By Shirley Brady and Janet Stilson

NCTC Copes With the Rising Cost of Its No. 1 Grocery Staple

The National Cable Television Cooperative, or Cable TV Coop, as it’s better known, is a nonprofit buying consortium that negotiates volume discounts on programming master contracts (among other deals). Its 1,100 member companies choose to participate or they can strike their own deals with programmers. NCTC members primarily operate in rural and suburban communities, ranging from member companies serving fewer than 100 subscribers to operators such as Suddenlink, Insight, Mediacom, Cable One and WOW, which serve more than 1 million subs.

NCTC members operate more than half the franchised cable systems in the U.S., so, as president and CEO Jeff Abbas points out, "We look like one of the larger MSOs on an aggregated basis." But NCTC doesn’t enjoy the cost-saving benefits of being a big MSO, he adds; its members typically pay a premium for the same content lineups offered by bigger operators (and the competition).

"We’re looking to get all the rights [on content] that our members are looking to put into the marketplace," says Abbas, adding that NCTC seeks to strike deals with "MSO-level pricing, MSO-level flexibility, MSO types of ancillary rights for the core video channels and really have a content acquisition strategy that looks the same as the large MSOs.

"If you haven’t got the top 30, 40, 60 channels…then you’re not competitive," he says of members’ bare minimum content goals. "On a video delivery basis you want to be keeping up with the Joneses." With Verizon’s FiOS and AT&T’s U-verse primarily launching in urban markets, the Joneses tend to be the satellite companies. "Most of our guys look at DirecTV and EchoStar and try to answer the question, ’What does it take for me to have a competitive video offering in my marketplace?’" he notes. "In a lot of respects that can be a me-too video offering."

The Top Challenge: Cost

As with all cable operators, NCTC’s biggest content acquisition challenge boils down to cost. "Certainly for the size we bring we pay a premium for a lot of channels," Abbas says. "That puts added margin pressure on our core video offerings. The profitability of core video is being squeezed out of [NCTC members’] video systems, and core video is starting to look more and more like a staple in a grocery store, like milk."

As Abbas puts it, core video is "something you have to offer, even if you don’t make money on it." So he fights hard on behalf of his members. The Coop has more than 150 programming master agreements (of which 10-15 typically expire each year), and is currently engaged in "baseball-style" arbitration with Fox for its regional sports networks. An arbiter will choose Fox’s contract proposal or NCTC’s — no mix and match of terms — in a situation that NCTC says could drag into the summer.

NCTC is not afraid to drop linear channels that aren’t performing or adding value; Abbas notes a considerable amount of yearly "slippage" as members decline to pick up certain networks when programming deals are renewed. NCTC members will reap cost-saving benefits as video moves to broadband and mobile platforms, he believes.

Emphasis on Connectivity Rather Than Content

Abbas says he’s implementing a strategy where cable’s pipe gets shifted toward zero-cost content items, such as subscriber- or consumer-supplied content. Mobile delivery services, for instance, can be used to enhance operators’ relationships with subscribers. "We don’t have to pay people to come up with the conversation they want to have with their neighbor or their mother-in-law or their kids off in college," Abbas says. "They supply that content and we just convert it into ones and zeroes and shove it over our network. So our content cost and profit and loss is zero for that. That’s a beautiful thing."

The same goes for the value of broadband connections. "We sell connectivity, and we don’t sell any meaningful component of content for the high-speed data type of offering," he notes. Subscribers "provide their own content [and] get from the Internet the content that they want, and our cost for that is zero."

Biggest Potential Revenue-Booster: Broadband Video

With core linear video shrinking as a profit center and linear video itself migrating to the Web (and vice versa), Abbas says the biggest upside for NCTC members "still is with continued penetration of broadband" and pushing the triple-play bundles containing content of all flavors. "We have a rapidly growing footprint where VoIP is deployed, so [we’re] gaining both breadth of distribution and depth of penetration," he says. "Between the second and third pieces of the triple play, that’s where all the money is right now.

Changing Content Value: Be on All Pipes

NCTC is happy to ride the wave of mobile and broadband content as long as it gets a piece of the action. "We don’t care that much if the value of linear video shifts to a broadband pipe or to a wireless cell phone pipe, as long as we’re in all those spaces and we get our share of each of those pipes."

Content Guides: Let Big Ops Show the Way

Abbas is "aware of the concern" over new forms of navigation.

"That’s one of those areas where I think it’s more beneficial for us as a group to be a fast follower, rather than being a leader," he notes. "We have almost 7,000 cable systems in our portfolio. To try to design a guide for that would be a pretty monumental undertaking. I’m relatively OK with the major players who’ve got the infrastructure to work with the guide companies to design new guides and products."

