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Small Cablecos Reject High-Cost Content

Broadband providers who offer triple-play services have "hit a wall" with rising video programming costs, signaling a significant change in the relationship they have with the handful of major content owners, the head of a major cable cooperative said Friday.

Speaking at the Broadband Vision show in Las Vegas, Rich Fickle, president & CEO of the National Cable Television Cooperative Inc. (NCTC) , said that after years of having their complaints about programming prices ignored, smaller cable operators are now starting to drop some TV channels and content because they can't absorb the mounting costs. In turn, that action has triggered a fresh battle with content owners over how their content is viewed online over broadband connections provided by the same cable companies that are no longer paying to distribute that video.

Fickle's comments followed remarks from two cable operators, who both said the high cost of content is reshaping their business, leading them to focus more on Internet access and business service revenues than on making money from offering pay-TV.

Robert Gessner, president of MCTV , a family-owned cable company in Ohio, said his company will now focus more on delivering high-speed data and serving local business customers than on providing video services. He said MCTV also plans to "make sure every penny of content costs goes through to the consumer," even if that alienates some of its video customers.

"We are more concerned about our Internet profits and margins than keeping the TV customer happy," said Gessner, who did say MCTV would make sure subscribers know why their video service costs are rising. The company also plans to increase its community WiFi availability and, in the more long-term future, to build a gigabit passive optical network (PON) to deliver faster broadband speeds.

WideOpenWest Holdings LLC (WOW) , a cable over-builder in multiple markets, also is focused on expanding its business sales and trying to reach enterprises and "not just the mom-and-pops cable often goes for," said new CEO Steve Cochrane. Like MCTV, it also views Internet service -- not video -- as its bigger long-term play, to the extent that WOW is boosting its access speeds in advance of what its customers are requesting.

In the past year, the balance between WOW's once equal video and Internet subscriber levels has shifted dramatically as cord-cutting has set in, Cochrane said. As a result, WOW now has 90,000 more high-speed Internet customers than video subs. His company's response to rising content costs will likely be to pare down the TV channels it offers and, if that sends subscribers elsewhere, so be it.

Fickle said the biggest six or seven content distributors are seeing double-digit declines in viewership even as they push cable operators and other distributors to pay more for their content. And while the content distributors -- the cable and telco triple-play providers -- are concerned about consumers, the executives who run the big content owners are more interested in finding new revenue sources to replace the lost ad revenues coming from a broken TV model, he said.

As a result, Fickle added, content owners may seek a greater share of the home entertainment wallet by going directly to consumers via online platforms, and possibly look at new subscription models. He pointed out, however, that today these content companies force service providers to pay for a lot of channels in order to get the handful that consumers actually watch. That approach, he argued, will fall apart in any direct-to-consumer play.

"As Jimmy Buffet said, when the tide goes out, you'll see who's swimming naked," Fickle quipped.


Track the latest in cable industry news in on our cable channel here at Light Reading.


The other issue this discord between content owners and service providers has raised is whether those owners have the right to restrict online access to their content. In the recent dispute between Viacom Inc. (NYSE: VIA) and Suddenlink Communications , Viacom's response to having its content dropped by Suddenlink was to cut off online access to that programming by Suddenlink's broadband customers.

The American Cable Association (ACA) , a Washington, D.C. lobby group representing smaller and independent cable operators, is pushing the Federal Communications Commission (FCC) to view that kind of action as a violation of net neutrality, said Matt Polka, president & CEO of ACA and the moderator of the panel addressing these issues. There have already been bills introduced in Congress directing the FCC to investigate that behavior.

The consumers are the ones losing out in that situation, the panelists agreed, especially those who might buy broadband from one provider but get their video service from another. In that case, they said, consumers are essentially paying for a video service that they should be able to access online, only to find it blocked.

