Viacom and Time Warner Cable have been engaged in a financial war over carriage fees which has not been settled. As a result, Viacom has threatened to pull 18 of its networks off Time Warner Cable, including SpikeTV, Nickelodeon, Noggin, MTV, VH-1, Comedy Central, TV Land and BET. Time Warner covers 13% of homes in the USA, including most homes in Los Angeles and a lot in New York. Here’s the latest update on the situation from CNNMoney.com:

(Updates lack of progress in negotiations, stock quotes from early Wednesday trading, and comments from Time Warner Cable and Viacom throughout.)

By Nat Worden

Of DOW JONES NEWSWIRES

Viacom Inc. (VIA) and Time Warner Cable Inc. (TWC) appear unlikely to reach an agreement on carriage fees before the New Year, according to a source familiar with the talks, meaning popular networks Comedy Central, MTV and Nickelodeon may be pulled from the cable company’s system, which include large parts of New York City and Los Angeles.

Negotiations over the fees paid to networks by cable companies have become trickier as the increase in Internet viewing of shows, as well as the recession, have pressured both sides to protect revenue streams.

Viacom says it’s seeking a 12% overall fee increase from Time Warner Cable, the fourth-largest video distributor in the U.S. after Comcast Corp. (CMCSA), DirecTV Group Inc. (DTV) and DISH Network Corp. (DISH). According to Viacom, that amounts to a monthly increase of 23 cents per subscriber.

Time Warner Cable said Viacom is pushing for fee increases between 22% and 36% per channel. The cable company asked for an extension of its licensing deal with Viacom to avoid service disruptions, but Viacom rejected that.

“We would have granted an extension if we thought we were having good faith negotiations,” Viacom spokeswoman Kelly McAndrew said. “But the fact is that Time Warner Cable is not negotiating in good faith and has been largely unresponsive.”

The dispute between Viacom and Time Warner Cable is the latest among networks and cable companies. Stations owned by broadcaster LIN TV Corp. (TVL) went dark on Time Warner Cable for four weeks in October as the two sides wrangled over fees, and Univision Communications Inc., CBS Corp. (CBS), NBC Universal, Hearst- Argyle Television Inc. (HTV) and Sinclair Broadcast Group Inc. (SBGI) all are engaged in similar negotiations.

“As advertising dollars continue to shift to the Web and DVR viewing increases, both broadcasters and cable network owners need the contractual flow of affiliate fee revenues to be an increasing contributor to the business model, ” Sanford C. Bernstein analyst Michael Nathanson said.

Shares of Viacom were recently trading up 3% to $19.83 on Wednesday, while Time Warner Cable shares were down 0.6% to $21.62.

Viacom’s bid to get higher fees from Time Warner Cable is perhaps the highest- profile negotiation yet because its networks are among the most popular on cable television, with shows like “SpongeBob SquarePants” and “The Daily Show with Jon Stewart.” According to Nathanson, its cable networks account for 25% of total cable network viewers every day and 20% in prime time.

“Viacom’s cable networks are materially underpriced relative to their peers, which we believe represents an opportunity for Viacom in the future,” Nathanson said.

Both sides in the dispute are accusing the other of acting at the expense of the viewing public, and Viacom is launching a marketing blitz featuring animated characters like SpongeBob aimed at demonizing Time Warner Cable.

“We sympathize with the fact that Viacom’s advertising business is suffering and that their networks’ ratings have largely been declining,” Time Warner Cable Chief Executive Glen Britt said. “However, we can’t abide their attempt to make up their lost revenue on the backs of Time Warner Cable customers.”

Meanwhile, Viacom spokeswoman Kelly McAndrew said Time Warner Cable is overreaching in a bid to prop up its profitability, and viewers will find the company’s behavior “outrageous.”

“The renewal we are seeking is reasonable and modest relative to the profits Time Warner Cable enjoys from our networks,” McAndrew said. “Throughout the country, we have negotiated equitable license agreement renewals, or are in the final stages of renewals, with virtually every cable and satellite carrier. Nevertheless, Time Warner Cable has dismissed our efforts at a fair compromise and has effectively chosen to deny its customers some of the most popular TV shows on the air.”

Nathanson estimates that Time Warner Cable is paying Viacom about $300 million in annual license fees, which equals roughly 2% of Viacom’s total revenue. The license fee represents 2.8% of video revenue for Time Warner Cable, or 1.7% of total revenue.

Profit margins for the cable company, which is a leading cable provider in major media markets like New York City and Los Angeles, are under pressure as it ramps up marketing expenses to compete with competitive threats from phone companies such as Verizon Inc. (VZ) and AT&T Inc. (T).

Also, Time Warner Cable is about to shoulder a roughly $6 billion debt burden at a time when credit markets are nearly frozen in order to pay a one-time dividend of more than $10 billion in return for a completed separation from its corporate parent, media giant Time Warner Inc. (TWX) – a chief competitor to Viacom.

Nathanson said he expects “a settlement – terms undisclosed – in a relatively quick manner, as both sides may not want to see if this battle results in mutually assured destruction, as Viacom loses ad dollars and Time Warner Cable loses subscribers.”

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