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Time Warner Cable Vs. Viacom

As we start off the new year, Time Warner Cable and Viacom must be particularly relieved that they're back to business as usual. Revelers weren't the only ones watching the countdown to midnight.

Time Warner Cable and Viacom battled over a fee increase for Viacom's cable networks until the 11th hour, striking an agreement just before Viacom's popular TV shows would have gone black.

Details of the deal weren't revealed, but likely includes some sort of fee increase as well as agreements on some non-cash issues. Viacom pushed for an increase to reflect the value it generates for Time Warner Cable . Time Warner Cable said it refuses to accept the increase, which it says is about fifteen percent. TWC said it would have to pass this increase along to its customers, and considering the economic downturn and Viacom's lower ratings, it shouldn't stand for it. The big threat: if the two companies didn't reach an agreement, Viacom would pull its 19 MTV Networks off Time Warner Cable's air, and a lot of kids will be very unhappy to miss "Dora the Explorer" on the New Year's Day holiday.

Viacom even used its popular cartoon characters as pawns in the battle, running ads across the country, showing Dora crying and explaining her tears are because "Time Warner Cable has taken 19 of your favorite channels off the air!" The ads direct Time Warner cable subscribers to call the company and demand that Nick and the other channels including Comedy Central and MTV, be restored. Some ads tell consumers to sign up with DirecTV or Verizon Communicationsfor premium TV service. Viacom says it's asking for an increase of less than 25 cents per month, per subscriber, arguing that it receives just 8 percent of license fees when it draws 20 percent of viewers. Time Warner Cable says Viacom's demands are totally unreasonable, reminding viewers that it isn't pulling the popular channels off the air, Viacom is. Time Warner says it offered a modest fee increase and asked to extend the companies' current deal through negotiations to avoid losing Viacom's programming.

Remarkably, Time Warner Cable said in case of a blackout, it urged its customers to find Viacom's cable channel's content online, where Viacom offers many of its shows for free. I asked if driving customers to online TV consumption would reduce TWC's bread and butter, cable services. TWC's spokesperson said that if they do end up driving people to watch TV online, then they'll just shift more of their business to sell broadband internet access. Time Warner Cable also reminds that most of their customers subscribe to a bundle of services-- a combination of cable, Internet a phone -- rather than just cable. The argument is that when people are locked into a bundle they're less likely to switch.

The conflict between television and Internet distribution is one we'll be hearing more about. And as it was part of the conflict between the two companies, it was also likely part of the resolution. As part of the deal, Time Warner Cable will reportedly get faster access to Viacom's programming it puts online, for its on-demand service. In this economic environment, neither company could bear the weight of a drawn-out battle.

    • Viacom shares up after deal with Time Warner Cable

Questions? Comments? MediaMoney@cnbc.com

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.