Cox Communications Inc., one of the nation’s oldest cable companies, is taking aim at so-called most-favored nation clauses that are commonplace between large pay-TV distributors and programmers.
Typically, a big pay-TV distributor such as Comcast Corp., which has about 23 million subscribers, or DirecTV, which has around 20 million customers, is able to negotiate a volume discount to carry expensive cable channels such as ESPN or TNT.
The problem, says Cox, is that the volume discounts the big distributors get puts an unfair burden on mid-size and smaller operators and their subscribers. Programmers, Cox said, try to make up for the lost revenue by charging smaller distributors more, even though those companies do not have the deep pockets that the bigger companies have.
“As programming costs are shifted disproportionately to mid-sized and small multichannel video program distributors (MVPD), their customers are disadvantaged as higher costs make it more challenging for these MVPDs to develop the innovative services at competitive prices necessary to meet the offerings provided by the largest providers,” Cox told the Federal Communications Commission last week.
With just more than 5 million subscribers (including 1.1 million in Southern California), Cox is hardly a small fry but told the commission it does not have the clout to get the programming deals that bigger distributors land. The American Cable Assn., which lobbies on behalf of small distributors, has expressed similar concerns.
According to Cox, the discounts can be as much as 30% off the standard rate for a channel. Although such discounts are not necessarily illegal, Cox argues that the Communications Act “does not permit discrimination against smaller MVPDs or volume discounts unrelated to the actual benefit of selling in volume.”
Cox wants the FCC to put a cap on the size of a discount that a big pay-TV distributor can get from a programmer. If a pay-TV distributor receives a discount in excess of the cap, it should be “required to demonstrate that the discount is tied to actual benefits realized by the programmer,” Cox said in its FCC filing.
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