Cable wireless service, initially believed to be a retention tool for broadband, is quickly becoming a revenue and profit center in its own right. Some analysts see it as an important part of the overall cable revenue mix, especially as traffic from telco partners is unloaded onto the network.

Since launching their respective wireless offerings in 2017 and 2018, both Comcast and Charter Communications have amassed a collective 7.6 million wireless customers, and growth rates keep rising. In Q4, both Comcast and Charter reported their best quarterly subscriber growth ever. As expansion continues into more rural areas through edge-outs, fiber extensions and federal programs, that pace isn’t expected to slow anytime soon. This should come as good news for investors, who have seen the companies’ respective stock prices slip amid fears of slowing broadband growth.

In a research report, MoffettNathanson senior analyst Craig Moffett wrote that wireless is quickly becoming a profitable business for cable operators and before long the business will be a meaningful profit center. 

According to Charter, the mobile business had negative earnings before interest, taxes, depreciation and amortization (EBITDA) of $92 million in Q4. For the year, EBITDA was negative $311 million. The deficits are getting better, though — EBITDA was negative $401 million in 2020 and negative $520 million in 2019. According to Moffett, Charter could reach EBITDA break-even this year. 

That would be on a profitability path akin to its mobile virtual network operator (MVNO) partner and the largest cable operator in the country, Comcast, which already has reported four straight quarters of positive wireless EBITDA growth.

Moffett doesn’t expect wireless to replace broadband in investors’ hearts: high-speed internet remains a better business. But he does believe that investors have to stop thinking of cable as “only” a broadband provider.

A Second Stream

“Cable isn’t a broadband-only business,” Moffett wrote. “It is, as we have repeated so often over the past two decades, an infrastructure business with multiple revenue streams — residential and commercial, wired and, yes, wireless — riding on that infrastructure.”

All this is happening as the Big Three wireless companies — AT&T, Verizon Communications and T-Mobile — aggressively price their offerings to drive subscriber growth. Cable, which has avoided pricing wars in the past, has been equally aggressive, with $30 per month, per line promotions from both Comcast and Charter (for a minimum of four lines and two lines, respectively) plus device discounts. 

But as cable is looking toward growth, AT&T and Verizon are anticipating a slowdown in what has been a strong past two years. AT&T said in January that it expects wireless revenue to grow about 3% in 2022, down from 5% last year. Wireless EBITDA is expected to be in the low single digits in 2022, compared to 3.2% in 2021. 

For Verizon, the forecast is for postpaid phone additions to slow to 1.585 million in 2022 (down 25% from 2021 additions of 2.115 million) and 1.46 million in 2023, according to Evercore ISI Group media and telecom analyst Vijay Jayant.

“While the company continues to execute well, pressure from 5G leader T-Mobile, combined with increasingly aggressive cable wireless pricing, keep us on the sidelines,” Jayant wrote.

T-Mobile postpaid phone net additions will be down about 6% in 2022 at 2.75 million, Jayant estimated, rising by 4% to 2.85 million in 2023.  

While Comcast and Charter have experienced explosive growth on the wireless front, one major publicly traded operator, Altice USA, has had worse luck with mobile. But that could change soon.

Altice USA added just 5,000 wireless customers in Q4, and ended the year with about 186,000 mobile subscribers.

Altice introduced its wireless product — now branded Optimum Mobile — in 2019 at a very low price point ($20 per month) and it has lagged well behind its peers in terms of subscriber growth, revenue and profitability. After several attempts to right the ship, which stumbled in part because of its original mobile virtual network operator (MVNO) agreement with Sprint (now T-Mobile), Altice says it is back on track with wireless. 

On a February 16 conference call with analysts to discuss Q4 results, Altice USA CEO Dexter Goei said churn rates have leveled off to the 30% range from previous highs of 60% to 70% and are declining monthly. And the company is close to forging a new MVNO agreement with T-Mobile, which should also help the service. 

“I think we’ve been clear that wireless is very important to our strategy,” Goei said.

Altice is currently concentrating on building out its fiber network: It expects to pass about 6.5 million homes, or 60% of its footprint, with its fiber-to-the-home platform by 2025. Though broadband expansion is inherently a catalyst for mobile growth — mobile customers need to subscribe to broadband in order to get wireless service — the fiber buildout could mean Altice continues to lag behind its peers for the foreseeable future. 

In a February 18 research note, Moffett reversed his outlook on Altice, downgrading the stock to “neutral” and slashing his 12-month price target on shares by more than half to $15 from $33. The primary reason for the downgrade was Moffett’s belief that Altice’s broadband turnaround is going to take at least three years. He predicted Altice would add just 9,000 subscribers in 2022 and 34,000 in 2023 and wouldn’t approach 2019 levels until 2025.  

While Altice moves to turn around its broadband business, other cable operators are focusing on expanding the service into more rural areas. 

Rural Opportunities 

At Comcast, which has about 4 million mobile customers and nearly 32 million broadband subscribers, rural expansion is ongoing. During its fourth-quarter earnings call with analysts, Comcast Cable CEO Dave Watson said mobile and broadband growth go hand in hand.

“Our mobile is key for us, and in and of itself is a great growth opportunity, but it’s also very important to broadband,” Watson said. “We talked a lot about broadband churn benefits. That continues, but we want to bring mobile value to every segment in every offer.”

As Comcast builds out more homes to broadband, there are more opportunities to sell mobile service. “The way we look at it, every single broadband home is an opportunity,” Watson said. “And every single broadband home should have at least a couple of lines.”

Charter was one of the big winners in the federal Rural Digital Opportunity Fund (RDOF) auction, snagging about $1.2 billion in funding to help bring broadband to underserved and unserved markets. That funding will be part of the $5 billion commitment the company has made to bring broadband service to more than 1 million customer locations in unserved areas of the country over the next five years. Charter has already earmarked some early markets for the expansion. In the past two months it has launched service to nearly 3,000 unserved homes and businesses in areas of rural Kentucky, South Carolina, Michigan, Missouri and Texas. And more are to come. 

