Orlando -- Is the TV business still a good business for cable operators?
As improbable as the question sounds, that issue kicked off the annual Independent Show here for the nation's small and mid-sized cable operators.
Of all the differences between the giants in the cable industry and its smallest members, few issues unify -- or divide -- the two groups more than the rising cost of programming. Cable operators now pay more; small cable operators pay disproportionately more.
"Why invest in the video business now?" asked Rich Fickle, president and CEO of the National Cable Television Cooperative on the July 23 opening panel..
Echoing a line spoken by most operators at the convention, Steven Cochran, president and CFO of WOW!, said, "We've watched our basic margin drop dramatically in the last five years. Even though we feel a lot of pressure on that basic margin, there's still a lot of upside in the other parts of the business."
For many small cable operators, in fact, the video business is almost a loss-leader given the bigger margins on Internet and phone service. "Right now it probably contributes about 40 percent of all our cash flow," said Cochran. "More important is the bundled aspect of phone, Internet and cable. Right now about 88 percent of our customers are bundled."
That's a good thing, considering WOW! competes with Time Warner and Comcast in certain markets."Knowing we have to pay significantly more for programming...we're to the point now where we're truly just passing it through - there's no longer a margin on the increases -- it's just hoping you recover your costs," said Cochran. Yet, in the midst of these increases, he said WOW! is still adding video customers.
The American Cable Association, among other efforts, is urging the Federal Communications Commission to close a major loophole in the program access rules to combat what it believes are unfair pricing tactics by bigger, more vertically integrated cable programmers.
"The FCC's program access rules - crafted to nurture competition among Multichannel Video Programming Distributors (MVPDs) - need to ensure cable networks affiliated with cable operators cannot discriminate against unaffiliated MVPDs." ACA President and CEO Matthew Polka said in reply comments to the FCC as it reviews program access rules. "The FCC can best accomplish this by closing the uniform price increases loophole."
Many small operators in attendance were optimistic about their financial future, despite the rising costs and more antagonistic negotiations, because of coming technology shifts such as cloud computing and Internet TV.
Said Bruce McClelland, president of Arris, "The more exciting part is really where IPTV is going in the next several years and the opportunity for service provider to be that main portal of choice for consumers."
Surprisingly, fears of over-the-top providers edging out small incumbents aren't that big, partly because of programmer efforts such as HBO Go and other TV Everywhere products. Indeed, such efforts may be the very tools to increase profitability.
"Over the next several years, IP will be the unifying standard that we can all take advantage of," said McClellan. Cloud computing, he said, will reduce cost and increase flexibility for small ops.
The biggest concern for small operators , said Cochran, is pricing themselves out of the market.
The Independent Show, sponsored by the ACA and the NCTC, drew record attendance this year with 320 members, 500 exhibitors and more than 1,250 attendees.