You know how a lot of consumers are fed up with rising cable bills, excessive program bundling, and limited access to TV shows? It turns out independent cable operators feels the same way.
Over and over and over at today’s American Cable Association Summit – a policy-driven event put on by the independent cable organization – I heard frustration about the state of the pay-TV business from small cable companies who feel outgunned in a market where the content bills just keep going up. Indie operators have two main complaints, and they’re both related. First, they have no leverage in licensing retransmission agreements because content owners can threaten TV blackouts. Second, in some markets, broadcasters are working together to set licensing fees, a practice the cable operators consider to be collusion. According to Wide Open West CEO Colleen Abdoulah, collusion is taking place in 20% of TV markets and is driving up retransmission costs by at least 22%.
Abdoulah describes the situation very succinctly. It’s an isue of media ownership. Because ownership has consolidated over the years, media companies have been able to bundle popular content with shows operators might otherwise not buy and charge for both. In theory the media companies are supposed to negotiate in good faith with operators to make content available, but as I overheard one person say in a hallway at the summit, there is no good, there is no faith, and there is no negotiation.
The result? More TV blackouts and higher subscription costs for consumers. Retransmission issues are also slowing the progress of TV Everywhere rollouts as programmers waffle about whether and how to give up content streaming rights.
Now, keep in mind, the sentiments today were all being expressed at a cable event. No doubt broadcasters have their own complaints about dealing with the pay-TV providers. But it’s clear from the continued rise of licensing fees that power is currently with the programmers.
As for what to do about the situation, ACA members are pleading with the FCC and Congress to reform retransmission consent rules. While the ACA is generally not in favor of federal regulation, the association consensus is that there’s no genuine fair market today. And given that fact, the ACA would love for government to step in and even up the playing field. As ACA president Matthew Polka puts it, there’s a crisis coming. And despite my willingness to fork over cash for sports programming, even I have a threshold. Consumers won’t keep paying more for cable TV. Eventually something will have to give.
Why do so many people ignore the hardware side of the cable bill? I don’t necessarily mean the consumer, but the focus these days seems to be all about how the content keeps rising in price. Meanwhile they ignore the fact that the leased hardware makes up sometimes as much as half of the bill the consumers are complaining about.
Public Knowledge lately has been running pieces about TV and discussing the rising costs of content. They never mention the $20 cable box that never goes away, but instead keeps raising in price even though the hardware has long since been subsidized. Look at Verizon and CableCARDs. Per their own pricing sheets they charge you $100 for a CableCARD if you don’t return it, yet I have paid over $150 per card and that fee isn’t going anywhere. As a result I consider it now part of my cable bill which means I have an extra $16 in fees tacked on just to watch what I already pay for.
If I leased DVRs my cable/internet bill would jump from $120 to $200 after taxes and fees.
Brennok- The hardware market is opening up significantly, so that equation is definitely going to change.
Meanwhile, nobody’s getting rich off set-tops. Most operators would prefer not to deal with the boxes at all. And vendor margins are pretty thin.
Hardware: The other thing about hardware is that, outside of an initial bump when cable companies went to DVRs and HD, which was a number of years ago, the cost of the box in your home should be going down, not up.
Still, they give you a crappy DVR, with a horrible interface, and a 240GB-500GB drive when everyone else is at 1-2TB as the norm (TiVo) and they’ve bumped the prices up from $12 to $14 to $16+ over the years.
Going back to content: I think two main things could actually help the cable companies, one of which they wouldn’t like, but, long term, I think would really help.
First: Local competition. Get rid of the local monopolies on cable and let someone else come in if they like. The current cable companies would balk and think, “We already have it rough!,” but it adds an interesting element, now if you have one company company that just acquiesces to whatever Viacom, Disney, and the like throw at them then their channels are always on and people can pay the premium. The other company, though, can say, “You know what, we’re going to fight this and keep our prices low,” and hopefully add something to the mix. If you’re the customer you can go with the company that never argues and always pays whatever is asked. If you’re a customer that likes a better deal and can live their lives knowing that ESPN may not be on during negotiations, then you can go the cheaper route.
The other thing that would help, but probably isn’t likely, is for customers to support their cable companies during blackouts by calling and telling them, “Thanks for fighting the battle,” and, hopefully with enough people, canceling out the, “WHERE’S MY ESPN!” folks.
