Michael's Insight

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. 

CableFax Breaking News -- Comcast and NFL Reach Agreement

CableFax just reported that Comcast and The NFL Network reached an agreement.  Here's the text of the announcement.

Comcast and the NFL have reached a long-term deal for NFL Net and settled all outstanding legal disputes. As expected, the net will move to Comcast’s digital classic service from its sports tier. A full launch will occur by Aug 1, reaching nearly 2/3 of the company’s total digital sub base, Comcast said.

Comcast subs also will get access to the NFL’s RedZone Channel when it is created. The channel shows live peeks of Sun games. Financials weren’t released. The WSJ pegged the deal at about 50 cents/sub, down from the 70 cents NFL originally sought.

“We are delighted to have come to an agreement with the NFL,” said Comcast CEO Brian Roberts. “Our goal has always been to provide our digital customers with access to the NFL’s unique content and, working together, we have struck the right balance between value and distribution on a variety of viewing platforms.”

Reports indicate Comcast and NFL Network close to an agreement

NFL Network, Comcast Close To Punting Carriage Dispute [Multichannel News]

The long-running dispute between the nation's largest cable operator and professional football may be coming to an end. Multichannel News reports that talks between Comcast and the NFL regarding the carriage dispute over the NFL Network may be resolved as soon as this week. The dispute centered around Comcast's decision to place the NFL Network on a sports tier, rather than offering it with their digital tier alongside other channels like Versus and the Golf Channel. The NFL had countered that the Comcast was favoring its own sports programming over the NFL Network and was retaliating against the NFL for retaining the rights to a package of NFL games instead of selling them to Comcast for Versus.

Comcast has maintained that the per-subscriber carriage costs of the NFL Network are much higher than channels that the NFL Network would like to accompany on the digital tier, and has indicated a willingness to consider moving the NFL Network off the specialty sports tier if those per-subscriber fees came down.

According to Multichannel News, NFL Commissioner Roger Goodell is personally participating in the negotiations.

It's no secret that many cable operators have had tumultuous relationships many programmers over carriage disputes.  Sports is especially complex as players demand higher salaries which leads to a reaction all the way through the economic food chain.  Not only do ticket prices rise, but television rights skyrocket. 

Networks compete for league and team broadcast rights and then they need to charge cable and satellite distributors large increases to pay for those rights.  Distributors are typically more willing to pay higher prices for sports rights if they can place those networks on a special tier that allows customers to choose to buy the network along with other similar programming not unlike what what Comcast has been doing with the NFL Network.  Those networks prefer to be on the basic tier which gives them the most distribution.  

I support a distributor's right to design tiers of service that give customers more choice.  But that's not the same as supporting a government-mandated a-la-carte plan which I have argued here is bad for consumers in the long run.

If you love football, you have to love this network.  I do.  I'm looking forward to seeing the deal that Comcast strikes with the NFL, and I'm hopeful we can all move forward towards a relationship that responsibly gives our customers the sports programming they want at a reasonable price.

NCTA's Kyle McSlarrow weighs in on metered broadband

On Testing Consumption Based Pricing Models [CableTechTalk]

NCTA President and CEO Kyle McSlarrow has weighed in on the metered broadband debate and the calls by the interest group Free Press for Congress to launch an investigation into Time Warner Cable's trials of metered broadband. Free Press is circulating a petition for opponents of metered broadband to request that Congress investigate Time Warner Cable's proposal.

According to McSlarrow, here's the most interesting part about the fuss Free Press is kicking up -- in a filing with the FCC on network management and in comments to the press, Free Press has previously suggested that metered billing could be a viable alternative to network management practices designed to limit high bandwidth users from degrading the Internet experience for everyone on the network. A bit of grownup self-regulation on the users' part, if you will.

Apparently either Free Press didn't expect that ISPs would take their suggestion seriously, or they've changed their minds since they suggested metered broadband as an alternative to network management (which I happen to agree with them about). If people are responsible for paying their own way for hugely consumptive activities, I say, "Go for it!  Download as much (legally) as you want!"

Last week I offered some thoughts for opponents of metered broadband and why Time Warner Cable is testing this new billing methodology. However, there's been one essential point notably missing from this debate -- the math.  It seems to me that Time Warner's plan would increase the cost of broadband to fewer than 10% of their customers, and perhaps considerably less.  And by the way, some would even get to pay less! 

Believe me.  My buddies in the business know that if I thought they were doing something wrong, I'd be the first one to call them to explain themselves.  This time, Time Warner's transparency and their willingnes to tweak the plan based on customer input are precisely what the usual critics of ISP business practices have previously called for.  Rather than calling for a Congressional investigation, they should be seeing TW's behavior as a model of openness. 

Hey Mr. Newspaperman! You Think A-La-Carte Makes Sense?

