In switch, cable operators want to go "a la carte"

NEW YORK Tue Sep 27, 2011 6:09pm EDT

Related Topics

NEW YORK (Reuters) - Cable operators are privately working on a plan to force programmers to unbundle their networks and allow customers to subscribe to channels on an individual basis.

The plan represents a complete reversal from cable operators' long-held opposition to what is known as "a la carte" programing. Over the last decade, the cable industry battled ferociously with regulators to protect the right to bundle programing, arguing it offered customers the best value.

But executives now say the change is a necessary response to shifting dynamics such as higher carriage costs and using the Web to watch programs, as well as a weak economic recovery that has forced many consumers to cancel cable television subscriptions.

Comcast Corp and Time Warner Cable, the two largest operators have lost 1.2 million video customers in the 12 months to June 30.

Pay-TV distributors such as Time Warner Cable and Cablevision are searching for a business or regulatory strategy to lower escalating programing costs, which have risen between 6 and 10 percent each year during the last decade, according to industry sources.

An "a la carte" menu of programing would give consumers who are not sports fans the freedom to drop high cost sports channels such as Walt Disney Co's ESPN and ESPN 2 from basic packages. At around $4 a subscriber, ESPN is the most expensive channel in the cable business, according to SNL Kagan.

"We feel that some of those expensive channels should be offered a la carte so only those people who want to watch them actually pay for them," said Jerry Kent, chief executive of Suddenlink, which has 1.3 million cable customers.

Rocco Commisso, chief executive of Mediacom, which has 1.2 million subscribers, sent a letter to Federal Communications Chairman Julius Genachowski earlier this month that suggested "instituting a carefully designed a la carte system, so that decisions about what video services are bought are made by consumers themselves, rather than by content owners."

The specter of unbundled programing is likely to encounter fierce resistance from network owners such as Viacom Inc or Discovery Communications Inc, which are keen to maintain the economics of selling their most popular channels as a package with their smaller, nascent networks.

EXPENSIVE RIGHTS

The cable operators' plan is motivated in part by the high cost of sports programing rights, which have skyrocketed in recent years. ESPN recently singed a $15 billion, 8-year TV rights deal with the National Football League, a 73 percent premium over their previous agreement. Cable operators, fearful of having to pay for the increase or pass it on to customers, harshly criticized the deal.

Cable and satellite companies have also had to start paying for the right to carry Disney's ABC, CBS Corp's CBS, Comcast Corp's NBC Universal and News Corp's Fox. Those free-to-air broadcast networks traditionally had been carried by cable operators at little, if any, expense.

Federal rules require cable distributors to carry local broadcast stations, which they argue gives broadcasters an unfair advantage in contract talks.

The so-called retransmission fee debate has already led to high profile blackouts of local TV stations in the last few years after contract negotiations between pay-TV companies and broadcasters broke down over payment terms.

"There is a growing recognition that the current model is broken," said Craig Moffett, a long-time cable analyst at Bernstein Research.

Moffett warned, however, that allowing customers to choose any station they wanted in any package would be economically unfeasible for both the consumer and the cable company.

"It could be a la carte, but not as people imagine it now," he said referring to smaller packs of programing more akin to what Time Warner Cable Inc has tried. Last November, Time Warner Cable launched a three-city trial of a low cost TV Essentials pack with fewer channels. It now plans to expand that offer to other cities.

Following Mediacom's lead, rivals Time Warner Cable and satellite company DirecTV Group joined forces this month to reach out to Genachowski about retransmission fees, with the aim of unbundling broadcast channels from cable channels in carriage negotiations. They are keen to find long-term solutions ahead of what they referred to as the "retrans season" starting next month, when many agreements come up for renewal.

"We're in an environment where programing costs are rising at well above inflation and well above what I think consumers are willing to pay," said DirecTV CEO Mike White at a recent investor conference. "I think content costs are a challenge for the entire industry."

(Reporting by Yinka Adegoke; editing by Peter Lauria and Andre Grenon)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (4)
emmabrad wrote:
If viewers want “a la carte” TV over the internet, there’s no reason to go out and buy a new TV, you can get the broadcasts online using software from services like the TVDevo website . This type of solution is cheaper and easier than going out and buying an Internet TV set.

Sep 27, 2011 11:37pm EDT  --  Report as abuse
Regulus wrote:
I gave up on Cable TV five years ago this week. I was shelling out $65.00 a Month for the “Privelige” of watching 150+ Channels in 2006, many of which carried esentially THE SAME PROGRAMMING, running Shows to the point where they had long become STALE. The majority of “New” Shows that came out were those of the lame “Unscripted” Variety. On top of that the number of Commercials tossed at Viewers during a Show has more than DOUBLED in the last 15 years, from 10-12 Minutes per hour in 1996 to 20-28 minutes per hour today. Many of these Advertisers show NO REGARD to WHO is in front of the TV Set when their Commercials are aired, Products dealing with various “Bodily Functions”, including Sex, are aired at times when Children are watching and even DURING CHILDREN’S SHOWS Themselves! (Which, IMO was “The Last Straw”. In the five years since “Cutting the Cord” I have used the money I saved by not paying a subscription fee to obtain my Programming by other means, mostly home video. Today I have a Library of over 500 TV Series(Over 25,000 Episodes), almost 2,000 Movies and over 1,500 Hours oth other Programming such as Movie Serials and Historical and Sports Documentaries. I calculate that it will take me at least a couple of decades to watch them all. I watch them whenever I watch them, NOBODY butts in to obnoxiously hawk something I do not care to purchase, and when I finish watching something, I get to keep it!

Sep 28, 2011 8:16am EDT  --  Report as abuse
Regulus wrote:
I decided to cancel my subscription to Cable TV five years ago this week. The quality of what was being shown has done nothing but head south, with cheaply-produced “unscripted” Programs spreading across the scene like some malignancy from Hades. Add to that in order to pay for it all, viewers are getting hit TWICE! Not only have subscription prices climbed, but the number of commercials shown during a program have more than DOUBLED, from 10-12 minutes per hour in 1996 to 20-28 minutes per hour today. I had gotten to the point where I actualy forgot what I was watching! Not to mention the people who make these commercials show NO REGARD to WHO is in front of the TV when their Advertisments are aired. Ads for products dealing with sex are aired during all hours of the day and even DURING CHILDREN’S SHOWS! (Which was the reason I “Cut the Cord” five years ago) Since cancelling my subscription I have used the money I saved to procure my entertainment needs elsewhere, mostly Home Video. Spending an average of $65.00 a Month (Which is what my subscription fee was in 2006), I have amassed a DVD Collection of over 500 TV Series (Over 25,000 Episodes), nearly 2,000 Movies and over 1,500 Hours of other programming such as Movie Serials and Documentaries. I’ve Calculated it will take me at least two decades to watch them all, so I don’t really need a Subscription Service anymore. I grew tired of what the Networks (BOTH Broadcast and Cable) were showing, so I MADE MY OWN NETWORK!

Sep 28, 2011 10:09am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.