Altice/Starz Blackout Seen as Part of Evolving Clash Over Direct-to-Consumer

For cable operators, dropping a network like Starz opens up multiple QAM streams that could be used to improve broadband speeds and lets them cut their invoice by a few dollars as subscribers get the content via DTC instead, said MCTV President Robert Gessner. But it's not a move MCTV is likely to replicate, since it would aggravate those who do have Starz, he said. Meanwhile, the programmers that make up big parts of the cable bundle are far harder to drop, both because of bundling practices and because they might not have DTC options, Gessner said.

Disney is already well hedged against being dropped because of its DTC push and will protect itself more with the Time Warner deal, said media and entertainment lawyer Craig Delsack. He said over-the-top operators like Netflix and Amazon Prime also are well positioned as they embed into MVPDs' set-top boxes. But Starz, with less original content, is more vulnerable, especially as the channels Altice USA is bringing on in its place likely cost less and might give Altice some commercial availabilities, Delsack said. Altice "picked the low-hanging fruit here," given Starz's relative lack of leverage, he said.

In a note to investors Tuesday, Macquarie analyst Amy Yong said Starz making itself available on digital platforms complicates relationships with MVPDs, but its strategy "is the right one and its consumer relevancy is rising."

Cable operators for years have wanted more flexibility in selecting content and offering skinnier bundles, and the growth of virtual MVPDs and DTC offerings is helping chip away at the traditional model, but that change is coming slowly, said a lawyer with content distribution experience. Must-have channels still are going to get carriage despite their other distribution methods, but for some cable channels offering a DTC will be a point of contention in negotiations with MVPDs, the lawyer said. Most cable channels' business models are based on getting paid for all of an MVPD's subscribers, so programmers offering their own DTC product becomes another point of contention for MVPDs, the lawyer said.

Altice "wanted a drastic reduction in price" and to "penalize" the programmer for its DTC offering, Starz said in a statement. It said replacing Starz's 17 channels "is totally inappropriate and inadequate" for customers and Altice's Suddenlink and Optimum platform subscribers should demand refunds. Altice said Starz "refused all offers," including an extension of the current arrangement. It said since Starz is available DTC, "we don't believe it makes sense" for all subscribers to pay for Starz programming when most don't watch. Altice said it's replacing Starz and StarzEncore with such channels as Hallmark Drama, Sony Movies, MGM HD, Flix and Cowboy Channel.

While, as expected, Jan. 1 brought few retransmission consent carriage disruptions (see 1712290007), KNBN Rapid City, South Dakota, said its signal was no longer part of the DirecTV lineup as of Jan. 1 after the two sides failed to come to an agreement before the expiration of their contract. "We share our customers’ frustration because Rapid Broadcasting is deliberately blocking KNBN" unless it gets "a significant increase in fees," even though the programming is available over the air or often via NBC's website or app, DirecTV owner AT&T said. It also said it asked Rapid Broadcasting to allow carriage of the channel while negotiations continue. It said KNBN had the only station agreement that expired on DirecTV or U-verse on Dec. 31 but it has three ongoing blackouts involving WRCB Chattanooga and KTVN Reno dating back to Dec. 19; KFVE Honolulu, which dates back to October (see 1710230046); and seven American Spirit Media stations in various markets dating back to Sept. 21.