— Carol Wilson, Editor-at-Large, Light Reading

[email protected] 10/8/2014 | 4:57:20 PM
High cost content alternatives Cable model, unlike original broadcast model of matching content cost increases with advertising, has gotten so skewed to content being paid by subscribers, not advertisers, it needs a shock. ESPN is $7 for suite soon going to $10. Cable subs are subsidizing that content with 30% sports addicts and the remaining 70% casual or non-sports sub paying a $1 billion a month.Having a company like Google 100% ad supported should bring a much needed new model perspective.Also the ap supported (aka PPV) model of Apple could bring some new models as well as it did to music. Same with Amazon and Vudu via Walmart who made their businesses grow rapidly through being low cost and customer friendly. Cable TV revenue model is admittedly broken and a former TW CEO Brit admitted its ecosystem is anti-consumer which only further illustrates how out of touch they are with failure to upgrade model through use of targeted ads,etc and use of social media to provide better services and save costs, not increase them. A big change in ecosystem will be mobile devices replacing TV remotes and STB logic moved to the Cloud. On the smaller communities I see a new groundswell against cable, that cable is severely underestimating. A community bank CEO said he saw something similar in banking when the big banks failed to take care of community needs. I can see getting the minimum cable/Internet or even broadcast/Internet with antenna and shopping the rest - I did it over 14 years ago when local cable didn't have HD or sports or movie packages that I was interested it - it wasn't difficult - no hastle- then and now with Smart TV and IPTV even less today -- back then I used cable and Direct TV and satellite got most of my revenue. Satellite now has 30% of market. Lots of people are taking premium channels off, including myself, for Netflix. I have also replaced my cable telephone service - cable can still count me as a subcriber but revenue is rapidly decreasing!

I'm working with a VTSB (virtual set top box) corporation that can change the paradigm.

Noticed the quote "As Jimmy Buffet said, when the tide goes out, you'll see who's swimming naked" although it may sound like a lyric from a Buffet song it's actually Warren Buffet who said it 
mhhf1ve 10/6/2014 | 4:29:10 PM
interesting... I think it's interesting that these smaller cablecos seem to be in tune with their customers who have wanted cheaper "a la carte" channels for some time now. With more online and time shifted video streams, it seems like consumers can easily give up on high-priced video bundles.
KBode 10/6/2014 | 1:46:21 PM
Re: Troubling... "In these disputes, it's often been the cable or satellite company that gets the black eye and i think it's going to take some time for that to change, but change it should."

There's plenty of blame to go around in terms of rate hikes, but I agree when talking about many of these smaller cable companies. My only worry now as many smaller cable companies ditch TV services is that they turn to more profitable (but less consumer and innovation friendly) usage caps to try and make up for that lost revenue. Good for them perhaps, not so good for users.
cnwedit 10/6/2014 | 1:01:11 PM
Re: Troubling... Karl,

You and I have been aware of these kinds of complaints and problems -not to mention the fact that the exorbitant cost of content has driven many small telcos completely out of the IPTV business - for some time. But the general public is just catching up to this - witness the Wall Street journal article over the weekend. 

In these disputes, it's often been the cable or satellite company that gets the black eye and i think it's going to take some time for that to change, but change it should.

 

Carol
cnwedit 10/6/2014 | 1:01:11 PM
Re: Troubling... Karl,

You and I have been aware of these kinds of complaints and problems -not to mention the fact that the exorbitant cost of content has driven many small telcos completely out of the IPTV business - for some time. But the general public is just catching up to this - witness the Wall Street journal article over the weekend. 

In these disputes, it's often been the cable or satellite company that gets the black eye and i think it's going to take some time for that to change, but change it should.

 

Carol
BobPeoriaIL 10/6/2014 | 12:21:36 PM
Does this make it more likely that the Smaller Cablecos will lead the way in pushing their customers to go to streaming/OTT, while the cableco drops its video product?

 

 
KBode 10/6/2014 | 11:24:06 AM
Troubling... "The consumers are the ones losing out in that situation, the panelists agreed, especially those who might buy broadband from one provider but get their video service from another. In that case, they said, consumers are essentially paying for a video service that they should be able to access online, only to find it blocked."

Yes I find that particularly troubling, and it has happened several times now with CableOne and now Suddenlink. These folks are paying for broadband, paying usually high prices for TV through another company, and yet still can't access that content they're paying for. I've been surprised that this stuff hasn't been the straw that broke the camel's back in terms of heavier regulatory intervention into these retrans feuds.
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