CableOne Puts Nets on Notice

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Atlanta -- Citing the need to rein in rising programming
costs, Cable One Inc. has put some 70 satellite-distributed networks on notice.

The Washington Post Co.-owned MSO wants to cut back to 37
networks, which will comprise a core package available to all 650,000 subscribers, with
each system choosing another three networks locally. It hopes to wrap up negotiations by
late June.

The carrot: Remaining networks will have the chance to pick
up Cable One systems they didn't reach before. The stick: More than 30 networks will
lose the Cable One subscribers they have now.

Cable One CEO Tom Might said the main reason for taking
this unusual approach is simple: "To control programming costs. Programming costs are
absolutely out of control."

Might went on to say that recent decisions by Coaxial
Communications and TCA Cable TV Inc. to replace Country Music Television with Great
American Country -- largely for cost reasons -- were important signals to other
programmers looking to raise their fees.

"There are pressures," he said, "and there
have to be counter-pressures."

An executive at one programming network negotiating with
Cable One, who asked not to be identified because of the negotiations, said no other big
operators are attempting what Cable One is doing. Cable One (formerly known as
Post-Newsweek Cable Inc.) is a bit unusual among top-20 MSOs in that it is not
aggressively rebuilding and does not plan to expand its lineups using digital technology,
the executive noted. "They really think they've got to keep their retail rates
down" or risk losses to direct-broadcast satellite.

But high-profile efforts by some networks, notably ESPN
and, to a lesser extent, Turner Network Television, to push through increases stemming
from expensive sports-rights deals have made it tough on smaller programmers to improve
their own deals, the executive said.

"It's like the rich get richer and the other guys
have to fight for the scraps," he added.

The programmer, whose network is offered to about half of
Cable One's subscribers, said the MSO's notice before the Western Show was a bit
confrontational. But negotiations with the operator appear to be going well.

The network had hoped for a way to break into more Cable
One systems, so the notice presented an opportunity, the executive said. "Now we have
a reason to get aggressive with offers regarding ongoing rates and launch support: because
there are some real subs on the table."

Might said the talks with networks, which continued at the
National Show, have been "good, bad and ugly." Some operators embrace the
opportunity to broaden carriage, and possibly even bring in spinoff or sister networks. He
said the core 37 might not all be networks that are currently carried on Cable One.

Might and vice president of strategic marketing Jerry
McKenna said price won't be the only consideration in putting together the lineup.

"But pricing is clearly a driving factor here
that's forcing us to behave this way," Might said.

The negotiations with ESPN have been tough, he said. He
even said that if the sports network insists on passing through 20 percent annual
increases, to help pay for its recent $600 million National Football League contract,
Cable One will eventually have to drop ESPN.

But Might said several networks are trying to push through
double-digit increases, at a time when competition and scrutiny from Congress make it hard
to simply pass along those rising costs to subscribers.

Cable operators and ESPN downplayed a Wall Street
Journal
report last week suggesting that a number of operators, angry over ESPN's
proposed rate increase, would tier the network.

The network had built into its affiliate deal a clause that
called for as much as a 30 percent increase to cover any incremental costs for obtaining
major sports deals such as the NFL deal. Included in that contract are severe penalties
for operators who allow the network to drop below specified penetration levels, according
to sources close to the situation.

"It's not being pursued at any levels in the
industry," said George Bodenheimer, executive vice president, sales and marketing for
the network. "It's not a viable option and it's not consumer
friendly."

One top-20 operator said the MSO is powerless to move ESPN
off of basic unless it drops the service altogether -- a move that the MSO isn't
considering.

"If I had a choice, I would move ESPN and the regional
sports networks to a tier, but the networks won't let us do that," said the
operator. "Even if we could, I don't know how subscribers would react."

Possibly in part because of the ESPN report and coverage of
the CMT drops, National Cable Television Association president Decker Anstrom last week,
in a speech at the National Show, urged both sides negotiating programming deals to
"keep those negotiations private." Consumers care deeply about programming, he
said, but they don't care about operators' economics.

Tom Umstead contributed to this report.

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