ACA Converges on Washington, Programming Costs Top of Mind

   Michael Grebb

American Cable Assn members will once again converge on Washington D.C. this week to educate lawmakers about the business challenges they face—and the higher hurdles that small- and mid-size cable operators face than their larger counterparts. Topics will include everything from broadband to taxes to even perhaps seemingly arcane issues like pole-attachment rates. But one issue will trump them all: Programming costs. It’s not just about retransmission consent anymore, although that will be a big part of it. And while regional sports networks and sports content in general drives much of the debate, few can argue with the value of that content among subscribers—especially when it comes to live viewing beloved by both national and local advertisers. Even the local car dealer can understand that. These days, it’s also about programming in general. And it’s no longer a small cable issue. The big guys are complaining more loudly than ever.

Viacom has been the subject of much ire lately—whether it’s DirecTV holding out during a content dispute last summer or Cablevision suing the media firm over its alleged “tying” of low-rated nets to the four that most ops really want. But while Viacom may have elevated this to an art form, it’s certainly not alone. Most major programmers make it quite attractive to carry all its nets rather than pick and choose. And that widespread practice has benefitted the entire industry as startup nets got their footing under the protection of their larger sister nets. But let’s face it: System capacity is so tight at this point, and the number of low-rated offshoot nets so plentiful, that independent networks without all that leverage have been struggling to survive. Sure, Time Warner Cable cited plenty of stats about Ovation’s ratings and content in justifying dropping the net. But Ovation does better than a lot of other nets still taking up bandwidth on the cable dial. The difference is that those nets are affiliated with larger ones. So when the axe needs to fall, Ovation and other indie nets are the low-hanging fruit. That may or may not have been the case with Time Warner Cable (and the operator argues vehemently that was not), but there’s no doubt that indie nets have little or no leverage.
Don’t get me wrong. Business is business. And it’s always going to be tough out there. But America really has a choice. Either we resign ourselves to a world in which four or five major conglomerates control all linear TV content—or we find ways to give indies a fighting chance on the traditional TV dial. The risk of doing nothing is that more indie programmers and producers reject the license fee route and start going over the top. Advertising growth online remains at double digits. To say that OTT isn’t a threat is to whistle past the graveyard at this point. Go talk to kids in college right now. They have no plans to buy cable service. And while TV Everywhere is a great way to feed desires to view content anywhere on any device, it still requires buying a bunch of channels you don’t want to watch the ones you do want. Viewers have always put up with that as a trade-off to ensure the ecosystem that supports content diversity. But that was before Netflix, YouTube and the growing number of platforms that make it easier than ever to watch premium video online.
It’s a different world. And the big conglomerates may eventually need to rethink their insistence on owning so many channel slots on the cable dial just to keep those license fees rolling in. Recall that those fees are tied directly to the number of subscribers paying them. And if lots of those subs cut the cord, those fees gradually get smaller and smaller. With fewer viewers come lower ratings and lower ad rates
Interestingly, this isn’t really a problem for the distributors. As people go OTT, cable ops and telcos can simply charge more for broadband or meter it. The operators own the wires. They’re set. It’s really the big programmers that could feel the pinch. And a few years from now as they look to OTT as their last and final option, they may find themselves struggling to compete with major OTT content players who once got booted off traditional cable systems to make room for all of those little nets owned by big content giants. Gosh, wouldn’t that be ironic?  

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