Small Ops Ready to Rumble

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Saying they're up against the wall because of soaring program costs, small cable operators last week threatened to escalate their lobbying in Washington, with two priorities. They want the ability to offer networks à la carte and to be able to tell consumers and lawmakers how much they're forced to pay for content.

Officials of the National Cable Television Cooperative, a buying group that negotiates hardware and programming contracts for systems with almost 14 million subscribers, and the American Cable Association, a lobbying organization, sounded the battle cry last week at Walt Disney World here, where they jointly held their annual meetings.

"We can either fix this or have it done to us," NCTC president Mike Pandzik said. "The best way is to get together and work with all our partners. Let's get back at the table and fix this whole issue, because à la carte is the only avenue they're leaving for us."

The NCTC and ACA both represent small and medium-sized independent cable operators, who have cited rising programming expenses as the biggest challenge they face, eating into their margins.

Unless they get relief or concessions from cable networks — an unlikely scenario, considering the reaction of programmers at the meeting — the two operator groups say they are ready to help draft, and ask Congress to pass, legislation that would permit à la carte packaging. The NCTC and the ACA acknowledged that they'd be unlikely to get support from cable's biggest trade organization, the National Cable & Telecommunications Association, which represents both operators and networks and has warned against legislative remedies that could lead to unforeseen new regulation.

ACA president Matt Polka claimed it would be easy to find sponsors in Congress for a bill that would permit à la carte packaging, as legislators have fielded calls from constituents complaining they are paying for programming they don't want.

"It's just a case of picking which one [legislator] would want to file it," Polka said.

The ACA aims to develop language for a bill regarding not only à la carte packaging but disclosure, according to Polka. Currently, carriage deals with programmers have confidentiality clauses that bar cable operators from discussing how much they pay for content. As a result, cable systems can't tell local franchise authorities, the public or legislators about the price hikes that some cable networks levy against them each year.

"So you continue to take the bullet for rate increases," Polka said.

When Sen. John McCain (R-Ariz.) and Rep. Paul Kanjorski (D-Pa.) were critical about rising cable rates, the ACA met with members of their staff to explain how rising program costs have put the squeeze on operators, Polka said.

NETS HAD SAY, TOO

Needless to say, cable-network officials in attendance at the NCTC conference — who participated in the first programmer forum the co-op has ever had — warned against the danger of asking Congress to intercede.

"The last thing anybody wants is to have the government intervene in the business and mandate how you're going to price and how you're going to package," said A&E Networks senior vice president of affiliate sales David Zagin. "We've had that kind of intervention before … I can't see the bright side it, of à la carte happening or legislation happening."

And cable-network executives claimed that removing their programming services from expanded-basic packages, thus diminishing their distribution, would hurt their efforts to sell national ads. As a result, they might have to increase license fees to MSOs.

"The money's got to come from someplace," said Scripps Networks senior vice president of affiliate sales and marketing John Baird, another panelist at the programmer forum.

One programmer, Discovery executive vice president of affiliate sales and marketing Bill Goodwyn, suggested legislation limited to higher-priced networks.

"If you look at what your sports costs are going to be over the next few years, there's got to be some containment somewhere," Goodwyn said. "And I don't know why there isn't some legislation introduced that would make any network over 75 cents, or any network over a dollar, have to allow itself to be à la carte.

"I don't know why that legislation won't work. Unless there's containment to that degree, there's going to be a train wreck."

Pandzik suggested that a neutral party be brought in to try and hash out the issue with MSOs and programmers.

During the programmer forum, operator complaints were raised not only about soaring sports costs, but also about cable networks that pay top dollar for off-network broadcast shows that sometimes run on several cable outlets.

"I don't know how many times you have to pay for Law & Order," Baird told operators. "If it's on six different networks, you're paying for it six different times."

The gulf between small MSOs and programmers was amply demonstrated when Massillon Cable TV president Bob Gessner told the cable-network panel: "Cable operators don't care who wins the ratings race … When you fight amongst yourselves for ratings' success, don't ask us to pay for the ammunition."

Buford Media Group CEO Ben Hooks had a similar refrain about programmers.

"Our partners do not look at the customer anymore," said Hooks, who was applauded by attendees. "They're competing amongst each other, trying to get that ad revenue up as high as they can. And the way to do it is to buy programming no matter what the cost is, they'll buy it and put in on our backs."

Several programmers suggested that to deal with rising license fees, small operators are going to have to make some hard choices and drop networks that they just feel aren't worth the price they're paying. Mere "incumbency" doesn't mean a network has "a God-given right" to carriage, Baird said.

In response, small operators claimed that they are forced to carry services they don't want because mega-programming companies often bundle their cable networks together, steeply penalizing systems that only carry a few of their channels.

Programming accounts for more than 50 percent of small operators' costs, according to Pandzik. And even as part of the NCTC, these smaller MSOs don't get as big of a volume discount on programming as giants such as Time Warner Cable or Comcast Corp. And many of these mom-and-pop operations don't do local ad sales, so they can't generate revenue that way.

While attendance at many cable trade shows is down, the three-day NCTC conference had more than 800 attendees, including families, compared with 629 last year.

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