Sunday, September 1, 2013
The Great Cable Battle Is Underway
Pay TV, the cable, satellite, and telephone companies, has seemingly won out over the free, antenna TV reception. 90% of Americans receive their service from cable in its various manifestations. Cable was laughed at in its infancy, but pioneers such as Ted Turner saw its potential with his Atlanta superstation. CBS and Time Warner Cable are engaged in a dragged out, knocked down, full page newspaper ad battle. The Pac 12 is running TV, radio and print ads demanding that DirecTV carry the Pac 12 Network. CBS and TimeWarner Cable have been unable to reach agreement on the “carriage” fee the cable company will pay CBS to carry its programs. Thus, Time Warner subscribers have been denied access to CBS programming for a month. CBS is urging its viewers to drop TimeWarner for an alternative provider, which could be DirecTV. The Pac12 is urging its viewers to drop DirecTV for an alternative, which could be TimeWarner. Cable companies pay a per subscriber fee to the program providers for their shows Time Warner had been paying CBS roughly $.50/subscriber under the expired contract. CBS is asking $1 for this year with annual increases to raise the fee to $2 in 5 years. TimeWarner is willing to pay more, but substantially less than CBS is demanding. CBS’s goal is to double revenue from cable fees to $1 billion by 2017. The traditional broadcasting networks are watching their traditional advertising base flee to Google and other internet companies. CBS hopes to offset the losses through carriage fees. The traditional broadcasters, ABC, CBS, Fox, and NBC are barely breaking even on their prime channels. Their profits come from their cable subsidiaries. The broadcasters look to ESPN for inspiration. ESPN gets about $6/subscriber, becoming the largest source of income for its parent, Walt Disney Co. ESPN’s leverage is such that the cable companies have to pay to provide ESPN2, ESPN3, ESPN Classic, ESPNU, ABC Family, and others. Disney can be very avaricious. Over 90 cable blackouts occurred last year over rate disputes. The fight is vicious because it is over a shrinking market. “Cord cutting, dropping cable, hooking up an antenna, and connecting to the internet is accelerating as cable subscribers dropped last year. TimeWarner reported a loss of 191,000 subscribers in the second quarter this year. Traditional cable has been losing subscribers for years to satellite and the phone companies, but now the entire “Cable” industry is suffering. The future is clear. Larry the Cable Guy will not be making many house calls in the future. Cable, as we know it, is a dinosaur. Today’s cable technology is doomed; the new technology includes live streaming, Netflix, Hulu, desktops, laptops, tablets, and smart phones, all bringing you the latest shows today. Amazon is entering the market. The problem for the cable providers is the escalating cost of the programs. Their recourse is to increase their rates, which has an adverse effect on subscribers. DirecTV increased rates 4.5% the beginning of the year and estimates its programing costs will rise over 8% this year. Since the carriage fee is per subscriber, it’s a direct cost that can only be covered by correspondingly raising rates or moving the channel to an additional pay channel, as with HBO. The cable providers are fighting to hold the line on rates. They are fighting for survival. So too are the content providers. The losers so far are the consumers. The expectation is that CBS and TimeWarner will resolve their dispute before the onset of the regular NFL Season. Maybe.