Some Expect Cable Programming Costs to Keep Rising

Mediacom and allies continue to hope the FCC will act on the company's petition (see 1412220056) for the FCC to limit programmers from requiring bundling during content negotiations. “The model is breaking, if not already broken,” said Mediacom Group Vice President-Legal and Public Affairs Thomas Larsen. “Bloated bundles have been harmful to consumers.” The Mediacom petition could help address the problem, as the cost of making programming hasn't gone up for A Wealth of Entertainment (AWE) TV, CEO Robert Herring said. The American Cable Association urged the FCC to use Telecommunications Act Section 706 to combat surging programming costs, in reply comments posted Tuesday in docket 14-126. But Mediacom isn't expecting quick FCC action, Larsen said: “Maybe in 2025 we’ll hear something.”

Broadcast and sports programming costs are increasing at a "troubling rate," said John Bergmayer, a Public Knowledge senior staff attorney. Retransmission consent fees are rising at the fastest rate, he said. “I don’t think it’s a long-term sustainable model, continuing the old pattern of being able to raise your rates going forward,” said Howard Homonoff, a consultant to new and upstart media firms. “It’s only going to get more difficult for the distributors and programming networks to rely on that upward curve.”

As for programmers, “It’s a tougher road to be an independent network,” said Executive Vice President-Communications and Marketing Shirley Powell of The Weather Co., which has been dropped by some pay-TV providers. “We don’t have sports programming and we’re not in a bundle of services,” she said. “Without either of those, it’s a tougher negotiation.” Indies' challenges are “overrated,” said Bill Abbott, CEO of Crown Media Family Networks, which includes Hallmark. “It doesn’t matter if you’re a big conglomerate or a small network, good content wins out whether you’re a standalone or part of a larger portfolio.” “Our business is thriving in terms of ad revenue and our ability to get our networks distributed,” Abbott said. “We’re fortunate the business is so healthy that that increase [in programming expenses] is sustainable.” Revolt Media, a music cable channel affiliated with Sean "Puff Daddy" Combs, has to "work extra hard for our cable operators to let them know we’re responding to the audience," CEO Keith Clinkscales said. "That’s how we justify them paying us. We can’t just say they’re being unfair. We have to do the job to reward them for giving us an opportunity to be on their platform.”

Cable's Approach

MVPDs deal with rising costs differently, SNL Kagan Research Director Derek Baine said. “Dish Network is dropping a lot of regional sports networks because they’re very expensive,” he said. “Their target market is the lower-end consumer. DirecTV focuses on higher-income consumers, so they’ve got all of the sports networks except for Pac-12.” Pay-TV companies like Verizon "have difficult decisions to make,” Clinkscales said. “They have a pie that’s not expanding as fast as the number of choices. The nature of the business for years has been programmers continue to get increasing rates on what they’re offering.”

Consumers need more choice over what they subscribe to, like tiered models instead of “a one-size-fits-all bundle,” Bergmayer said. He said HBO and Netflix demonstrate that bundles aren’t necessary: “HBO charges separately for programming. They have to appeal directly to customers instead of counting on being in the bill. There’s no reason to think that having to appeal to consumers is a disaster. They’re successful and continue to sell to customers without needing cable at all.” OTT options offer consumers more choice, Larsen said. “That’s really what [Mediacom’s] petition is about.”

There's a “real disconnect” between people buying and selling content and consumers' willingness to pay increasing rates, Larsen said. “What’s frustrating is certain networks sign huge deals with NFL, NBA or the Olympics, and these costs have to be paid back. [With] a declining pool of subscribers and an increasing cost of sports content, those costs will continue to escalate. They’ll have to recoup those expenses somewhere, and it’s from our customers.” Continuously raising carriage fees is “unsustainable,” Bergmayer said.

Separate sports packages might be the way forward so consumers can pay for what they watch, AWE's Herring said. Sports rights continue to escalate, but things like Amazon and Netflix lower the cost for programming, Clinkscales said. “The audience we target is younger, used to looking at things on their devices,” he said. “That’s opened up the world in terms of types of programming and has changed the cost base.”

Breaking into cable is difficult without name recognition, Mediacom's Larsen said. But “now with some operators having a willingness to try new things, maybe it creates an opportunity to get into a cable bundle,” he said. He noted Suddenlink is launching new channels in the wake of dropping Viacom channels. Pay-TV providers are business people and cable is run on the principle of leverage, Clinkscales said. "You have the ability to request more because of the power you have with the type of content or the number of channels. I don’t think it’s fair to say that happens because of who owns who.”