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.
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