unconventional deal to end CBS blackout
* Time Warner Cable offers risky a la carte proposal
* CBS calls offer a "sham", "empty gesture"
* Verizon FiOS seeing increase in requests for service from Time Warner Cable customers
Aug 5 (Reuters) - Time Warner Cable Inc Chief Executive Glenn Britt sent a letter to CBS Corp CEO Les Moonves on Monday offering a controversial new proposal to end the blackout of CBS shows that started Friday in markets such as New York and Los Angeles.
The letter is the latest development in a contentious public battle between the No. 1 rated U.S. broadcast network and the no. 2 cable provider that has left millions of customers unable to watch the summer hit "Under the Dome" and live sports that airs on CBS such as golf.
Britt said that Time Warner Cable could offer customers the chance to pay for the CBS network on a standalone basis, known as the "a la carte" model, which is viewed as a risky proposition in the U.S. cable industry.
"Rather than our debating the point, we would allow customers to decide for themselves how much value they ascribe to CBS programming," Britt said.
Time Warner Cable said it is waiting for CBS to accept or reject its proposal.
CBS, meanwhile, called the proposal "a sham" and "a public relations vehicle designed to distract from the fact that Time Warner Cable is not negotiating in good faith."
Media companies like CBS and its rivals sell packages of channels known as bundles to operators, a common practice in the cable industry. CBS cable channels such as Showtime also went dark in the dispute with Time Warner Cable because the company negotiates its programming deals in one bundle.
Letting customers cherry pick the channels they want would cut into revenue of media companies. Needham & Co analyst Laura Needham estimated in July that the cable industry including media content providers could lose 50 percent of its revenue, about $70 billion, if the a la carte was widely adopted. She added that only 20 channels would likely survive in this scenario.
Time Warner Cable said CBS could choose the pricing it wants for a la carte channels and then the broadcaster could collect all the revenue.
This is not the first time Time Warner Cable has used this tactic in a dispute over fees. In 2007, Britt sent a letter to the NFL Commissioner Roger Goodell when the cable company could not come to terms over carrying the NFL Network. Instead of paying for the channel, Time Warner Cable offered to carry individual NFL games that customers would pay for separately at a price the NFL would set, with all the revenue going to the league.
BTIG analyst Rich Greenfield said that "a la carte is never going to happen." CBS added on Monday that "anyone familiar with the entertainment business knows the economics and structure of the cable industry doesn't work that way and isn't likely to for some time."
Time Warner Cable also offered to increase its fees it would to pay to CBS but it did not elaborate on the specifics in the letter. A Time Warner Cable spokeswoman decline to comment on the amount.
RBC Capital Markets analyst David Bank estimates that CBS currently receives $1 per month, per subscriber and is seeking to double that to $2 per subscriber.
The latest proposal from Time Warner Cable would not include a deal for digital rights, which it said CBS had provided to other cable companies. Those rights include CBS's premium channel Showtime's digital app, which competes with HBO GO, said a source familiar with the matter.
As the blackout stretched into its third day on Monday, Verizon FiOS, one of Time Warner Cable fiercest competitors in New York, said it was receiving "an increasing number of requests for service from Time Warner Cable customers unable to watch CBS content."
Verizon spokesman Bill Kula did not specify how many Time Warner Cable subscribers had contacted FiOS. He said that FiOS, a fiber based service that competes with cable operators for television, Internet and telephone customers, feels "very well positioned to take advantage of the situation."
Verizon said it is not planning any special promotions to appeal to Time Warner Cable customers affected by the blackout but said it hasn't ruled out adjusting its marketing and advertising campaigns. Kula, the spokesman, added that Verizon does not have any "imminent contracts" with programmers coming up that could lead to blackouts.
Verizon's FiOS service has been one of Time Warner Cable's biggest threats in New York, and has made serious inroads against the cable company in local markets such as Staten Island, said Moffett research analyst Craig Moffett.
Moffett estimated that 10 percent of Time Warner Cable's footprint competes with FiOS in New York and that will grow up to 14 percent or as the service expands. FiOS also has a presence in Dallas, another Time Warner Cable market that is blacking out CBS.