Cable operators are reportedly working on a plan to force programmers to unbundle their networks and allow customers to subscribe to channels on an individual basis. The plan represents a complete reversal from the MSO’s long-held opposition to a la carte programming. Both networks and the cable industry lobbied regulators to protect the right to bundle programming, arguing it offered customers the best value.
But executives now say the change is a necessary response to shifting dynamics such as higher carriage costs and using the Web to watch programs, as well as a weak economic recovery that has forced many consumers to cancel cable subscriptions.
Comcast Corp and Time Warner Cable have lost 1.2 million video customers in the 12 months to June 30, noted the Reuters story: “Pay-TV distributors such as Time Warner Cable and Cablevision are searching for a business or regulatory strategy to lower escalating programming costs, which have risen between 6 and 10% each year during the last decade.”
One shining light on this subject is ESPN’s new $15.2 billion, eight-year rights extension deal with the NFL for “Monday Night Football.” Starting in 2014, ESPN’s new NFL deal is costing a reported 73% more over its existing deal, which ends in 2013. DISH Network has threatened to drop ESPN because of it.
“We feel that some of those expensive channels should be offered a la carte so only those people who want to watch them actually pay for them,” said Jerry Kent, chief executive of Suddenlink, which has 1.3 million cable customers.
Rocco Commisso, chief executive of Mediacom, which has 1.2 million subscribers, sent a letter to FCC Julius Genachowski earlier this month that suggested “instituting a carefully designed a la carte system, so that decisions about what video services are bought are made by consumers themselves, rather than by content owners.”
Cable and satellite companies have also had to start paying retransmission fees to carry ABC, CBS, NBC and Fox. Mediacom is currently locked in a retransmission stalemate with LIN Media, but Commisso lays much of the blame for increasing costs on the suppliers of basic cable programming.
“For nearly a decade, I have been speaking out about the harm to Americans caused by rising programming costs,” wrote Commisso. “I devoted my keynote address at a 2003 industry event to this issue, and predicted that things would only get worse unless the Commission took an active role in finding a solution. Your remarks when you were first appointed as Chairman encouraged us to believe that, under your leadership, the Commission would finally address the problem. I regret to say that it is now almost three years later and nothing has been done.”
However, NAB’s Dennis Wharton had his doubts: “Mediacom’s sudden conversion to consumer advocate strains the bounds of credibility. For years, cable operators have hiked subscription fees more than double the annual rate of inflation, yet programming costs account for only a fraction of their expenses. The truth is that retransmission consent fees account for only two-tenths of one percent of cable revenues today, and according to a recent study, analysts predict they will never rise above one percent.”
The idea of a la carte programming will get the most resistance from network owners such as Viacom or Discovery Communications, which sell their most popular channels as a package with their smaller networks.
And a la carte is already starting to take root: Last November, Time Warner Cable launched a three-city trial of a low cost TV Essentials pack with fewer channels. It now plans to expand that offer to other cities.
Following Mediacom’s lead, rivals Time Warner Cable and DirecTV Group joined forces this month to reach out to Genachowski about retransmission fees, with the aim of unbundling broadcast channels from cable channels in carriage negotiations. They are keen to find long-term solutions ahead of what they referred to as the “retrans season” starting in October, when many agreements come up for renewal.
RBR-TVBR observation: As we’ve said before, the FCC has no business regulating what should be a free-market system. If it forced media conglomerates to unbundle their package deals, then each network would just cost more on future negotiations. We think TV Essentials from Time Warner Cable may be a viable alternative, but assuming a revenue model where consumers can pick and choose the channels they want on an ongoing basis would be a logistical nightmare, along with creating huge damage to the buying and selling dynamics of the entire television media industry.