San Antonio, Texas— Up to 250 small cable systems might have to cease offering pay-per-view service because of what they call a "killer rate hike" by PPV provider In Demand LLC.
In January, executives received letters advising them that starting May 1, the programming provider would eschew its per-use licensing fee in favor of a flat charge of $500 per month, per headend.
Attorney Chris Cinnamon, who advises the American Cable Association, said 150 operators have told the small-system trade group they will stop offering PPV product if In Demand holds firm. Another 100 small systems are still analyzing the financial and competitive fallout from canceling the service.
A dearth of PPV offerings could put small operators at a further disadvantage against direct-broadcast satellite providers.
Executives at 2,000-subscriber Nortex Communications in Muenster, Texas, said they called the PPV provider, but were rebuffed in attempts at seeking reconsideration.
"They said, 'We're sorry about that, but that's the way it's going to be,' " said Joey Anderson, director of competitive services for Nortex, which has one headend serving five cities near the Oklahoma border.
The hike will cost the small operator more than twice what it expected to pay in PPV licensing fees for its newly launched digital service.
High costs cited
"Our pay-per-view buy rates are not that good to begin with," said Kay Monigold, executive vice president and COO at Texas-based Buford Media, which serves its customers from 10 headends. "We'd have to evaluate whether we can drop pay-per-view. We just hope In Demand will change their minds."
In Demand president and CEO Steve Brenner defended the programmer's decision, saying the $500 fee will help defer some of the delivery, billing and collection costs it incurs.
"It's an extraordinary expense to provide a service to an individual system operator," said Brenner, adding that basic-cable networks, premium programmers and other PPV providers charge a similar minimum fee.
"We've never had a minimum fee, but the cost of [delivery] and the reporting for the kind of programming that we offer is prohibitive," he said.
ACA president Matt Polka said he recognized that PPV services incur the cost of tracking and collecting per-use fees from various operators, so group members with billing expertise are examining the possibility of a cooperative venture to help reduce In Demand's administrative costs. ACA executives and their counterparts at the National Cable Television Cooperative plan to meet with In Demand representatives to seek a compromise.
"I can imagine they looked at this as a clear economic situation [for them], but they didn't factor in the impact on the systems they are targeting," Polka said. "This really hurts the independent operators. They were caught completely off guard by this."
In Demand doesn't want to lose any affiliates, said Brenner, who added that he's open to potential solutions that would help alleviate his company's financial burden.
"I would listen to anything intelligent that could find a way for us to not have to charge as much and still be economically viable," he said.
Change of plan
Small operators said they are already hard-pressed by competition from satellite providers, and the loss of PPV product would mean the exodus of more subscribers to DBS.
While remaining hopeful of a compromise, some operators are already altering their PPV plans, according to the ACA.
Semo Communications in Sikeston, Mo., which offers six In Demand channels, hoped to add eight more this month. But that expansion has been tabled, the ACA said.
Executives with another operator, the municipally owned system in the Detroit suburb of Lowell, Mich., told the trade association that after the license-fee hike, it would need to double its current PPV buy-rate just to break even.
In Demand is a partnership of several major MSOs, including Comcast Corp., Time Warner Cable, Advance/Newhouse Communications and Cox Communications Inc. That partnership absorbed all its PPV competitors, leaving operators with no alternatives except perhaps an in-house or standalone PPV service, according to Polka.
"The MSO owners are getting enough bad publicity without adding this issue. We're going to try to get them to rescind the plan," Polka said.