* Operators want to give consumers choice to lower costs
* Programmers will resist attempts to unbundle programs
* Sports rights and retransmission fees are biggest costs
By Yinka Adegoke
NEW YORK, Sept 27 U.S. 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" programming. Over the last decade, the cable industry
battled ferociously with regulators to protect the right to
bundle programming, arguing it offered customers the best
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
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 programming costs, which have risen between
6 and 10 percent each year during the last decade, according to
An "a la carte" menu of programming would give consumers
who are not sports fans the freedom to drop high cost sports
channels such as Walt Disney Co's (DIS.N) ESPN and ESPN 2 from
basic packages. At around $4 a subscriber, ESPN is the most
expensive channel in the U.S. cable business, according to SNL
"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 programming is likely to encounter
fierce resistance from network owners such as Viacom Inc
VIAb.N or Discovery Communications Inc (DISCA.O), which are
keen to maintain the economics of selling their most popular
channels as a package with their smaller, nascent networks.
The cable operators' plan is motivated in part by the high
cost of sports programming 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.N) CBS,
Comcast Corp's (CMCSA.O) NBC Universal and News Corp's (NWSA.O)
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
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 programming more akin to
what Time Warner Cable Inc TWC.N 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 DTV.O 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 programming 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