Broadband expansion can only help mobile growth as customers need high-speed data service to be mobile customers. At least for now, as the pandemic has caused more and more consumers to stay put and stick with existing providers, much of Charter’s mobile growth is coming from existing broadband customers upgrading to mobile service and existing mobile customers adding lines. 

Offloading Key to Growth

Charter chairman and CEO Tom Rutledge said the MSO is also making inroads at offloading mobile traffic from the MVNO to its own WiFi network, making the operation more cost-efficient. Charter also has a large block of CBRS spectrum which Rutledge said could be used to transfer as much as 30% of its mobile traffic. 

“We also are already offloading enormous amounts of traffic on WiFi,” Rutledge said. “And I think that we have the ability to take that up significantly, too.”

That could be key. According to Moffett, the biggest goal for both Comcast and Charter in cable wireless is to offload as much traffic as they can onto their own networks to become both a mobile network operator (MNO) and an MVNO.  

“A hybrid MNO/MVNO combines the best of all outcomes,” Moffett wrote. “They will be facilities-based where the returns are high and an MVNO in the places where the returns on building would be low. Margins will likely grow over time, but the real appeal of the strategy isn’t EBITDA margin but instead return on invested capital.” ■

With Q4 revenue of $561.2 million, a 2.2% increase over the prior year, Mediacom Communications marked its 100th consecutive quarter of positive year-over-year growth, entering a realm where only a handful of businesses have resided in modern business history, according to the company.

Adjusted Operating Income Before Depreciation and Amortization (OIBDA, a measure of cash flow) rose 8.2% in Q4 to $266.9 million. For the full year, revenue was up 4.3% to $2.2 billion and adjusted OIBDA increased 11.3% to $1 billion. 

While results were strong -- the increases came despite Mediacom losing 3,000 broadband customers in the period -- it was the milestone that prompted Rocco Commisso, one of the last remaining cable executives to lead the company he founded and continues to control to this day, to issue a letter to shareholders commemorating the event. In an interview, he said the last time he issued a letter to shareholders was when the company went public more than 20 years ago. 

Mediacom was formed in 1995 by Commisso, who after about 10 years as chief financial officer of CableVision Industries risked his life savings to start out on his own. He bought his first cable system in 1996 from Benchmark Cablevision in Ridgecrest, California, and now ranks as the fifth largest cable operator in the country, with about 2.6 million video, voice and data customers. 

While the cable business has had its ups and downs over the past three decades, Commisso and Mediacom have kept their eye on the ball, sidestepping for the most part the consolidation craze of the late 1990s and early 2000s, while focusing on investing in infrastructure and growing the business. 

Also: Mediacom: 20 Years of Growth 

Along the way Mediacom went public (at $19 per share in 2000, valuing the company at about 18 times cash flow); spent $2.125 billion on systems, mainly in Iowa, formerly owned by AT&T in 2001 and went private again in 2010 after the markets lost faith in the cable business in general. 

Through it all Commisso has kept his focus, expanding his network with an aggressive fiber buildout and bringing state-of-the-art high-speed services to rural communities. Mediacom deployed 1 Gigabit per second internet service throughout its footprint in 2017, staking a claim to be the first major cable company to do so. Mediacom said it has invested nearly $13 billion to fund acquisitions and to build and upgrade a national network that spans 600,000 fiber miles and serves 1.5 million customers across 22 states.   

Also: Mediacom: Standing Up for Small Cable’s Interests  

The AT&T deal in 2001 transformed Mediacom, more than doubling its size and raising its debt load to its highest level ever, about 8.3 times cash flow. Even at that level, Mediacom’s leverage was lower than some of its peers: Charter Communications at the time had a debt-to-cash-flow ratio of about 16 times. But the deal gave Mediacom the clout to begin offering high-speed data service in areas that hadn’t seen it before and positioned it for an unprecedented period of growth. Since buying the former AT&T systems in 2001, Mediacom has grown annual revenue from $885 million to more than $2.22 billion and upped annual adjusted OIBDA from $335 million to more than $1 billion.

Also: From Calabria to a Cable Chairmanship 

While that is an achievement in and of itself, Commisso is most proud of his ability to keep Mediacom’s debt low. Today the company’s leverage ratio stands at 1.2 times cash flow, among the lowest in the entire media and telecom sector. Earlier this month, Standard & Poor’s raised Mediacom’s investment grade credit rating to BBB+, higher than far-larger telecom rivals like AT&T and a feat that would have been unheard of in the sector when the company began. 

“I am pleased to say that the decision I made in 1995 to bet my life savings and my family’s future on serving neglected small communities in rural America has paid off, not only for me, but also for the thousands of employees and their families whose livelihoods depend on Mediacom’s continued success,” Commisso wrote in the letter to shareholders. “Since 2001, Mediacom has added more than 500 new positions to our highly skilled workforce, spent over $5 billion on employee payroll and made more than $500 million in 401(k) and medical benefit contributions.” ■

The Federal Communications Commission has granted cable operators' request for more time to comment on competition, consumer prices and choice in broadband service to multi-tenant environments (MTEs) — apartment buildings, condos and offices.

Under acting chair Jessica Rosenworcel, the FCC back in September asked for a new round of comments on its proceeding.

NCTA had asked for a 30-day extension until Dec. 6.

The FCC‘s Wireline Competition Bureau said that while it was in the public interest to grant an extension so that the parties had some more time to address the complex issues, it was only making it 15 days — until Nov. 19 — because 30 days would “unduly delay Commission consideration of the important issues raised in this proceeding.”

