Boston-Last week's Cable & Telecommunications Association for Marketing CTAM Summit here wrapped up with a spirited clash between a cable operator and an overbuilder, while a programmer on the same panel remained neutral.
Overbuilders will face a tough time getting enough debt financing to keep their businesses going after their initial venture capital runs out, Mediacom Communications Corp. chairman Rocco Commisso predicted during the closing brunch last Wednesday.
"We're hearing that the debt market to overbuilders has shut down," he said, in customary blunt fashion.
Digital Access Inc. CEO Joseph Cece, a cable veteran, defended his company, calling it a "broadband-service provider," or "BSP," rather than an overbuilder.
"When comparisons are made, they're always made to failed ventures," Cece said. "There are new emerging revenue streams" that include not only video, but voice and data, he added.
The only reason not to support Digital Access's business model is "if you take Rocco's thesis" that capital markets won't support the rollout of new services or if the company fails to get market penetration for data and telephone services, Cece added. "That's a hard model to support" if you look at other industries opening up to new competition.
Commisso said that while overbuilders often tell investors they can have a successful business model with 20 percent market penetration, they overlook competition from direct-broadcast satellite and telephone companies.
"Joe has no idea what it means to have trench warfare," he added.
While Cece and Commisso debated the relative merits of their financial models, Turner Broadcasting System Inc. general-entertainment networks president Brad Siegel declared: "We love overbuilders. Overbuilders and the satellite guys provide the kind of catalyst that larger systems need to add our newer programming."
Siegel admitted that Turner was pitching its new Boomerang cartoon channel "and all of our news services to anyone and everyone who will take them. That's our job."
When panel moderator Rich Cronin, most recently of Fox Family Channel, asked whether Turner would promote Boomerang as being available only on an overbuilder's system but not on sister company Time Warner Cable, Siegel said he had an obligation to the consumer to do so.
"Most overbuilders are indiscriminate in what they carry," Time Warner Cable senior executive vice president Tom Rutledge said.
Commisso was even less sympathetic to Siegel and to programmers in general. "Sooner or later, I've had it with you guys," he said, adding that satellite providers and overbuilders should pay more in license fees than cable does "because I'm the guy who put you in the business."
Providers are paying subscriber fees based on their size, and not on their market share, Commisso complained to Siegel. "I'm in a small market," he said. "I get the majority of share of my market. It's not fair that my rural customers have to go out and subsidize the city customers, the competition and your customers in Africa and Europe and wherever the hell they are. If I had the opportunity without hurting my customers to drop you, I would do so on the spot."
Rutledge agreed that at Time Warner Cable, programming costs are rising rapidly. Because most of the MSO's systems have more than 200 channels today, "if everybody gets a dime per channel, that ends up to $20 in programming expenses very quickly," he said.
The dilemma, Rutledge added, is that programmers want to continue to add more channels, but "we're in an environment where the consumer doesn't want to pay a lot more for the product."
Programming costs are going up at a rate of 15 percent to 16 percent each year, but rate increases passed are kept at around 5 percent per year-"a real squeeze," Rutledge said.
Siegel responded that operators need to avoid raising rates by selling more ads.
Interactive television could help, Wink Communications Inc. president Maggie Wilderotter chimed in. Wink is creating interactive-ad platforms to help operators get incremental revenue from advertisers and merchants, rather than directly from consumers, she added.