Stakes rising for cable TV firms and content providers
The quality of programming being what it is, I was listening to my TV with half an ear a few nights ago, most of my attention being devoted to a self-improvement book, when I thought I heard a voice from the screen say that Time Warner Cable needed my help.
In my shock, the book -- “Donald Trump’s Management Tips for Dummies,” if recollection serves -- fell from my grasp. Yet it was true: Time Warner Cable, the nation’s second-biggest cable system, desired my support in its long-running fight with content providers such as Fox, NBC, CBS and ABC.
The programmers, it seems, want to jack up the fees they charge Time Warner and its fellows to beam their content through my cable box.
“Price increases,” Time Warner lamented on its website. “Big ones. Up to 300% more. Sometimes we can avoid passing them on to you. Sometimes we can’t.” (Translation: “We pass them on to you.”)
I’m a sucker for a corporate sob story, but I had to wonder if Time Warner was telling me the whole truth. My suspicion was further stirred by how the poll was set up.
On the website, the company asks subscribers to click on a link marked “Get Tough” (i.e., tell the programmers to jump in a lake) or one marked “Roll over” (pay them off and hope for the best). Click on “Get Tough” and you land on a page reading “Thanks.” Click on “Roll Over” and the next page directs you back to the “Get Tough” page.
This sounds a bit like one of those opinion polls structured to yield a predetermined result. (“Are you in favor of the health insurance industry’s very responsible plan to provide you with greater consumer choice, or would you prefer to be put to death by the Speaker of the House?”)
No Time Warner Cable executive would discuss the campaign with me on the record. Therefore it becomes my duty to provide the missing background. The truth is that both the broadcasters and the cable firms are out to squeeze the maximum profit from you, the consumer.
As Andrew Jay Schwartzman, head of the Washington-based advocacy group Media Access Project, told me: “This is a food fight between two haves, at our expense.”
That’s true as far as it goes, but the situation is more complicated. Time Warner Cable’s campaign reflects dramatic changes taking place in the relationships between program providers and cable system owners -- and to a lesser extent satellite TV and telecommunications companies such as Verizon and AT&T, which have rolled out new fiber-optic TV systems.
These changes stand to make programming a lot more expensive for cable systems. They also help explain why Comcast, the nation’s biggest cable operator, is poised to buy NBC Universal in a deal that may be formally announced as soon as today.
It’s not entirely a new situation. Cable companies and networks have been squabbling over payment for content since 1992, when a federal law required cable operators to carry all local channels as part of their programming -- known as the “must carry” rule. But the law allowed broadcasters to opt out of “must carry” and to negotiate paid “retransmission” deals with the cable firms instead.
Channels that carried programming that cable subscribers would probably demand -- sports, for example, or popular network shows -- tended to be subject to retransmission deals. (ESPN commands big fees because cable systems know they’d lose subscribers without it.)
But until recently, little cash changed hands in these arrangements. Often they involved barter: NBC, say, would offer cable operators access to its network broadcasts on condition they gave prominent slots to its CNBC, Bravo and USA channels; Fox bundled network programming with its FX, Speed and regional sports channels.
That worked as long as the expansion of cable systems fueled an appetite for new channels. But that trend has topped out.
“The cable, satellite and phone companies don’t want any more channels,” one network programming executive explained to me. Not only has space on the cable grid been filled up, but it’s become hard to think up a cable channel that hasn’t already been tried.
Programmers are now signaling that they want forthcoming contract talks with cable and other distribution companies to involve cash. In part this is because advertising is in a slump and they hope to make up for it with a piece of the cable operators’ monthly subscription take. No one’s sure what the going rate may be.
But when someone on a recent conference call asked executives from News Corp.(the parent of Fox) whether they might seek 75 cents per cable subscriber, News Chairman Rupert Murdoch snapped back: “Don’t be so modest.”
For its part, the cable industry isn’t above playing rough. A few years ago, Time Warner, miffed over Walt Disney Co.'s attempt to force the Disney Channel, Toon Disney and Soap Network down its throat in return for the rights to ABC programming, dropped ABC from systems serving millions of households for several days.
The cable operators also do their own bundling, which is why Time Warner won’t give me the hairy-chested, beer-drinking Spike channel (tonight: “The Ultimate Fighter”) unless I also pay for Lifetime (tonight: “Will & Grace”).
On the face of things, it looks like the cable operators have plenty of money to spread around, as cable industry profits remain quite healthy. Comcast says its operating profit margins from cable TV are in the 40% range, and of course it appears to have billions at hand for its bid for NBC Universal.
Time Warner Cable, which completed its spin-off from Time Warner Inc. in March, is not far behind. Its operating profit margin was about 36% in the most recent quarter ended Sept. 30. Of the average subscriber’s monthly bill of $102.52 (including fees for Internet and phone service) last year, the programming fees and other such video expenses the company is whining about came to $23.60.
Time Warner Cable says those fees are rising faster than average customer bills, so a crunch looms. The company plainly fears that programmers will demand a big jump in compensation in the next round of negotiations, which will begin soon.
That suggests two rationales for the “get tough or roll over” campaign. The company hopes to fill our heads with propaganda about the grasping programmers, so that if it has to play hardball again by blocking network feeds we’ll be inclined to blame the other guy, not Time Warner.
And, it’s probably hoping that so many subscribers will tell it to “get tough” that it can present the results at the negotiating table. When I asked a network executive if he expected Time Warner to use the tally of its bogus poll as a bargaining ploy, he thought for a moment and replied, “I’m sure they’ll try.”