Cable Operators

Hardly Cooperative

9/20/2010 9:07 AM Eastern

Over the past 25 years, the National Cable Television Cooperative has evolved from a dozen small members with a combined 110,000 subscribers to a 950-member behemoth representing 27 million customers.

With that growth has come
some growing pains — some
small operators have griped
that the co-op is dominated by
a handful of major MSOs with
their own agenda. Larger members
have complained that they
aren’t getting better programming
deals despite the resources
and heft they contribute.

In the middle is NCTC president
and CEO Jeff Abbas, who,
despite the dissension, is embarking
on a five-to-10-year plan
to transform the Lenexa, Kan.-
based buying cooperative into a
stronger force in programming
negotiations, mainly by increasing
the participation of its larger
members in each agreement.

That’s a lot harder than it
sounds.

NCTC cover imageThe NCTC may be bigger than
Comcast (the largest individual
MSO, with 23.2 million customers)
but the bulk of its members
are considerably smaller. In an
interview, Abbas estimated that
between 600 and 700 of co-op
members have less than 1,000
subscribers. Officially, NCTC
members range from Atlantabased
Cox Communications,
with about 6 million customers,
to a tiny system in the Southwest
with just seven subscribers.

Despite that gap — and maybe
even because of it — most
small and midsized members
have benefitted greatly from the
discounts being part of a larger
group can bring. One member,
120,000-subscriber New
Wave Communications, claims
it saves “dollars per month” per
subscriber in programming costs
through the co-op. But despite its
obvious stature as a negotiating
force, some members complain
privately that power could be
much greater if all the members
participated in most deals.

By its own account, the NCTC
said that typically, about half of
the co-op’s subscribers — between
10 million and 12 million
— participate in most of its programming
agreements.

The rest, mostly the larger MSO
members such as Cox, Charter
Communications and Cablevision
Systems, cut their own
separate arrangements with programmers,
save for a handful of
deals through the co-op. That, according
to smaller operators and
programmers alike, diminishes
the value of the scale those larger
members bring. (Cox, Charter
and Cablevision represent
about 14 million subscribers, or
more than half of the 27 million
claimed by the NCTC).

On the other hand, some bigger
operators complain that they are
getting the short end of the negotiating
stick — smaller operators
get the advantage of the NCTC’s
negotiating staff and expertise
but sometimes, the deals are no
better than agreements they can
reach on the own.

“Welcome to my world,” Abbas
said in an interview.

Although every large organization
is subject to disagreements
and friction within the ranks over
time, the rift appears to be growing
(a characterization which Abbas
says is exaggerated) or at least
growing more vocal. And despite
the diff erent business agendas of
each operator, small and large,
they can agree on one thing —
the NCTC is not getting the full
advantage of its subscriber bulk
in its programming agreements.

In an interview last week, Abbas
said he has not seen a spike in
complaints among the membership
and would encourage any
member to express their concerns
with him directly. The NCTC
makes a concerted effort to get
information out to its membership,
he said, adding that those
who are unaware of the co-op’s
strategic initiatives perhaps are
not as engaged with the organization
as they should be.

“For people who have chosen
to be engaged with us, the reaction
we get is this is one more
tool in your tool kit to try to lower
pricing, way to go,’ ” Abbas said.
“For people who are less engaged,
I can understand why they don’t
understand our strategy, but
shame on them, they should be
calling us.”

The NCTC was formed specifically
in response to discounts
that larger operators were getting
from programmers. Spawned
during a friendly card game hosted
by Mid-America Cable Association
president Rob Marshall in
1984, a handful of small operators
decided that by banding together,
perhaps they, too, could attract discounted programming.

The NCTC was formed a year
later in 1985, with 10 members
representing 110,000 subscribers.
The fledgling buying co-op struck
its first deal that same year with
The Weather Channel.

By 2003, the organization had
swelled to 1,100 members representing
about 14 million subscribers.

And while some members have
complained about larger operators
coming into the fold for years —
Abbas said it probably started with
Jones Intercable (since purchased
by Comcast) joining in 1995 with
about 1.4 million customers —
it reached a head in the past two
years. The NCTC added Cox Communications’
6 million customers
in 2008 and in 2009 brought on Cablevision
Systems’ 3 million customers.
Charter Communications,
which has about 5 million customers,
joined in 2003.

‘EBB AND FLOW’
“To have two of them come in
that span of time; I guess that’s
meaningful,” Abbas said. “Adelphia
had 6 million subs in the
organization, Charter also joined
in that window, Adelphia exited
and Cox joined two years later.
It’s kind of an ebb and flow. We’ve
always had large operators and
we’ve always had those issues.”

But some members have said
they don’t necessarily mind larger
operators being in the fold, just
their level of participation. Many
join the organization for a single
programming deal and cut the
rest of their programming agreements
separately.

The latest example of that was
Cablevision Systems, which joined
the co-op in 2009 essentially to
take advantage of its agreement
with Tennis Channel. Cablevision
had been in a heated battle
with Tennis for months over its
placement on a sports tier, which
the programmer had resisted. The
MSO was able to circumvent that
resistance by joining the NCTC,
which already had a deal in place
that allowed members to put the
channel on a tier.

That Tennis Channel agreement
is set to expire next year and
according to people familiar with
the situation, the network is likely
to seek to remove that tier provision
from their NCTC agreement.

In an interview, Tennis Channel
CEO Ken Solomon wouldn’t talk
about specifics. “All we ever want
to do is ensure that it’s a genuinely
free market and that programming
is evaluated on the basis of
merit and not because of corporate
ownership,” Solomon said.

