May 10, 2010 / 9:19 PM / 10 years ago

Cable worries about Web video as fee disputes grow

NEW YORK (Reuters) - When executives gather for the annual Cable Show industry event in Los Angeles this week, two issues will be near the top of the agenda: rising programing fees and the growing threat of new Web video services.

A man watches a presentation of a new flat screen TV model at the Internationale Funkausstellung (IFA) consumer electronics fair in Berlin, September 7, 2009. REUTERS/Thomas Peter

Many industry watchers have long argued these are two sides of the same coin. They say if cable distributors keep passing along the higher programing fees to subscribers, then those subscribers will eventually seek out entertainment elsewhere. One likely place would be online video.

Such high stakes have led to ugly fee negotiations in recent months. Stand-offs include Time Warner Cable Inc versus News Corp’s Fox Networks as well as Cablevision Systems Corp versus Scripps Network Inc. Two months ago, ABC local station signals went dark on Cablevision due to a dispute with ABC parent Walt Disney Co.

“The affiliate deals between cable networks and operators have been increasingly contentious over the last six months,” said Thomas Eagan, analyst with Collins Stewart. “There’s got to be some realization that the ecosystem works if they work well together. It falls apart if their negotiations are disruptive.”

Standoffs between programmers and distributors are almost a staple of the American media business in a tough economy. But a particularly weak advertising market and the recent introduction of retransmission fees have further complicated matters.

Retransmission fees are the amount broadcasters charge to distributors who deliver the free-to-air signals to their subscribers. Broadcasters have in the past allowed cable companies to carry those signals for free but as advertising rates fall they been pushing for this alternative revenue.

CBS Corp CEO Les Moonves, a keynote speaker at the Cable Show, has been among the biggest champions of retransmission fees and shows no sign of backing down.

But these battles over fees have been bad for the industry, and cable companies have dedicated marketing dollars to explain programing fee hikes as the reason for rising cable bills.


One reason for this is the long-running fear that customers will tire of paying more, give up cable TV and cut the cord.

It is not yet clear that consumers will make that move. Collins Stewart’s Eagan points out that pay-TV additions for cable, phone and satellite customers have outpaced customer losses for the last two years. He expects the same this year in spite of the growth of Web video.

The cable industry is aware of the threat. Comcast Corp and Time Warner Inc launched TV Everywhere at last year’s Cable Show, which allows paying subscribers to watch their favorite cable shows on-demand via the Web. The service has been rolled out gradually. but has yet to fully capture the imagination of everyday cable subscribers.

Until recently, cable investors argued the average American family isn’t prepared to sit around a laptop to watch HBO. But a proliferation of new devices and services has made it easier to watch PC content on flat screen TV sets.

“You’re going to see an accelerated cord-cutting beginning this Christmas season with Web-enabled TVs and games consoles,” said Todd Mitchell, analyst at Kaufman Bros.

Programmers have also been holding talks with Apple Inc to stream cable-type programing packages to its devices like the iPad. Such packages could allow an Apple subscriber to buy a cheaper, smaller package of their favorite TV channels or shows unlike current cable offerings.

Meanwhile, companies like Netflix Inc and Sony Corp’s PlayStation have started streaming movies in competition with cable’s video on-demand services. PlayStation is also offering live Major League Baseball games.

But there could be an even more dramatic change if the cable companies themselves decide to transform their Internet-Protocol-based cable systems to deliver programing over the Web.

“If it’s all IP-based what’s to stop Comcast delivering a mini-package of Discovery, ESPN and CNN to a customer?” said Mitchell. “They could aggregate programing at a more effective price than cable outsiders.”

Reporting by Yinka Adegoke; Editing by Richard Chang

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