Message to New Channels: Skip Linear

Abbas doesn’t think it makes much sense to launch — or, from his point of view, carry — new linear networks, particularly with so much advertising migrating online.

"How do you aggregate enough viewership, enough interest, to command additional revenue streams from advertising?" he says. "The 400th channel really belongs on the Internet. Some linear channels may be born and other linear channels may die, but that’s OK because the content, if it has value, is still going to be found by consumers. We don’t care which pipe it goes over. We just don’t want to pay for the content."

New Vids on the Block

Online video is of particular interest to Abbas, personally and professionally. "I will watch some of the videos that appear on YouTube on almost a daily basis just to try to keep familiar with what’s going on," he says.

Could he see NCTC someday striking a programming agreement with a YouTube or other Web-only content play? "Sure. We have rights like that in some of our [deals with] large linear channel network groups. [And] every now and then we’ll [get a call from a nonlinear programmer] looking to explore a relationship like that."

Outmaneuvering the Competition

"There’s a much more local flavor and local component to the offerings that our guys have, and the whole management that they can bring to delivery of service," says Abbas, who touts his members’ "hyperlocal" advantage. "Yes, we need the national offerings that compete with the national DBS providers, yes, we need a triple-play offering and even a quad-play offering, but to the extent that there is local responsiveness and an opportunity to execute against localized interests, our guys own that space, and their distribution strategies reflect it."

Getting Ready for Battle Against the Telcos

NCTC members have done "a lot of rebuilding" over the past four years, with 70% of its membership now operating a 750 MHz plant. "We have pretty robust bandwidth virtually everywhere, but the intensity of the new competitive entrants just hasn’t happened to our guys as yet. The big new telco entrants [FiOS and U-verse] are in major markets, so we’ve got a couple of years to battle-harden to offer triple-play types of services and really cement customer loyalty." —Shirley Brady

iN DEMAND Networks isn’t a cable operator, but it must think like one. This buying consortium negotiates for and acquires content for its cable operator owners — Comcast, Cox, Time Warner Cable and Advance/Newhouse’s Bright House Networks — and for cable affiliates including Cablevision, Mediacom, Charter and Insight.

And it’s been working overtime lately: From the moment last month when Major League Baseball and DirecTV cut a reported $700 million deal for the Extra Innings out-of-market games package that would exclude cable for seven years, iN DEMAND has been in the news.

In early April, iN DEMAND and Major League Baseball hammered out a seven-year deal for continued carriage of the Extra Innings package on cable. The successful negotiation of the deal with MLB highlights iN DEMAND’s vital role in securing sports rights for cable.

Its other premium sports include MLS Direct Kick, NBA League Pass and NHL Center Ice. In the non-sports arena, iN DEMAND is the exclusive TV home of Howard Stern. It also lines up pay-per-view events and acquires blockbuster movies for VOD.

iN DEMAND president and CEO Rob Jacobson took a few minutes out of his MLB negotiations to chat about his biggest non-baseball focus: the May 1 re-branding of its INHD hi-def channel to Mojo, designed to appeal to high-end HD fans.

Evolving to Fit Operators’ Needs

iN DEMAND has retooled its video lines in recent years to reflect the needs of its cable operator owners and affiliates. "We had 35 channels of NVOD (near video on demand) movies that we then moved over to a VOD platform," Jacobson says. "We’re virtually not in the movie pay-per-view business anymore [because operators’] business has moved to an on-demand experience."

Riding HD’s Wave

When iN DEMAND got into the linear networks game in September 2003 by launching INHD, the goal was to answer affiliates’ need for original — not simulcast — and unique high-definition programming. INHD "was largely about [touting] the technology" of high definition, Jacobson explains.

Today, he says, it’s no longer necessary for iN DEMAND or its cable operator owners to tout the HD part of their offering. Just as Comcast last month re-branded its Comcast on Demand lineup to "Channel 1," the logic is that cable subscribers understand the technology that’s delivering the content. Now, they’re simply demanding better-quality programming on all platforms.

So with the blessing of its owners at Comcast, Cox, Time Warner and Advance/Newhouse, iN DEMAND is retooling its original HD channel to focus on what internal research indicates to be an underserved segment of HD consumers: men 25-54 with household incomes of $100,000-plus.

Next up for iN DEMAND: migrating linear and nonlinear content online. "We’ll provide more and more of a robust broadband opportunity for our customers," Jacobson promises. He points to the Mojo website as a peek at what’s to come for cable affiliates, with short clips, sneak peeks and even full-length episodes available for viewing.

"Our DNA is still about transactional television, meaning giving consumers the ability to buy a certain program when they want to, whether that’s a movie or a fight or Howard Stern. That’s our core competency," he comments. "But we’ve really segued into a linear channel type of environment with Mojo, and now we’re bringing some of those same core competencies [to platforms] including HD VOD." —Shirley Brady

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