Meet the MSO: Cable One

Cable One ranks 10th on the list of the nation’s largest MSOs, but if MSOs were ranked by the toughness of their negotiating tactics, it would easily crack the top five. Consider the Phoenix-based MSO’s 2005 showdown with Nexstar, which owns broadcast affiliates in a handful of Cable One markets, including Joplin, Mo., and southern Dade County, Fla. In January of that year, after long and arduous retransmission talks, Cable One pulled a number of Nexstar ABC- and NBC-affiliated stations off its systems—and they remained dark for some 11 months. We asked Cable One’s lead programming negotiator, VP, strategic marketing, Jerry McKenna, about his negotiating tactics. You are a marketer who happens to cut programming deals. What is the relationship between marketing and programming? Programming is part of marketing in a number of ways, not the least of which is how you package and price it. But the bigger thing might be how you use programming as a point of differentiation, particularly in relation to DBS and the telcos. Along those lines, I think how Comcast is using VOD programming as a major differentiator from satellite is great. A key element of marketing is brand building. Do you target certain networks or exclude others based on how they might impact the perception of the Cable One brand? We look at programming against the demographics of our systems which, because of the markets we serve, skew slightly older. We also look at programming by genre to make sure that we haven’t overlooked or underserved a particular demographic. Does Cable One have an overarching programming philosophy? We have made a very conscious effort to control our programming costs; hence on our analog lineups we carry a maximum of 41 satellite networks. Of those, 36 are MSO-wide, and then each system gets to select five on their own to try to capture their local market needs. On our Digital Value Pack, however, if you’re a cable network, once you’re on, you’re on everywhere across the MSO. Beyond being able to select five networks for their own basic lineups, how much autonomy or decision making power rests in the field? We rely on our managers for input on what networks we should add, and they’ve got some very strong opinions when it comes to such things. So given that, I think it’s fair to say some decision making goes on at the system level. Do you cluster similar services together on your channel lineups, like some MSOs have been doing? Not yet, but it is something we’re looking at, as well as the possibility of, where we can, having a consistent MSO-wide channel lineup. Bright House, Cox, Insight and a few others have just formed a group, headed by Bert Carp, to go after the retransmission consent laws. What are your thoughts on that? Our programming suppliers, or at least those with broadcast networks, have undue leverage in attempting to force us to carry content that we may or may not want to carry, and that was clearly not the intent when Congress passed retransmission consent. What we hope to have is more of a free-market approach to content. We, as a distributor, should be able to take programming that best meets the needs of our customers, rather than being forced to take programming we don’t want to carry and then, on top of it all, find ourselves having to pass along those costs to our customers. How did you manage customer reaction during your standoff with Nexstar? In some of our markets we were able to give customers rabbit ears so they could still pick up the signals off the air. In others, our customers were too far away from the originating signal, so they had to do without. Didn’t you experience a lot of disconnects? Initially we did, but far fewer than we thought we would. And I will tell you, a vast majority of our customers agreed with our decision. A lot of them told us so. And then, about four months down the road or so, a lot of the customers who originally disconnect started coming back and those markets began to grow again. How did the deal finally get done? That’s one of those things I’m really not at liberty to discuss. What lessons did you learn from the experience? One, you need to make sure your customers understand what you’re doing, and why you’re doing it. So you have to get out early and often with your message. Secondly, you need to learn to not respond to every last comment your supplier says about you—no matter who it’s said to or where and when it’s said. What should programmers be bringing to the negotiating table on a consistent basis that, perhaps, they aren’t now? I think programmers should be focused on providing us the highest quality content they can for the audience they’re targeting. But with that they should also be much more reasonable about the prices they’re charging for their products. And finally, I feel strongly that programmers should not be expecting us to underwrite their new programming development. They have to assume the burden for such risk. I know programming is a risky proposition, but they’re the experts and should be accountable for their own decisions. What’s the most creative deal you ever got done – or at least the most creative circumstance under which a deal got done? I have to be very careful about answering this. We’ve done a lot of deals and all those deals have a lot of tentacles. As a matter of fact, as I think about it, I’d rather not get into the specifics of any one deal—certainly not one of our more creative ones. Are you concerned about cable networks streaming content for free? Streaming content is at the embryonic stage right now, so at this point it’s not a huge issue. As it flushes out I think the industry’s position on it will flush out with it. I will say, however, that we have a vested interest in delivering video content to our customers—it’s the biggest part of our business—and I would hate to see that undermined by the same content, or very similar content, being offered on alternative media formats. On the other hand, in many instances we’re the enabler of a lot of those alternative formats, such as high-speed Internet, so when consumers use those media, we benefit. But that said, I’d still hate to see programmers erode their core video business the way we provide it today. I should probably say here that as a company, when it comes to the development of new media and new technologies, we tend to be more a follower than a leader. And that’s very much by intent, because then we can step in and deploy those technologies as they become viable. That’s not to say, however, that we’re not studying them closely as they develop, which clearly we are. In the MSO shark tank, you’re not the smallest fish, but you’re certainly a long way from the top of the food chain. When you’re working on a deal, do you often feel as though you’re not only negotiating against the singular interests of a media company, but against the buying power of, say a Comcast or a Time Warner? The most important factor when we enter into a programming negotiation is that we do not want to be disadvantaged versus our competitors. Now, there tends to be a philosophy among programmers that is volume based—the more customers, the lower the rate. And that’s where we have to be very careful, because down the road that could become a huge competitive disadvantage, particularly against DBS. For that reason, we favor programmers who have a single rate card for all their products. Which networks are among the best to deal with? As a general rule, the newer and smaller networks are far more accommodating. The larger networks, I hate to say, have gotten far more adversarial in their dealings. They want higher prices and broader distribution; we want lower prices and, in many cases, to save our bandwidth for uses that better serve us and our customers. But how viable is a threat to pull major cable network? It’s always a very real possibility with us. We’ve done it before to major broadcaster networks, and in more instances than just the Nexstar one we just talked about—so we’d certainly be willing to do it to a cable network. Despite your affable nature, you’ve been known to be a tough negotiator, as evidenced by the showdown with Nexstar. What makes you so tough? We have clear goals going into any contract discussions, and we try to be open about those goals. And we hope the other party will be open as well so that we can find an area that works for both of us. But we are also not afraid to say no, and the knowledge that we’re willing to walk away at any point is a critical part of the negotiating dynamic. If you were to mentor a younger person coming into your position, what things would you try to teach that person? Expect to get gray hair (laughs). But seriously, I would say that it is critical to have a high level of integrity in any and all negotiations. You have to be forthright and honest. There is nothing worse than striking a deal and have one party after the fact feel they were tricked or that the other party had misrepresented themselves or the facts. That builds tremendous ill will, which can manifest itself down the road. I would also try to teach the person that it is important to do your homework beforehand. You have to be clear in your own mind about the difference between what would be nice to have and what you absolutely have to have. Cable One by the Numbers Homes passed: 1,446,000
Basic video customers: 720,000
Digital customers: 220,000
HSI customers: 246,000
Telephony customers: currently beta testing
% of plant upgraded to 750 MHz or higher: 32%

Source: Cable One