On October 31, Time Warner Cable reported a huge quarterly loss of television subscribers, the largest in its history: 306,000 of its 11.7 million subscribers dropped the company, the New York Times reports. The bad news has been attributed largely to an impasse with television network CBS over fees, which led to Time Warner blacking CBS out of millions of homes in New York, Los Angeles, and Dallas for a month this summer.

The agreement reached by the two parties was viewed as a victory for CBS, which had sought—and won—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. Time Warner halted the blackout and conceded when it did in large part because it feared a mass exodus of subscribers if the dispute interrupted the start of Monday night football on CBS.

The negotiation underscores the significant leverage that content providers have in disputes with distributors. The drop in Time Warner subscribers is “bad news for future programming negotiations,” writes analyst Craig Moffett of MoffettNathanson Research. “Every cable operator now goes to the table knowing that CBS not only won the war, but left TWC badly damaged even for having fought the fight.”

Time Warner’s disappointing news also highlights why attempts to punish a negotiation counterpart into conceding often backfire. With its blackout, Time Warner 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 Time Warner to fact that it would suffer from the blackout at least as much.

With the benefit of hindsight, it appears that Time Warner’s BATNA—its best alternative to a negotiated agreement with CBS—was a bad one from the start. It wasn’t until Time Warner began losing significant numbers of subscribers that it recognized this fact—and the fact that its BATNA was going from bad to worse.

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