More Misunderstanding About A-La-Carte [Los Angeles Times]

Here we go again.  Now LA Times columnist and newspaperman David Lazarus thinks consumers would be better off if the Federal government required cable operators to offer all of their channels on an a-la-carte basis. You can read my previous posts and my guest blogger, Gerry Laybourne's, that argue that the cost of television would rise dramatically under government-imposed a-la-carte and the diversity of choices would all but evaporate when scores of niche networks simply cease to exist.

Let's use Mr. Lazarus' example to understand the economics.

The average U.S. home now receives a record 118.6 TV channels, according to a recent report from Nielsen Co. But the dirty little secret of the cable industry is that the average subscriber watches only about 17 channels regularly...

...When I watch TV, it's usually CNN, CNBC or a movie channel. On an a la carte basis, I could probably get the handful of channels I like for pocket change.

Ok.  We believe the studies that suggest that, on average, fewer than 25% of the population would subscribe to any particular channel, like CNN or CNBC.  Let's just say that news and movie channels that are on basic cable, on average, cost cable operators about 50 cents per month, each.  Today, those channels receive that 50 cents per month from all expanded basic customers.  If only 25% of the customers actually were willing to pay for the channel, they would each have to charge about $2.00 per month, just to stay revenue neutral.

But that's only half the story. 

We also know that most networks rely on both subscriber revenue and advertising revenue and about half of their revenue comes from advertising.  We also know that a great deal of a network's viewing comes from channel surfing, so their ratings for advertisers are enhanced by that viewership.  Many people estimate that each channel would lose about 40% of its viewers in an a-la-carte world.  A proportional reduction in advertising revenue, reflective of that lost viewership, would require the network to charge customers another $.80 per customer just to stay revenue neutral.  ...

Studies say net neutrality regulations will raise broadband prices

‘Net neutrality’ could raise broadband prices [Financial Times]

As the European Parliament considers changes in telecom law, two studies are set to be released that indicate that imposing net neutrality regulations stands to drive up the cost of broadband to consumers. One study has been commissioned by the telecom industry and another was written by the Centre for European Policy Studies.

An industry-commissioned report from consultants at Copenhagen Economics, due to be published next week, is set to warn that imposing net neutrality in Europe will “pass on the cost of scarcity to all consumers” and significantly increase broadband prices. That, in turn, could depress broadband demand.

It appears that Europeans have discovered that creating additional regulations that restrict responsible network management has a deleterious effect on broadband consumers. I'm looking forward to seeing both of these upcoming reports on this issue.

Back to the future - Customers getting rabbit ears

Antennas up in TWC-LIN feud Buffalo Business First

You'll remember that I wrote earlier this week about the retransmission consent dispute between cable operator Time Warner and LIN TV. A week ago, LIN TV's broadcast station signals were pulled off the air in several Time Warner markets. In Buffalo, Time Warner has been handing out rabbit-ear antennas to customers, so they can watch the broadcast stations over-the-air. Time Warner has handed out over 25,000 rabbit-ear sets in Buffalo in the last week.

But this temporary solution is the perfect example why cable operators have asked the FCC for a quiet period on retransmission consent agreements around the digital transition. While rabbit-ears work for over-the-air television viewing today, next February, viewers will need more than just rabbit-ears to pull in a digital broadcast signal.  Confusion and the potential lack of digital converter coupons, as suggested by FCC Chairman Kevin Martin, (which I wrote about yesterday) make this short moratorium of pulling signals absolutely critical to a successful transition.

Shame on you AT&T!

AT&T has stooped to a new low by running "confusion" ads in Louisville, KY.  The ads obviously were designed to suggest that their bundled pricing is more of a guarantee than ours.  Nothing could be further from the truth. 

We sent a letter to AT&T asking them to stop misleading consumers and guess what -- their lawyers refused. 

I'll be specific and you judge for yourself.

Usage Caps and Notification

Terry asked the following question:

I would like to know how people are going to be notified if they are close to their cap? It would be nice if I received an email saying I was close and needed to stop (downloading) for a while, rather than getting a large extra charge on my bill.

I think that's a very fair point.  As I've said in previous posts, we don't have any specific plans at this moment to implement caps.  But I also said that we are watching developments on that subject where Bend Broadband and Time Warner have announced their specific policies.

Because usage patterns are growing so rapidly, most ISP's are forced to consider an alternative policy to the one-size-fits-all charges. 

Customers comment on Broadband caps and metering

Dualsub2006 expressed a concern about usage caps:

Any thoughts of a 40GB cap in Insight land will NOT go over very well.

I hear you and as I have previously mentioned, we currently are not planning any changes in the way we charge customers for their Internet usage. Did I leave the door open to changing that in the future?  Yes I did.  We are keeping a watchful eye on increasing usage patterns and regulatory, legislative and business movements affecting these issues. 

NYTimes Cable Story and a Rash of Bash

Thanks to Saturday's New York Times article on cable rates, there was a rash of cable bashing going on this weekend.  Blogs all over the place, especially from Silicon Valley, piled on.

In one of my first posts, I admitted that I read certain blogs even before I read the New York Times.  I guess one reason for that is because they're all to be taken with an equal amount of skepticism -- not just the blogs but the Times too.

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