The FCC's Wireline Competition Bureau, which issued the request for comment, said it wants commenters to focus particularly on three issues: 1) revenue sharing agreements and how they affect price, competition, and quality of service; 2) exclusive wiring deals, and whether those do or don't prevent new entrants or inhibit choice; and 3) whether marketing arrangements confuse people.

Charter Communications added 400,000 residential and business broadband subscribers in Q2, beating analysts’ consensus estimates by about 125,000 subscribers and indicating that the expected slowdown in broadband growth may not be as dramatic as first expected.

Charter’s 400,000 total broadband additions was well ahead of consensus estimates of 275,000 adds, and was driven in part by lower churn. That lower churn rate also was evident on the video service side, where Charter lost 63,000 customers, again besting consensus estimates of a loss of about 160,000 customers.

Also Read: Analysts Brace for Broadband Slowdown 

Officially, Charter added 365,000 residential broadband customers (consensus estimates were for 250,000 additions) and 35,000 business broadband adds. Mobile customers rose by 265,000, slightly less than expectations of around 290,000 additions. Charter ended the period with about 2.9 million mobile customers.

Those gains helped drive overall revenue up 9.5% to $12.8 billion and cash flow increased 11.8% to $5 billion.   

Charter’s performance mirrored that of its closest peer -- No. 1 cable operator Comcast -- which added 354,000 broadband customers in Q2, well ahead of consensus estimates. 

"Our operating strategy continues to deliver strong customer and financial growth despite an  operating environment that has yet to return to normal," Charter chairman and CEO  Tom Rutledge said in a press release. "And the opportunity at Charter is what it has always been — to continue to create customer  relationships with our high-quality connectivity services, delivering value for consumers and our  shareholders over time." 

Altice USA is moving forward with plans to push its fiber network to the edges of its traditional footprint, adding at an industry conference that it is on target to add about 150,000 homes this year and expects more to come. 

Altice USA chief financial officer Michael Grau said at the virtual Credit Suisse Communication Conference Tuesday that most of the company’s edge-out program is concentrated in Texas, but other markets are expected to follow.

Other cable operators have been expanding their fiber footprint for years, with Comcast and Charter adding about 1 million homes passed to its territory each year over the past few years.

Also Read: Fringe Benefits

At the Credit Suisse conference, Grau said that Altice hasn’t done its budgeting for next year yet, but that a target of 175,000 to 200,000 additional homes via edge-out “probably makes sense in 2022.”

Currently, he said the edge-out efforts are heavily concentrated in Texas, particularly in the Dallas, North Austin and west Texas markets. Grau added Altice USA has systems in three of the top five markets for new household formation in the country, and that future edge-out efforts will focus on those areas, as well as in North Carolina, where in April it purchased Morris Broadband for about $310 million. 

“There’s really ample opportunity between our different footprints to really accelerate new builds at very very attractive economics,” Grau said.

Altice USA also is working hard to upgrade its Suddenlink network. Grau said there are between 600,000 and 700,000 homes within its Suddenlink footprint that still offer speeds under 100 Megabits per second, some as low as 25 Mbps to 30 Mbps. 

“Not coincidentally, customer penetration is significantly lower than what we’re seeing in the remainder of the western footprint,” Grau said, adding that the plan is to bring those areas back up to speed, estimating that  Altice USA could upgrade about 300,000 of those homes this year.    

The National Cable Television Cooperative, the buying group that represents more than 700 small and medium-sized broadband and cable operators across the country, said it has named industry veteran Lou Borrelli as its new CEO, replacing Rich Fickle who earlier this year said he would retire after about 10 years at the helm. Borrelli’s appointment is effective June 1.

A highly respected executive, Borrelli has 43 years experience in the industry, dating back to Marcus Cable, where he was a founding partner. Borrelli was inducted into the Cable Center’s Cable Pioneers in 2002 and most recently served as CEO of Home and Entertainment for Digicel Group, which provides mobile phone, cable and broadband service to 27 countries in the Caribbean, and Central and South America.

Fickle told NCTC members in March that he would step down this year, ending a decade at the organization, which helps smaller operators buy equipment, programming and negotiate retransmission consent agreements with broadcasters, as a group. At the time he said he felt the organization needed “new blood” to help it enter its next stage.  

Borrelli brings a fresh perspective to the organization, as an owner and operator of small systems in second and third tier markets. 

In a press release, NCTC chairman Brad Mefferd said the organization’s board looked across the country, with the help of search firm Carlsen Resources, for Fickle’s replacement, adding that Borrelli “is the right leader, at the right time for the organization and our members.”

Also Read: Rich Fickle Takes His Time 

“We are thrilled to have a CEO of his caliber leading the organization. He is a proven industry veteran with a distinguished track record of innovation, transformation, talent development and a deep and wide knowledge of the industry,” Medford continued. “He will continue to build on the values-based cultural leadership and approach, and the hyper-focus on serving members that has been the NCTC’s hallmark since its inception. Throughout his career, Lou has harnessed technology advancements to drive new products and revenues, customer acquisition and retention and has led his teams with passion, creativity and integrity. We couldn’t be happier.”

Borrelli joins the organization as the industry is yet again experiencing a transformation, this time as streaming video and broadband dominate the landscape. The NCTC has kept up with the times, offering guidance and information as its members make that transition, as well as helping them navigate traditional avenues like retransmission consent negotiations. 

“I have tremendous respect for the NCTC’s rich history, charter and members,” Borrelli said in the press release. “This organization has significant potential to continue to reshape and reinvent the future of independent cable operators for years to come. I look forward to working with the incredibly talented NCTC team, our board, our members and the industry at large to accelerate innovation and create value for our members and their customers. This is a circle of life moment for me.”

Mefferd thanked Fickle for his contributions to the organization, adding that he will help during the transition phase and will continue to play a role in key projects, including the MobiTV/TiVo project on behalf of NCTC members. 