He added that despite his scuffle with Cablevision — Tennis
Channel tried to block the MSO
from taking advantage of the
NCTC deal, originally made in
2002 when the network was just
starting out — he holds no animosity
towards the organization.
But he also cautioned about the
lure of being dominated by larger
players.

“We like these guys,” said Tennis
Channel CEO Ken Solomon.
“They’ve mostly done right by us.
We just don’t want the balance of
power to change so much that it
becomes harmful for programmers
and the viewers they serve.”

Along those lines, the NCTC
has launched an effort to increase
participation in deals, essentially
moving towards subscriber
guarantees, which the co-op has
avoided since its inception. Abbas
said the push is not to diminish
the influence of larger MSO
members, but to encourage them
to participate more fully, off ering
their expertise as well as their
heft. That ultimately would lead
to making subscriber commitments
to programmers, something
the NCTC has done on only
rare occasions in the past and has
been a frequent complaint of programmers.

“Programmers routinely lament
that the real diff erentiating
factor of the co-op is that we don’t
make subscriber commitments,”
Abbas said. “Actually, they’ll say
we can’t make subscriber commitments,
but that’s not true —
we can; we’ve chosen not to.”

Abbas said the group won’t
likely require 100% participation
by the big members. “I don’t
think you need to go there,” Abbas
said.

Programmers, he said, will still
come. “The principal reaction has
been if you can fi nd a way to truly
provide us committed volume we
would be happy to provide terms
and conditions
that reflect that,”
Abbas said.
“That’s a clear
win-win.”

The ultimate goal: to
get more consistent
participation
by most
members. That,
in theory, could force members to
make buying guarantees. Such a
process could take as long as five
to 10 years, said Abbas.

Some programmers, however,
haven’t been willing to wait.

Showtime Networks, with several
big carriage agreements
done, rejected an NCTC proposal
earlier this year and decided
not to negotiate with the co-op.
Instead, according to one co-op
member’s customer newsletter —
tiny Three River Digital in Lynch,
Neb. — Showtime told operators
that it would only directly negotiate
with MSOs with 1.5 million
subscribers or more. Smaller operators
had until April 30 to accept
a flat rate that in some cases
was significantly higher than
what they had paid the premium
channel in the past.

Showtime declined to comment.

Abbas wouldn’t comment directly
on the Showtime deal. “We
didn’t come to terms,” Abbas said.

Member participation isn’t the
only bone of contention with programmers.
Some have pointed to
the structure of deals which allow
members to opt into co-op deals
even if they have an earlier agreement
with that programmer. It is
a practice that Abbas not only encourages,
but said has been a cornerstone
of the co-op’s existence.

“We’re a bit of a behemoth,
sometimes people have to have
content quicker than we’re able
to access it for the whole organization,
so we’ll say, ‘Here’s how
we’d like you to do that, go negotiate
your own separate deal, but include
this paragraph of language
that enables you to join into any resultant
NCTC deal down the road.’
That’s been standing practice for
us for our entire existence.”

One example is NFL Network,
which completed an NCTC master
agreement in August. Abbas
added that NFL Network and other
programmers know that other
members may join in later and
price their deals accordingly.

Abbas certainly has his work
cut out for him and no matter the
actual level of dissension, members
who voiced some concerns
admitted they couldn’t survive
without a relationship with the
co-op. Even a 10 million-subscriber-
strong NCTC has substantially
more buying power
than a 2,000-subscriber system
on its own.

SATISFIED CUSTOMER

New Wave executive vice president
Tom Gleason, a 40-year cable
veteran, said that he couldn’t
be happier with his NCTC relationship.
And though he admits
that some larger operators do get
better deals when they negotiate
on their own, the connection to
the bigger companies translates
into savings for smaller ops.

While Gleason said he is not
privy to other MSOs’ programming
deals, he estimates that the
NCTC agreements aren’t far from
the prices that larger members
negotiate separately.

“We get a lot
of mileage [out
of the relationship],”
Gleason
said. “Those
kinds of programmers
don’t
play with rate
cards.”

Gleason said
that ideally, it
would benefit the NCTC if all
members participated in all deals,
but he understands that sometimes
doing separate agreements
makes better business sense. He
estimated that his NCTC saves
him “dollars per month” per subscriber
in programming costs.

“In the long run, the idea is
to close the gap [between prices
paid by large operators and
those paid by small operators],”
Gleason said. “It’s a process. The
gap is much closer together than
it was five years ago. Our bargaining
power may not be as great as
it could be, but it is bargaining
power.”

Members Only
Membership in the NCTC is made through an
application process and applicants must meet two
criteria: that they provide television reception or
service to the public via a cable system, as defi ned by
47 U.S.C. Section 522(7), and that they either presently
provide or plan to provide within the next 90 to
180 days multichannel video service to residential
subscribers. Once an applicant meets both criteria,
they are forwarded further application materials. The
full application review process usually takes between
30 to 90 days after NCTC receives all necessary fees
and documentation.

SOURCE: NCTC

Competitors Welcome
The NCTC counts the three largest overbuilders as
members — RCN, WideOpenWest and Knology
— and WOW even has representation on its board
(WOW vice president of programming Peter Smith is
NCTC vice chairman). The largest telco competitor,
Verizon Communications, also is a member (through
its ownership of the former overbuilder, GTE
Ventures). Missing from the ranks is AT&T, which has
a competing video service, U-Verse. The reason: AT&T
has stressed on several occasions that because U-Verse
is an IPTV service (its programming is delivered via
broadband and at the demand of the consumer, not
in a continuous stream), it should not be considered a
cable-TV service by regulators.

SOURCE: NCTC

September