Small Cable Eyes Ways to Unload Plain, Old TV Service

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KANSAS CITY, Mo. — A growing number of small and independent cable operators are preparing to get rid of the very product that once drew customers to their business: TV programming.

With the wholesale price of programming increasing at a rate far higher than the retail cost, many operators attending The Independent Show here last week indicated they are generally ready to get out of the programming business and instead allow customers to pick and choose programming services with an IP, or over-the-top, system.

At a panel titled “IP Is the Future — Are You On Board?” at the annual convention of the American Cable Association and the National Cable Television Cooperative, operators focused on an option of making broadband the core product and allowing customers to deal directly with programmers. Steve Weed, CEO of Wave Division Holdings, said smaller cable operators are focused on building — and maintaining — a gateway to the home that allows over- the-top players such as Netflix to be delivered to cable customers. Wave Broadband currently uses the Tivo platform, which features Netflix.

For its part, Cable One said it has inked a deal that will enable its customers to access Netflix directly through TiVopowered HD-DVRs that it leases to subscribers.

“We don’t make any money on video,” Weed said, noting the 14% of gross margin on the subscription video business, which is essentially passing along content to customers at cost. “We have a big incentive to get out of that.”

With the current wave of consolidation evident in several announced deals — Comcast-Time Warner Cable; AT&TDirecTV; and 21st Century Fox’s offer to Time Warner Inc. — panelists agreed that big mergers will accelerate the likelihood that basic-cable packages could go over-the-top.

“You’ve got this huge force of traditional media players,” said Jimmy Schaeffler, chairman of consulting firm The Carmel Group. “They are getting more and more control and squeezing your margins harder and harder. They’re making it tougher and tougher to hang on to that video that you have.”

Because programming rate increases are the No.1 complaint from customers, Weed said, smaller cable operators would do better getting rid of their traditional TV video product and instead focusing on providing a gateway to the home that connects all the remaining services — phone, home automation, security — and helps “manage the complexity” for customers.

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