In a statement, ACA Connects CEO Matt Polka welcomed Borrelli and looked forward to the organizations' continued collaborative partnership.

“I look forward to working with Lou, and I am positive ACAC and NCTC will quickly come to appreciate his vast knowledge of our sector and his creative approaches to solving the tough problems that inevitably lie ahead," Polka said in the statement. "Welcome aboard, Lou. We can’t wait to begin our important work together!"

Residential video and broadband subscriber metrics at Altice USA were basically in line with analysts expectations in Q1, while the company managed to squeeze out 1.2% revenue and 4.2% cash flow growth in the period. 

Altice USA added about 12,000 broadband customers in Q1, slightly less than the 13,000 some analysts predicted. The company shed about 54,000 video customers in the quarter, compared to the 56,000 losses predicted by some analysts. Overall revenue was up 1.2% to $2.5 billion and cash flow grew a healthy 4.2% to $1.1 billion. 

The subscriber growth was behind last year, when the pandemic was at its height and stay-at-home orders drove record growth in broadband. For Altice USA, one of the most heavily penetrated cable operators in the country, it added about 142,000 broadband customers in 2020 and lost about 237,000 video subscribers for the full year. 

Also Read: Altice USA Chief Says M&A 'Definitely’ on the Agenda

Analysts have been expecting growth to slow down this year after last year’s gains. In a research note, Wells Fargo media analyst Steven Cahall wrote that he expected broadband growth to be the big story for Altice USA during the quarter and the year. 

“The company will have to prove that it can continue to grow organically for investors to fully back the capital return story,” Cahall wrote. “If growth is tracking well then [Altice USA] is a [free cash flow] narrative at a 12% [free cash flow] yield. If growth stalls then that becomes the narrative.” 

In a press release, Altice USA CEO Dexter Goei said he was pleased with the results, which he added, position it well for the rest of the year.  

“We continue to see increased demand for broadband and higher speeds as we accelerate our best-in-class network performance through our investments in fiber and enhance our product offerings,” Goei said in the press release. “Our team's ongoing commitment to serving our customers continues to be reflected by our strong broadband customer results and financials in the quarter. Furthermore, we delivered best-ever first quarter free cash flow performance, supporting an incremental $523 million in share repurchases. Earlier this month we closed our Morris Broadband acquisition, and we continue to look for opportunities to expand our footprint to complement our numerous organic growth opportunities, including accelerated new builds and fiber upgrades."

To say that healthcare has been turned on its head in the last few months is an understatement. We have seen massive adoption of virtual care on an unprecedented scale as patients shy from receiving in-person care for non-COVID conditions and as regulations around telehealth reimbursements are relaxed. By some measures, telehealth use grew eight times in just a few weeks. 

However, telehealth is only the precursor to a seismic shift in healthcare, with virtual care becoming a major component of care delivery. Virtual care delivery has numerous advantages:

Virtual care requires more than a broadband device for telehealth. Enter Remote Patient Monitoring (RPM), which is essentially about the collection, transmission, evaluation, and communication of patient health data from electronic devices. The RPM market is exploding. For example, Philips recently acquired BioTelemetry, a provider of remote cardiac diagnostics and monitoring, for $2.8 billion. Dozens of RPM players are vying for a piece of the market; many provide specialized solutions (for example, Bardy Diagnostics for cardiac monitoring), others broader based monitoring (for example, Current Health). Some use AI for predicting medical events, enabling care providers to deliver pre-emptive care.

The significant premise of RPM brings into sharp focus a number of challenges:

These and other challenges point to the need for a provider that has the capability to provide home-based digital management solutions. Such a provider can take on the complex set-up, the on-going management of these solutions, technical (nonmedical) patient (and provider) support. Longer term, they have the opportunity to play a role as an aggregator that coalesces these often disaggregated solutions to provide a secure, single point of truth repository for patient data (possibly using blockchain).

Cable operators and other telecom providers with their feet on the street assets and with access to patients’ homes are well positioned to play a role in the deployment and management of these solutions and over time could develop advanced capabilities to play an even bigger role in this fast-growing market. Some operators, including Telus, are already playing in the IoMT space, which is projected to grow to $285.5 billion by 2029 from $24.4 billion in 2019, at an estimated CAGR of 28%. 

Retransmission consent battles have become as much of a year-end tradition as eggnog and holly, and 2020 is no different, with at least two disputes brewing and certainly more to come. 

As of press time, two major satellite TV service providers -- DirecTV and Dish Network - lost access to stations owned by Tegna and Nexstar Media Group, respectively. 

Tegna pulled the signals of its 60 TV stations in 52 markets from DirecTV and U-verse customers at 7 p.m. EST, ending days of speculation. Tegna’s retransmission consent agreement with DirecTV ended on Nov. 30, but the broadcaster gave the distributors a one-day extension as talks continued. While that is usually a sign that negotiations are moving forward, that was not the case as the Tegna stations went dark after the new deadline passed without a deal.

On its station websites, Tegna claims its rate increases are market-based and reflect the quality programming it provides, pointing to the “hundreds of deals” it has reached with other distributors. 

“Those providers all felt that they were able to reach a fair deal with us while continuing to offer value to their subscribers,” Tegna said on its websites. “There is no reason why this negotiation with DirecTV and AT&T U-Verse should be different.”

DirecTV and U-verse parent AT&T, citing the importance of unfettered access to local news during a pandemic, urged Tegna to keep the stations live to its customers as talks continued, but that offer was not taken. 

“In the midst of an ongoing pandemic, Tegna is demanding the largest rate increase we have ever seen, and intentionally blacking out its most loyal viewers,” AT&T said in a statement. “We challenge Tegna to return its local stations immediately while we finalize a new agreement and pledge to pay Tegna retroactively whatever higher rates to which we eventually agree. We share our customers’ frustration, appreciate their patience and intend to do all we can to resolve this matter soon.”

