At any event for independent network operators, the one topic guaranteed to ignite the crowd is retransmission consent. Of the many challenges these operators face, their number one concern is how to meet retrans requirements, including rising programming fees and restrictive content bundles that force service providers to carry less-desirable channels alongside those networks consumers can't live without.
However, at the recent Independent Show hosted by the National Cable Television Cooperative Inc. (NCTC) and the American Cable Association (ACA) in late July, it was also clear that there are some newer implications emerging from the retrans wars. For one thing, content deals aren't just putting a strain on video services, but on broadband delivery as well. For another, operators are pursuing new strategies to combat programming pressures. And some of these strategies are even working.
Beyond the well-worn complaints about increasing costs, independent operators in particular are constrained by the network capacity they have to address both TV and Internet service demand. Once upon a time (and not that long ago), cable operators only dedicated a single DOCSIS channel to Internet service, leaving the rest of their bandwidth free for television delivery. But with growing broadband demand and the higher profit margins coming from Internet service, cablecos have switched things up, pouring more of their bandwidth resources into DOCSIS data delivery.
Unfortunately, when operators have to bundle more TV networks into their video packages -- often a condition of retransmission agreements -- it also caps the number of channels they can make available for Internet service. Particularly for cable companies still operating on 750 MHz plants, bandwidth is at a premium. So any additional video channel takes away from the spectrum that can be allocated for Internet.
Recently, independent operators have attempted new ways of counteracting content licensing pressure. Using set-top data, they're monitoring which networks are getting the most viewership, and which ones are low on the consumer priority list. After a cost/benefit analysis, some of these providers are deciding to drop certain channels altogether.
Shenandoah Telecommunications Co. (Nasdaq: SHEN) is one example.
After reviewing its set-top data, Shentel was able to determine that carrying all of AMC Corp. 's channels didn't make economic sense, so it got rid of the network. "The good news is our set-top box data confirmed reality," said Shentel Vice President Chris Kyle at The Independent Show, noting that the company lost fewer than 300 customers over the AMC issue. He added that many stayed on as Internet subscribers.
Even beyond looking at network numbers, operators can tell if there's a particular show driving viewership and help their subscribers find that show elsewhere if a network gets removed from the channel lineup. Kyle emphasized the point that customer education is crucial and said that the strategy of directing consumers to Netflix or Amazon when necessary is working well for Shentel.
The problem for operators evaluating their channel lineup options is that dropping a single network isn't easy. The more channels are tied together by big media conglomerates, the harder it is to separate out the content that service providers don't want. According to NCTC President and CEO Rich Fickle, roughly 60 operators dropped Viacom Inc. (NYSE: VIA) stations a couple years ago, and about 100 have dropped AMC more recently. But the options for further cuts are limited.
As an alternative, some operators are simply passing retransmission costs along as a line item to their subscribers. That can cause more customers to drop video service altogether, but as long as broadband continues to grow, the tradeoff for operators may be worth it.
And if that doesn't work, there's always plan C: going over the top.
As at last year's annual NCTC event, both Dish Network LLC (Nasdaq: DISH)'s Sling TV and Sony Corp. (NYSE: SNE)'s PlayStation Vue had a prominent presence at this year's Independent Show. So far there's no deal for either OTT player with the operator cooperative, but it's not difficult to imagine one could be in the offing. The NCTC has already signed a master agreement with Hulu LLC to make the service available through a revenue-sharing relationship to its members.
Asked if there's an opportunity for the NCTC to help its members more broadly by offering some kind of hosted solution for OTT video apps, Fickle said yes, but added the caveat that "We need good partners to do that. There's been consolidation on the supplier side, obviously, and more to come. So we need to encourage more innovation and maybe some stronger supplier support."
All of these decisions and shifts in strategy are ripple effects of the ongoing retransmission wars. The more treacherous the landscape gets for content licensing negotiations, the more programmers may be driving their operator-customers toward new broadband, TV pricing and OTT video strategies.
— Mari Silbey, Senior Editor, Cable/Video, Light Reading