A Cable Operator's Happy New Year

I'm back after a short time of attempted rest and relaxation with the family for the holidays.  One of those memorable weeks -- the kids came in from out of town, my wife's family converged on New York for their now annual Christmas trek, my niece's roommate showed up from visiting her family in Indiana with an 8 week old puppy that somehow became part of the permanent guest list.  Not to mention the stomach flu that affected a bunch of us. 

By New Years Day, I was waiting for Chevy Chase to come crashing through my front door.

With all that going on, I also was taking some time to read the trade journals.  Here are a few of the headlines I had been reading in just the last couple of days before the clock struck midnight on New Years Eve:

• Kerry Offers Kudos To Fox For Not Pulling Signals from Time Warner Cable
• Scripps Pulls HGTV, Food Network From Cablevision's Menu
• Updated: Mediacom, Sinclair Reach Eight-Day Retrans Extension
• Kerry: FCC Should Step In To Keep Fox On Time Warner Cable
  
• Iowa Attorney General Sides With Mediacom On Interim Carriage Request
• News Corp.'s Carey Rejects Arbitration, Interim Carriage In TWC Retrans Dispute
• Negotiations Continue As DirecTV-Rainbow/MSG Deadline Approaches
• Time Warner Cable Gives Tips For Getting Fox Shows Online, Over The Air
• Time Warner Cable: We'd Agree To Interim Carriage, Binding Arbitration

After a few years of this now, it appears that a new tradition has become part of the holiday season for most American TV viewers -- the threat of losing some of their TV channels.  And sometimes that threat becomes a reality as Cablevision customers can confirm with the loss of all of the Scripps networks, headlined by Food Network and HGTV. 

I spent my usual amount of time worrying about our own multiple year-end contract renewal negotiations in which we were engaged.  With some short-term extensions in place, I'm hopeful that Insight customers will avoid such inconveniences.  Unfortunately, I can't help worrying about this subject on a more global level, concerned about the skyrocketing cost of television to consumers under our present business model.

It's a model that I now think is broken.

Let's face it.  Every year cable and satellite customers receive the bad news that the cost of cable is rising.  It's not just us, it's all of our colleagues and competitors in the video distribution business because we're all under the same pressures of skyrocketing programming costs.  I understand when customers take out their frustration on us but, to be perfectly honest, we are essentially just passing along some (not even all) of the increases we are experiencing from our programming partners. 

In their defense, networks' businesses are under tremendous pressure.  The cost of content is rising dramatically and advertising is in a deep slump.  To stay relevant and competitive, networks are resistant to simply slashing costs so they seek new revenues from their viewers -- you -- through us.

With new ways to watch television, like online and on demand, networks find themselves in a conundrum.  On one hand, they want to experiment with new delivery formats like Hulu or ESPN360.  On the other hand, when they do so, they actually decrease the value of the conventional way of delivering their content on their regular networks like FOX, CBS, Discovery, SyFy, and the like.  And it's those conventional networks that deliver the vast, vast majority of their revenues. Exposing those revenues to downward pressure is a disastrous breakdown in their business at a time they can least afford it.

Unfortuantely one of  main the ways networks maintain their revenue is to be packaged with many other networks.  They require us to do that because, as I've written about in the past, research confirms that an important percentage of TV viewing is a result of accidental surfing to a channel.  And more viewing means more advertising dollars. That's why cable and satellite operators offer packages that include a fairly large number of networks for one "low" price. 

Unfortunately, if the word "low" is removed from that equation, then the primary reason to maintain the current business model simply disappears.

At the dawn of a new decade, perhaps it's time to think about a new way to deliver television. 

Comments

[Steve Huff]

I understand that networks raise their prices and therefore you must raise yours. But can you explain to me why you've raised the prices on set-top boxes?

I've had the same box for over 2 years and it's cost has gone up 51% on a fixed costs. I'm sure I've paid for that hardware probably twice now.

It's a simple digital box that doesn't even display the time, nor does it display the channel on the box, nor does it get HD channels, but you've jacked the price of it up. Did Motorola come to you and say, umm you know that box you already bought from us, well we want more money for it now.

[DM]

Michael,

Remember that a-la-carte argument? A-la-carte would take away some of the bargaining power from both channel providers and channel distributors and give some bargaining power to the consumer. In effect, consumers with bargaining power provide an economic price control for carriage rates. Channel owners would need to do an economic analysis to determine the maximum-profit point at which they could price their channel.

I would like to think that channel providers do not like going through these re-negotiations for the reasons that you specified. However, why is it that an a-la-carte model is quickly dismissed by the industry? Is it because the channel providers would also lose some leverage over their customers and possibly some of their revenue?

At some point, a decision will have to be made as to which direction the industry wants to go. Perhaps it is time for the channel providers to give consumers what they really want, which is an a-la-carte option, or at least smaller channel bundles.

[JDF]

I'm sorry. All these excuses do not explain why Insight now raises customer rate TWICE a year... I've already downgraded my service, and when my "anniversary rate increase" comes up around mid-year, I am going to have to seriously consider rolling my service over to WOW. If anything, that way when I eventually come back to Insight, I will be back on "new customer pricing" for a couple years... It's all so very offensive...

[Steve]

Time Warners methodology was, in this last case, quite simple. Send an Email to all existing RoadRunner customers telling them exactly what was happening. Simply put they created a poll asking if they should "get tough" or "roll over" and people chose "get tough". with each negotiation this is a simple and seemingly cost effective way to see what the people want.

[JDF]

Time Warners "method" was a joke. What do those options mean? Get tough is the equivalent of the customer saying "give me less programming." Roll over is the equivalent of the customer saying "raise my rates." And what happened? Surprise, surprise!! They raised the rates. Time Warner is no different than Insight. Neither company is in any danger of financial collapse. They're getting a lot of money and they want to keep getting a lot of money, so they raise their rates whenever they can find a reason to justify it...