Dish Network first warned of the possible loss of 164 Nexstar stations on Thanksgiving Day (Nov. 26). That warning became reality at 7 p.m. on Dec. 2.

The dispute, as usual, is centered around money. Dish claims Nexstar is demanding record setting rate hikes -- the “shocking increase is the highest we’ve ever seen,” Dish TV group president Brian Neylon said in a press release. Nexstar fired back, saying it has made several reasonable offers, all rejected by Dish, since the talks started in July. 

While the length of the blackouts could go either way -- DirecTV said in a statement that past Tegna disruptions of service lasted mere hours or days -- other potential disputes with other distributors are beginning to queue up. 

Later this month, Comcast faces retrans negotiations with about 79 stations across its footprint. Many of those -- about 31stations -- are owned by its NBC and Telemundo units, so talks are expected to be at least cordial. But there are another 43 stations owned by Hearst TV, Cox Media Group and Hubbard Broadcasting that are also due for renewal. Last month, Comcast said it would drop 38 Hearst TV out-of-market stations located between two separate Nielsen Designated Market Areas across the country on Dec. 22.

The decision to drop those stations apparently came during early negotiations for broader deals with Hearst TV, and  will have no effect on those bigger deals. Essentially they are duplicate broadcast affiliates that were offered in communities that sit between two separate Nielsen Designated Market Areas and are offered usually free of charge. 

For example, one of the stations set to  be removed is KOAT-TV, the ABC affiliate in Albuquerque, N.M., that Comcast customers in Portales,  N.M. received in addition to the Amarillo, Texas ABC affiliate, KVII-TV. Portales is located in the Amarillo DMA, but because it is closer to Amarillo (123 miles) compared to Albuquerque (231 miles away), it receives access to both stations. While Portales Comcast customers won’t be able to watch KOAT after Dec. 22, they will still receive the Amarillo ABC affiliate KVII and its local news.

Earlier in the week Comcast seemed pretty convinced that the stations would go away on Dec. 22, but in recent days has changed the wording on its website. A few days ago, the site said ““On December 22, 2020, we'll be removing some TV stations from neighboring markets,” adding that the reason is that the owner of the station in the neighboring market was “insisting we pay additional fees to continue to carry their station in your area.”

Now the site says that customers “may lose some TV stations,” and that it is “currently negotiating with the stations' owner to be able to continue carrying the signals of its stations.”

Whether that means the two are closer to an overall deal that includes the out-of-market stations, remains to be seen. But we can hope. 

In an email message, Comcast said that the primary market Hearst stations expire on Dec. 31. “We are currently negotiating with Hearst to continue carrying the signal of its stations, including the out-of-market stations.”

Hearst declined comment. 

Even if the out-of-market stations disappear, neither side should be too upset. Comcast wasn’t paying for the stations before and won’t be if it drops them. And the viewers affected weren’t being counted in the Hearst stations’ ratings because they aren’t in the same DMA. Once the aforementioned duplicate stations are removed, residents in those affected markets can still access that station’s local news, either via their respective websites or through the NewsON app, which offers free access to local news from more than 275 stations in 165 markets.

Comcast has another three stations owned by Sunbeam Television -- WHDH (Independent) in Boston; WLVI (CW) in Cambridge, Mass.; and WSVN (Fox) in Miami -- that come up for renewal in January. Sunbeam has been a fairly aggressive retrans negotiator in the past -- it blacked out DirecTV customers in 2012  and in 2016 for a few weeks -- but recently hasn’t had a major scuffle. Hopefully that will continue.

Other distributors will likely face retrans battles as the “Annus Horribilis” that has been 2020 comes to a close. So far, none are tipping their hands -- Cox Communications and Charter said they don't reveal that info until closer to their respective deadlines. But you can bet that before the virtual ball drops on this year, there will be more shouting to come.

Vast Broadband, which provides broadband and video service to about 60,000 residential and business customers in South Dakota and Minnesota, said that it has agreed to be purchased by private equity firm GI Partners. Terms were not disclosed.

Vast Broadband, based in Sioux Falls, South Dakota, was formed in 2013 by industry veteran James Gleason and private equity players Pamlico Capital and Oak Hill Capital. 

GI Partners has invested in several data infrastructure companies, including Wave Broadband (which it sold in 2017 to TPG Capital). In the Vast Broadband deal, GI is partnering with former Wide Open West chief financial officer  Rich Fish, who  become CEO of Vast after the deal is closed.

“Vast is committed to providing its customers with access to the most reliable, high-speed broadband connectivity available,” Fish said  in a press release.  “As a native of the Great Plains, I am thrilled to partner with the local employees at Vast to bring high quality internet connectivity to my home region.”

The transaction is expected to close following satisfaction of customary closing conditions, including regulatory approvals.  GI Partners will make the investment from the GI Data Infrastructure Fund. Weil, Gotshal & Manges acted as legal counsel to GI Partners.  RBC Capital Markets, LLC acted as exclusive financial advisor to Vast Broadband and Alston & Bird acted as legal counsel.

“We are very pleased to have reached an agreement with Rich Fish and the GI Partners team.  We have had tremendous success during our tenure and we are delighted that our team in South Dakota and Minnesota will have the opportunity to continue to grow in the communities we serve,” Gleason said in a press release.

Charter Communications said Wednesday that it doubled its original commitment to digital education programs in 2020, awarding $1 million in grants targeted at organizations that provide broadband education, technology and training.

The program, called the Spectrum Digital Education Grants, was launched in 2017.  Charter said it has awarded 48 grants to nonprofit organizations for programs including  teaching seniors digital skills, setting up technology labs, providing online classes for families that need homework and job support, and purchasing laptops for underserved groups. Additionally, Charter boosted the number of organizations the company originally planned to support this year due to increased demand for broadband training in the pandemic.

