The Problems with Cable Programming

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The following is an excerpt of a speech Matthew M. Polka delivered during the opening general session of the Mid-South Cable Show July 11 in Memphis, Tenn.

I am here to tell you that the issues of programming cost increases, retransmission-consent tying arrangements, bundling of services, forced confidentiality, onerous terms and conditions and a la carte placement issues are all moving to a whole new level of increased scrutiny in our industry and in Washington.

And this time, I do not believe this scrutiny will go away as it has in past years.

You see, our ACA members don't have to do as much this time to tell Washington what's going on, because the policymakers there are starting to take notice on their own.

We at ACA have been dealing with these issues for years, telling Congress what it's like to run our businesses and about the enormous pressures placed on us by the programming industry.

We've explained how the costs of programming are going up every year by double-digit rate increases while at the same time we are feverishly pressured to keep our own price increases to customers at or near the rate of inflation.

But what's happening today and what will
happen is inevitable.

When you look at what has taken place in the programming industry with all of the mergers, prices that have increased way
beyond the rate of inflation, new services force-carried through retransmission-consent tying and all of the bundling and tier placement requirements, it's no wonder that this issue is blowing up. And here's why.

What is happening is that consumers
of programming services and constituents
of federal lawmakers are the ones beginning to ask the questions.

Exactly why is my cable bill going up so much?

Why do we have to get the brand new channel X that nobody knows about just to get our local broadcast station, when we really wanted channel Y?

Why can't I just buy the channels that I want without taking all of the rest of that stuff?

Questions are being asked about the business practices on the programming side of things, and I can assure you that Congress is going to answer them.

And, chances are if you're in the programming business, you will not like the answers.

CONGRESSIONAL ACTION

Recently, I was in two meetings in Washington with a leading Republican and a leading Democrat on the House Commerce Committee.

When we were with the Republican, he asked us, "Why does my grandmother back home in my district have to pay for and take all of that sports programming when all she wants is her local TV and a few cable channels?"

The Democrat focused in on the wholly negative effect mergers have had on consumer cable prices and consumer choice of the programming they want to watch.

He told us that mergers have driven cable prices up and forced his constituents to take services they didn't want. They've also taken away any choice of specific programming his constituents wanted and how they wanted to see it. This lawmaker gets it.

Both the House and the Senate commerce and judiciary committees are lining up to schedule hearings over the next few months to study programming costs, terms and conditions and the effect they have on the consumer.

There's not much the ACA has to do to make these hearings a reality, because, thanks to current practices, they are occurring on their own.

ACA ACTION

For our members, this is truly a matter of life and death.

From their perspective, unless some sense of reasonableness starts to develop in the prices, terms and conditions they must pay for programming, then nobody — including programmers — faces a very bright business future.

Is that what programmers, operators and customers want? Of course not, because valuable and viable providers of important cable services will be lost.

And that's why the problems our members are facing as a result of business practices have become ACA's number one priority to address on the Hill and in the industry — and not just for a short time either, but for all time.

We've already placed specific comments on the record with the Federal Communications Commission showing the harm caused by retransmission-consent-tying agreements, and we've asked them to stop these practices.

ACA also sent a letter to more than 200 congressmen with copies of our comments. We're telling Washington our concerns, and we're following up with many meetings on the Hill to make sure Congress understands what's really happening at home when it comes to cable and programming.

We're talking to Congress about convening hearings on these issues to shed light on how current programming practices and rate increases are affecting consumers and service providers. We're also asking Congress to consider ideas that would curb the abuses that threaten our companies and harm their constituents.

From the perspective of operators and our members, we have no choice but to address this issue head-on in Washington.

Things have gotten so far out of hand that we feel we can never let up again.

MERGE, MERGE, MERGE

How did it get to be this way?

Since 1992 we have seen enormous merger activity that has placed programming services and distribution in the hands of only a very few.

Over the years we have warned Washington of the adverse effect of these mergers on the cost and availability of programming services.

Each time — with one exception — merger proponents have said no harm to the consumer or to the cost and availability of programming product to cable operators would result.

But what we've seen are these programming cartels controlling more content under one roof, and the enormous pressure applied to cable operators to leverage the almost forced carriage of existing or new programming services by whatever means available.

And quite frankly, who can stop these programming behemoths?

Operators know they have to carry what has become "essential programming," because to not carry it would be business suicide. The programming giants have our operators over a barrel and they know it.

Apparently, that's why many of these companies feel comfortable coming back to operators year after year with enormous increases or ties to carriage of other services.

Why? Because they know we have to blink.

True negotiation for carriage has become a thing of the past.

Even Time Warner had difficulty with this issue last year, fighting the retransmission-consent tying issue with The Walt Disney Co. And if Time Warner
has difficulty fighting this, then what chance do our members feel they have?

None.

FROM BAD TO WORST?

The ACA sees programming prices increasing far beyond
any reasonable amount year after year and certainly well beyond the rate of inflation or the annual cost-of-living increase that operators are normally held to.

We see programming prices skyrocketing, while on the other hand, cable operating margins and profits are declining sharply.

Let me ask the programmers — do you really think operators pass through your entire programming increases year after year?

If they did, they would have been out of business a long time ago.

No, in most cases, they have absorbed as many of the increases as they possibly could, but now there's just no more room to do that.

I have heard from the content providers that programming and acquisition costs have gone up and that they are in the same boat as operators when it comes to price increases.

But, even if that is the case, how do you expect your customers to continue to pay for your enormous price increases year after year?

This is not just a cable operator complaint either.

I think the satellite industry would support us on these issues too. DBS is up against many of the same issues we are facing.

And it's not just a matter of increasing program acquisition costs either, is it?

Why then are most new services from the big merged providers actually launched today through some kind of tying or bundling scheme rather than on the merits of the service itself?

Why are essential cable and broadcast services held hostage to enormous price increases year after year, or to a tying or bundling deal, or to a tier placement prohibition?

WHAT CAN BE DONE?

From our perspective as cable operators, we are looking for programming partners who are willing to work with us on a reasonable basis.

We're looking for partners who understand our business and understand that the old paradigms of huge annual increases, tying arrangements, bundling requirements and tier-placement mandates have got to change.

We're looking for programming partners who are willing to seek different solutions to the problems we face today, even if in the short term this may be contrary to the business interests and the bottom line of their programming company?

Why?

Because sometimes it makes good business sense to hold onto a customer today rather than losing him — and ultimately your
business — tomorrow.

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