Right now I have cable and actually get a good deal on it (≈$60 for everything but The Movie Channel). I’m not complaining. This seems to be because Uverse recently moved into the neighborhood. If I continue getting the deal I’ll probably keep them as it’s far more convenient to watch TV with a remote and DVR than it is to go searching for things on the internet. If the price goes up then I’ll probably keep the local channels and do the Netflix / Hulu deals. Netflix is convenient for what it is. Watching a recent show is more of a chore in finding it: Is it on Hulu? No.. Ok.. Hulu has a link to the web page.. Let me see if I can find the show on Discovery.com now.. Oh, it’s just 5-min useless snippets of shows… I guess I can do without.
That happens a good bit but Hulu obviously does offer a good bit of recent programming which is nice. When it’s not there I find it to be somewhat of a pain, though.
“Local competition. Get rid of the local monopolies on cable and let someone else come in if they like. ”
There are no local monopolies nor have there been for decades. The problem isn’t that local governments don’t allow more than one cable company, the problem is that nobody wants to be #2 unless it’s in a very dense high income suburb.
That’s not always the case. Yes, there’s more risk involved with the build and trying to sway customers over but there are areas, I believe most, that have exclusive contracts between the city and the cable company.
Sure, you can count the two satellite companies as competition and Dish has done their part in standing up to the content providers. I’m just saying that there really shouldn’t be any limitation on some other cable company moving to the area and setting up shop.
I’d love to see some competition in my area, but it appears that there are not many companies that want to compete with Time Warner.
For example, Verizon has halted the expansion of FIOS nationally. So they are not a candidate.
Locally, a couple years ago when my local phone company (Frontier) ran new lines in my neighborhood, they buried copper not fiber. So it’s pretty clear that they don’t plan to offer anything beyond DSL in the foreseeable future.
So in my area, at least, Time Warner’s monopoly seems pretty solid.
Not to mention the satellite providers are held to different standards, without requiring the same regional approvals or an implementation of CableCARD.
Regarding hardware costs, I’d say the overall expense of support them has been consistent or rising as has the manufacturing/purchase expense. Had an exchange with a cable exec just a week or so ago who only half joked that the price of Motorola CableCARDs have not dropped in 5 years. Also, some providers, like FiOS seem to work additional outlet fees into the hardware so it’s easier to comprehend. That’s my hunch anyway.
Talking about cabecard is a joke. I’m in the market for a large HD tv and NONE of them have a cablecard slot.
-Ken
“Meanwhile, nobody’s getting rich off set-tops.”
Well, it may not be the biggest profit driver, but I think it is a genuine profit driver…
“Most operators would prefer not to deal with the boxes at all.”
I think MSO’s serving a majority of households actually very much want to be in full control of the box.
(I know you’re covering the small MSO world in this post, where things may well be different, but just wanted to note my assumption is that these statements don’t hold in the larger MSO world.)
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On to non-hardware:
“I heard frustration about the state of the pay-TV business from small cable companies who feel outgunned in a market where the content bills just keep going up.”
and
“Consumers won’t keep paying more for cable TV. Eventually something will have to give.”
I shall postulate the possibility that this is just a potential crisis of the small MSO’s, not a potential cord-cutting crisis. The small MSO’s get squeezed, and perhaps eventually absorbed, if their crisis plays out as they fear.
I think if the cable companies didn’t want to be in the hardware game they wouldn’t be. Instead it seems like they do everything they can do to stay in it.
Don’t want to be in the hardware game? Sell me the CableCARD or the STB at your store right next to the phones you sell.
If it isn’t about profit, then why does the rate increase apply to old hardware that has since recovered the cost to acquire? My sister has had the same DVR for over 3 years and it was used when she got it. It has also continued to rise in price.
I am not surprised CableCARD prices haven’t dropped, but then again no one seems to want to look into why. The cable company, can’t remember if it is Charter or Comcast now, who is currently petitioning the FCC for the waiver to make non-CableCARD dependent devices even referenced the costs. Of course TiVo and others have said this for years and that it needs to be looked into. Nothing ever gets done though.
Oh well hopefully finally we do see a universal system that lets the hardware market explode like cell phones. Maybe then we can do away with channels and just worry about the content since as a consumer I don’t care if I have 1 channel or a 1000. I just care that I can access the shows I want when I want, and not who airs them.
What do broadcasters have to complain about?
They get to use public property, the airwaves, then cable companies provide them with extra viewers so they can charge higher ad rates.
Do they pay the cable companies for this? No!
The cable companies have to carry them in their own markets, and then have to pay them for the privilege.
“there are areas, I believe most, that have exclusive contracts between the city and the cable company.”
Again, there aren’t. It’s against federal law to have an exclusive franchise agreement.
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