“Through Spectrum Digital Education, Charter is helping to bridge the digital divide in local communities where our customers live and work,” said Charter vice president for Community Impact Rahman Khan in a press release. “Providing these resources, with the help of our community nonprofit partners, allows us to empower those in need and further our mission to give individuals the necessary tools to excel in the digital age, skills that are more important than ever during this challenging time.”

With this year’s grants, Charter has surpassed its multi-year commitment to award $6 million in cash and in-kind donations to support broadband education across its 41-state service area. This year’s recipients are from 15 states and Washington, D.C., and were chosen from 259 eligible applications. Recipients include nonprofits working to empower disadvantaged residents in towns and cities, boost small businesses in rural areas, provide computer assistance to senior citizens, and organizations that meet educational needs for children, including those experiencing homelessness and remote learning challenges. From its launch in 2017 through July 2020, Spectrum Digital Education has benefitted 41,706 individuals in 17 states and Washington, D.C.

Spectrum Digital Education is one of several programs Charter has initiated to help local communities, including Spectrum Housing Assist, which has improved more than 44,000 homes to date, with a goal of 50,000 homes by the end of the year; Spectrum Scholars, a two-year scholarship initiative for college juniors who are underrepresented and in financial need; and Spectrum Employee Community Grants, which supports Charter employees’ volunteer activities. Through the Spectrum Community Investment Loan Fund, Charter has committed to investing $16 million to support loans to community development financial institutions (CDFIs) in the company’s footprint, and to support Black and other minority-owned small businesses.  

Cable operators across the south and southwest are currently assessing the damage to their systems caused by Hurricane Laura, the storm that raged through parts of Louisiana and south Texas earlier this week.

According to reports, Laura made landfall on Aug. 27 at about 1 a.m. near Cameron, La., 35 miles from the Texas border, leaving a path of destruction with winds of up to 150 mph, heavy rains and flooding. At least six lives were lost in Louisiana. Cities and towns in the path of the storm -- one of the strongest hurricanes ever to hit the area -- are still assessing the damage. Some reports have as many as one million residents in Texas and Louisiana are without power. 

While it could have been worse  -- initial predictions called for storm surges of more than 20 feet and flooding as far as 40 miles inland, which didn’t happen  -- cable operators and municipalities continue to dig out of the damage from the storm.

At Sparklight, formerly Cable One, systems in Jasper and Sour Lake, Texas and in Shreveport and Monroe, Louisiana were affected by the storm. Sparklight said it is still in the process of assessing the damage. “Thankfully, and most importantly – all of our associates are accounted for and safe,” the company said in an email message.

Altice USA’s Suddenlink Communications has operations in Louisiana and Texas -- including the heavily hit Lake Charles, La. area -- and CEO Dexter Goei told employees in a memo that the company is currently assessing the damage. He added that Altice USA began making preparations for the storm early, ensuring that employees had the resources necessary to stay safe and ready themselves for restoration efforts. That included encouraging local employees to heed mandatory evacuation warnings, closing down and boarding up its local retail stores and other buildings, fueling generators and vehicles, placing out-of-state field teams on standby to assist, and more.

“While we are still waiting to gain access to many of the hardest hit areas, we know that hurricane-force winds have caused extreme damage and there will likely be a long road of recovery ahead for many of the communities we serve,” Goei said in the memo.

Altice USA added that it has dispatched resources to ensure customers are educated on its restoration efforts, and is in close coordination with local utilities and authorities so it can address any issues with its network when the power comes back. 

For its employees who have been displaced, experienced destruction of property or are facing hardship resulting from the storm, Goei noted the Altice USA Employee Disaster Relief Fund is available to provide financial assistance to employees who have been impacted by natural disasters. The program is funded by employee contributions, which are matched by Altice USA up to $50,000 annually.

Cox Communications said the storm represented a significant power outage in its Acadiana, La., system where its retail stores remain closed, adding that it too is assessing damage.  

“Once power is restored and it is safe for our employees, we’ll be working in neighborhoods as needed to reconnect customers,” Cox said in an email.

Comcast also is assessing the damage from the storm, adding that so far it has had power outages in areas like Shreveport and Monroe, La. and Little Rock, Ark. 

“Our teams are out today assessing plant and drop damage today where it’s safe to do so,” Comcast said. 

Cable operators have responded quickly to the COVID-19 outbreak, laying the groundwork for what has become a nationwide work-fromhome push, making sure broadband connections can handle the strain and ensuring that low-income residents, seniors and people in need can get access to a vital high-speed internet connection.

Seemingly every U.S. cable operator is offering some form of free broadband service to low-income homes with school age children for up to 60 days. On April 1, midsized operator Sparklight (formerly Cable One) said it would extend its unlimited data offering for all of its broadband tiers until May 12.

At last count, more than 650 companies and associations across the country have taken the FCC’s “Keep America Connected Pledge,” agreeing for the next 60 days to not disconnect service for nonpayment related to COVID-19 disruptions, waive late fees and open WiFi hotspots that weren’t available to the public.

Operators also said they are working hard to ensure the safety of their employees, with most requiring the bulk of their workforces to perform their jobs at home, including field techs and call-center workers.

More Are Working From Home

At Comcast, the country’s largest cable operator is asking every employee who can work from home to do so. On March 30, Comcast said it expected to have more than 90% of its call-center employees working from home. That is up from about 30% just a few days ago.

“Our ability to work from home is running well,” Comcast’s chief technologist Tony Werner said in a conference call with reporters.

For positions where working from home is impossible — like field techs — Comcast is offering financial incentives and is implementing stringent safety procedures like temperature checks, performing as much work outside the home as possible and distributing self-install kits to customers that have requested to be set up with new service.

“We are at a time when our customers need us more than ever and protecting everyone’s safety is absolutely critical,” Comcast said in a statement.

