Bundle’s a Better Deal: Cable Leaders

OVER-THE-TOP, ECONOMIC THREATS DOWNPLAYED AT CONFERENCE
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The pay TV business is doing just fine, according to several industry executives, who brushed aside threats from over-the-top competitors and increasingly tight consumer pocketbooks.

Time Warner Inc. chairman and CEO Jeff Bewkes helped kick off the Deutsche Bank 2013 dbAccess Media, Internet and Telecom conference in Palm Beach, Fla., last Monday (March 4), claiming that fears that the rising cost of pay TV would price a growing number of consumers out of the multichannel universe have proven unwarranted.

“We don’t think the multichannel bundle is becoming less of a good deal, we think it’s getting to be a better deal and we think it’s getting to be a better deal in the opinion of consumers,” Bewkes said at the conference.

The relative lack of cord-cutting, rising penetration rates for pay TV, increased viewing hours for consumers and the increase of quality programming across a wide range of networks all back up that claim, Bewkes said.

As far as online services taking share, Bewkes pointed to Netflix, adding that the streaming pioneer went from zero to 27 million subscribers and had no effect on multichannel penetration rates. While he didn’t want to seem insensitive, Bewkes added that the evidence shows that price doesn’t seem to be as important as quality and choice.

NO SUB REVOLT

“If the price is too high you would expect to see people revolting in some way; you would expect them to be cutting their packages,” Bewkes said. “And yet, if you look at the low-priced offerings that Dish [Network] offers, that Time Warner [Cable] Essentials [offers] — these are all economy packages — nobody buys them.”

Netflix’s recent move toward buying original series is a step in the right direction, Bewkes said, but he added that the over-the-top service can’t afford to be a real player in the scripted-series arena.

“They can’t afford to buy all the major live programming or syndicated non-serialized series that are going to NBC, CBS, TNT and so forth; the programming budgets for those guys are massively larger than the SVOD guys,” Bewkes said. “But it’s shaking out really well. They’re coming in for the things they ought to do, which is library and serialized, and they’re fitting in mainly as a compliment to other networks. A lot of people that have HBO have Showtime and a lot of people who have Netflix have HBO and vice versa.”

For Time Warner Cable, subscriber trends are starting to stabilize on the video side, even as aggressive promotional periods roll off , chief operating officer Rob Marcus said.

TWC was caught a bit by surprise by the level of promotional roll-off s in the fourth quarter, when it lost about 129,000 basic video customers, Marcus said. The company has put programs in place, though, like retraining retention specialists and giving them new tools to keep customers from leaving.

In addition, Marcus said that TWC has been revamping its programming packages. While the new structure has led to more double-play packages being sold than triple plays, average monthly revenue per unit for new connects is up, he said.

“I think what we’re driving towards is a more profitable, more stable subscriber base,” Marcus said.

ISI Group analysts Vijay Jayant and David Joyce wrote in an e-mail message that in the past, bundles were packaged in a way to incentivize a triple play because the step up to voice was so small.

“But if the industry is pricing the bundles such that there is little ‘incremental’ revenue for a voice add-on, and there is much lower effective margin for the voice product than for data, there could be margin benefits to pushing the double play,” Jayant and Joyce wrote. “Voice was more important when cable needed to take share from the telcos in order to really accelerate their HSD product.”

CONTENT COSTS RISING

On the programming cost front, Marcus said that although he expects content charges to rise about 10% in 2013 — twice the 5% increase of 2012 — he said that bump was in part due to a lower-than-expected increase in 2012 and the addition last year of new programming such as NFL Network and NFL Red Zone, which will affect 2013 rates.

“We always have deals in negotiation that can affect the programming cost in any one year,” Marcus said. “It’s not going to be a perfect straight line. But there’s nothing that leads me to believe that we should declare 10% the new normal, at least not at this point.”

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