Continued negotiating tensions between the Disney Channel and operators have prompted some cable providers to fight back against the Mouse.
A number of small, mostly rural operators have decided to drop the Disney Channel rather pass along the cost of converting the former premium network to a basic service to their subscribers.
"Three things give me a competitive edge: customer service, my local channel and price," said Ralph Morrow, owner of Catalina Cable TV Co., which serves Catalina Island off the coast of California. Converting Disney to basic would have eliminated that last factor, he said.
Currently, Catalina Cable charges all customers $33, plus taxes and franchise fees, for its 67-channel basic package. Placing Disney on basic would have necessitated a $1 rate increase to each of his 1,400 island customers. A hike that would have put the system dangerously close to the price of "the guy in the pick-up truck who runs around town with small dishes in the back," Morrow said.
"I wanted Disney. I wanted to serve the 40 people who paid me $7.95 a month … but Disney wanted me to eat the fees and raise my basic [charge]" he noted. "The dish guy charges $39. If I get too close to that, they'll bolt," he said of his customers.
Catalina's contretemps with Disney illustrate the continuing battle between large media companies and small operators who maintain they hold few cards in negotiations with programming conglomerates.
Still, despite Catalina's action and a similar move by Cedar Communications in North Lakewood, Wash., about 99 percent of Disney Channel affiliates have converted or agreed to change the network to basic, said Ben Pyne, senior vice president of affiliate sales and marketing for ABC Cable Networks Group. The network undertook the conversion at the behest of operators, he added. The strategy appears to have worked, based on the testimonials of operators of all sizes. One recent survey from Beta Research Corp. pegged the perceived value of the channel at $2.23, he added.
"We care about all operators," he said.
But evidently many small operators disagree with that assertion, pointing to the demands of ABC as examples of how "monster content providers are leveraging us."
"For smaller operators, Disney on basic just doesn't make good economic sense. But Disney doesn't care," said Matt Polka, president of the American Cable Association. Polka has incorporated complaints by his members regarding hardball tactics by vertically integrated content providers in filings to the Federal Communications Commission.
In one filing earlier this month, he targeted the perceived abuses in negotiations on retransmission consent. According to the filing, operators of all sizes feel trapped when companies — including The Walt Disney Co., 20th Century Fox, AOL Time Warner Inc. and General Electric Co. — bundle rights to major broadcasters with carriage of affiliated cable networks.
"This is the beginning of our full-time effort to let Washington know about the programming abuses suffered by consumers in smaller markets and smaller systems and by independent cable businesses," said Polka in a statement. "It is our goal to show Congress and the FCC what enormous leverage programmers and broadcasters apply to consumers and independent operators, taking away choice and raising prices."
Polka emphasized his position by telling Multichannel News, "What more egregious example of a huge content provider run amok is there than Disney?"
Most small operators decided not to jeopardize customer good will and switched, but felt the action was taken at gunpoint, Polka said
Morrow paints his negotiations. Last year, he had to choose whether to forego continued use of KABC, Disney's Los Angeles ABC affiliate, or agree to carry Soap Net.
"I said 'I don't want it — it's garbage,'" Morrow stated, adding that he even offered to pay more for KABC rather than take Soap Net. But in the end, he had to agree to add the new network to retain the broadcaster.
Negotiations on the Disney Channel lasted longer.
"I begged them to just leave me alone," he said. Morrow made a small profit on the premium service — about $80 a month serving 40 pay customers. But converting Disney to basic would have cost him 89 cents per subscriber. Growing his customer base to make up for the cost increase is not an option, either. He already serves 1,400 of 1,600 homes passed in and around Avalon.
In the end, Morrow just said no. Catalina Cable dropped Disney earlier this month in favor of MTV Networks' Noggin with little complaint from customers, said Morrow.
"The Mouse has a kindly image — but it's not a mouse, it's a snarling rat," quipped Patrick Davis, managing partner of the 4,500-customer Cedar Communications.
Cedar dropped Disney in December after failing to convince the network to allow it to offer the channel as a $1.95 mini-pay. "At least that way, I could break even. They were absolutely unwilling to consider it," he said.
Cedar evaded retransmission-consent pressures during negotiations, but only because there is no ABC owned-and-operated station in nearby Seattle, he said. "If there had been an O-and-O in the market, I would have gotten clobbered."
The operator did not act without consumer input on its Disney decision. Last year, Cedar polled consumers on their attitude toward a Disney-driven basic cable hike. Ninety percent said they didn't want Disney if it meant they had to pay more for basic cable.
Cedar has replaced Disney with Animal Planet.
Not all small-system operators have resorted to the tactics of Cedar and Catalina. For instance, Shen-Heights TV Associates Inc. bit the bullet and converted Disney five years ago, said owner Marty Brophy. But the Pennsylvania operator said he got more positive feedback for adding the basic network Home & Garden Television at the same time than the company got over the Disney conversion.
The problem with programmers, according to Frank Hughes, senior vice president of programming at the National Cable Television Cooperative, is they feel a sense of entitlement since they have been carried for so long. "They just keep jacking up the rates. I'm glad to hear some operators are fighting back. It's a positive step."
Small operators are complaining louder and louder, and Davis predicts there will be major movement in support of re-examination of vertical integration, especially if Rupert Murdoch's News Corp. succeeds in acquiring DirecTV.
"I'd like someone to look into why ESPN pays more for Sunday Night Football
than ABC does for Monday Night Football," he said, before providing his own answer. "It's because (Disney) can jam the rates down (operators') throats."