One Comcast tech has already died from COVID-19, an unidentified 34-year veteran of the company who worked in Fairfield, N.J. Comcast said the employee made several home visits in the Fairfield area between March 3 and March 6, and though there is no evidence any of his customers tested positive for COVID-19, the company and city are working together to identify any potentially exposed people and determine their status.

At Charter, service installation truck rolls have increased significantly from their average of about 12,000 per day, after the company announced 60-day free broadband access for low-income homes with school-age children. In a March 20 memo to employees, Charter said it is currently fielding more than 50,000 requests for internet service per day. Truck rolls for service repairs have risen to about 30,000 per day, Charter said in the memo. And call-center employees have seen the number of calls they receive double over the past few weeks. In the March 20 memo, Charter said that its inbound sales and retention teams fielded more than 200,000 calls in three days.

Since March 20, Charter said it will no longer do professional installations where self-install is available.

At its call centers, Charter faced some backlash from workers because of its earlier ban on working from home, but the company has ironed out those kinks and most employees are working remotely. For those who still must go into the office, Charter is taking precautions to ensure that employees are practicing social distancing and following other CDC safety guidelines.

Charter added on April 2 that it will increase the minimum wage for all hourly employees from $15 per hour to $20 per hour by 2022. While that increase will be phased in over time, Charter said field technicians and call-center workers will get the increases immediately.

According to the company, an initial retroactive $1.50 increase will be implemented immediately for hourly frontline employees in the field and customer operation groups and will receive another permanent $1.50 per hour raise on top of their March 2021 merit increase.

Altice USA said in a statement that its immediate focus is on the safety of its employees, customers and communities and starts with awareness and ensuring the workforce has the proper information and guidance. As of April 2, Altice USA said most of its employees are working remotely and for those who can’t — primarily field techs and retail workers — it is offering a 20% pay increase based on hours worked.

Cox Communications said that just a couple of weeks ago fewer than 15% of its call-center employees were working remotely. By March 27, the company estimated more than 92% of call-center workers were doing their jobs from home.

Cable executives are also stepping up during the outbreak, donating personally to several organizations, taking pay cuts and in some cases giving up their salaries in the wake of the pandemic.

The Walt Disney Co. executive chairman Bob Iger said he would forego his fiscal 2020 salary as a result of the virus. New CEO Bob Chapek said he would take a 50% pay cut, while the salaries of senior VPs would be reduced by 20% and executive VPs by 30% during the crisis.

“While I am confident we will get through this challenging period together and emerge even stronger, we must take necessary steps to manage the short- and long-term financial impact on our company,” Chapek wrote in a memo to employees.

On April 2, Disney said it would furlough non-essential employees due to the COVID-19 outbreak, beginning on April 19. While the company did not specify which divisions would be affected, it is likely many would come from its theme parks, which have been shut down indefinitely. Furloughed workers will still receive healthcare benefits and are eligible for state unemployment insurance and a weekly stipend from the federal economic stimulus package.

At Comcast, chairman and CEO Brian Roberts and his wife Aileen donated $5 million to the Fund for the School District of Philadelphia for laptops for students. In addition, Roberts said he and other Comcast execs — Comcast Cable CEO Dave Watson, Comcast chief financial officer Mike Cavanagh, NBCUniversal CEO Jeff Shell (who tested positive for COVID-19 and is working remotely) and Sky group chief Jeremy Darroch — would donate their salaries to charities tied to COVID-29 relief.

Roberts also noted that Comcast has committed $500 million to support employees during the pandemic through continued pay and benefits.

Mediacom Communications chairman and CEO Rocco Commisso started a Go Fund Me campaign to raise money for hospitals in Florence, Italy, the home of his soccer team, AC Fiorentina. Commisso personally seeded the effort with €250,000, hoping to raise €500,000 over time. The effort, Forza e Cuore or “Strength and Heart,” passed that goal within days and as of April 2 had raised €751,853.

On the business side, cable stocks have been on a roller coaster ride with the rest of the market. The Dow Jones Industrial Average had its worst Q1 ever, down 23%. Cable stocks fared better, with distributors up 4.4%, mainly because of a big surge by broadband-centric Cable One in the past few weeks. Factoring out Cable One, operator stocks fell 11.7% in the quarter. Programmers had a rougher time, falling 41.3% in the period while telcos and satellite stocks were down 24.3%.

As a result, many publicly traded programmers have withdrawn their 2020 financial guidance estimates — AMC Networks, ViacomCBS and Discovery — as uncertainty continues to mount.

Pay TV and streaming video providers have seen a surge in viewership and engagement as more people are confined to their homes. But while that may show up in lower churn numbers in the future, as consumers face layoffs and other economic hardships tied to the virus, it could have the opposite effect.

Consumption Up, Economy Down

As of March 30, Comcast said streaming and web video consumption was up 38% among its customers. Linear TV also is experiencing a surge, with consumption up by four hours to 64 hours per week, and on-demand viewing is reaching record levels, up 25% year-over-year. Voice remote requests for “free movies” are up 50%, with overall voice remote queries reaching 50 million on some days.

While a lot of the concern centers around the advertising market — MoffettNathanson analyst Michael Nathanson estimated 2020 TV ad sales could fall 11% — there is a growing fear that continued layoffs and other economic hardships could impact pay TV subscriber rolls.

Unemployment claims are consistently breaking records: they doubled to 6.6 million for the week ending March 28, compared to 3.3 million in the previous week, according to the U.S. Department of Labor. Increasingly, the economy looks like it might be headed for a major recession. That could mean accelerated video customer losses for operators going forward.

“[W]e believe video subscriber losses will accelerate, with the recession and lack of sports focusing consumers’ attention on pay TV as a ~$1,000/year savings opportunity,” Sanford Bernstein media analyst Peter Supino wrote in a note to clients. He estimated the impact could be as much as 1.5 million fewer video additions in the first half of the year for the pay TV sector.

For most, the real test may come after the pandemic subsides. Depending on how long consumers are stuck at home, they are likely to emerge with at least some different bandwidth and content consumption habits, whether it be working from home, streaming more video or watching a lot less linear TV. It will be up to MSOs and networks to figure out how to satisfy them. With almost every analyst predicting the economy is headed for a deep recession, that battle may have only just begun.

Companies throughout the country are grappling with just how to transition their office and field workforces to one that primarily works from home. For the cable business, the dilemma is a little different. How do you transition an employee base that by definition has to interact with customers directly, like field technicians, installers and call center personnel, to one that limits its exposure to customers and other employees?

It’s not easy. And for many cable operators, it is an ongoing process.

Part of the difficulty is that perhaps one of the biggest moves to allow all Americans to work from home -- having access to high-speed internet service -- requires that cable companies send out even more field employees to install service.

And then there are the thousands of call center workers that are fielding calls for new service, service disruptions and outages, some in cramped quarters within spitting distance of other employees who may or may not be tainted with the coronavirus.

While many businesses have sent their employees to work from home because of state and federal orders to contain the spread of COVID-19, many cable call center workers and techs are allowed to go into the office because they are classified as providing an “essential” service. While typically that means police, fire and medical workers, it applies to some cable employees because without broadband, the increasingly creaky economy would grind to a halt.

Practically every cable operator in the country is offering some form of free broadband service to low-income homes with school age children for up to 60 days. So far, that program seems to be catching on, with several operators saying that they have seen a big uptick in installations after “shelter-in-place” orders became commonplace over the past few weeks across the country. In addition, consumers that have lower tiers of broadband service are realizing that the bandwidth isn’t enough, and many are upgrading to higher speeds. That also requires an additional truck roll. And an additional face-to-face encounter.

At Comcast, the country’s largest cable operator is asking every employee who can work from home to do so. Already it has transitioned thousands of call center workers, setting them up with laptops and other necessary equipment so they can perform their jobs without having to come into the office. For positions where working from home is impossible -- like field techs -- Comcast is offering financial incentives and is implementing stringent safety procedures like temperature checks, performing as much work outside the home as possible and distributing self-install kits to customers that have requested to be set up with new service.

Complete coverage of COVID-19 hitting the TV industry

“We are at a time when our customers need us more than ever and protecting everyone’s safety is absolutely critical,” Comcast said in a statement. “We’ve asked every employee that is able to work from home, to do so, in every office across the country. Our employees are vital to ensuring our customers continue to have access to the internet and other services they need to stay connected now more than ever. In addition, we have been transitioning thousands of customer service representatives across the country to work from home. We have teams working around the clock to help our call center teams make this transition to work from home while continuing to support our customers.”

Comcast Cable has about 88,000 employees serving 31.5 million video, voice and data customers across the country, according to its most recent annual report. The company said it is converting thousands of employees each day to work from home whenever possible.

One Comcast tech has already died from COVID-19, an unidentified 34-year veteran of the company who worked in Fairfield, N.J. Comcast said the employee made several home visits in the Fairfield area between March 3 and March 6, and though there is no evidence any of his customers tested positive for COVID-19, the company and the city are working together to identify any potential victims and determine their status.

“We are deeply saddened to confirm that our technician in Fairfield, NJ has passed away after being diagnosed with COVID-19,” Comcast said in a statement. “Our thoughts and prayers are with his family at this difficult time. He’s been a valued member of our Comcast family for 34 years, and he will be deeply missed.”

From the March 23 MCN: Media Business Preps For New Normal

In a Securities and Exchange Commission filing Tuesday (March 24), Comcast noted that COVID-19 is expected to have a broad impact on the company -- especially on its NBCUniversal unit since the 2020 Summer Olympics have been postponed for a year. On the cable side, Comcast said although its network is meeting the challenge as more customers work and learn from home, the economic stress placed on consumers and businesses because of the virus will likely impact its business as well.

“We expect that the ultimate significance of the impact of COVID-19 on our businesses will vary but will generally depend on the extent of governmental measures affecting day to day life and the length of time that such measures remain in place to respond to COVID-19,” Comcast said in the filing. “At this point, it is impossible to predict such extent and duration and the degree to which supply and demand for our products and services, including advertising, will be affected. This uncertainty makes it challenging for management to estimate the future performance of our businesses, particularly over the near to medium term. However, the impact of COVID-19 could have a material adverse impact on our results of operations over the near to medium term.”

Charter Communications has about 95,000 employees serving 29 million customer relationships in 41 states. The company said it has seen service installation truck rolls increase significantly from their average of about 12,000 per day after announcing its 60-day free access for low-income homes with school-age children. In a March 20 memo to employees, Charter said it is currently fielding more than 50,000 requests for internet service per day. Truck rolls for service repairs have risen to about 30,000 per day, Charter said in the memo. And call center employees have seen the number of calls they receive double over the past few weeks. In the March 20 memo, Charter said that its inbound sales and retention teams fielded more than 200,000 calls in three days.

“Technicians, specialists, agents and co-workers around the country are stepping up and covering peer shifts to allow others time to make personal arrangements they need during these extraordinary times,” Charter said in the memo. “Thousands of hours of overtime are willingly being worked to build and maintain our customer service. We are taking care of our community.”

In addition, Charter said Wednesday that it will no longer do professional installations where self-install is available.

“Self-install is available in most of our markets and provides another way we can minimize in-home interactions but continue to provide the essential connectivity services that are needed,” the company said.

Related: Charter Expands Free Broadband Eligibility

But according to some reports, Charter call center workers in Ohio and other locations were forced to work in tight cubicles less than 5-feet from their neighbor on floors with hundreds of other employees. Those reports added that workers were forced to use sick-leave if they exhibited symptoms and that in some locations field techs shared desks to maintain 24/7 customer support. 

According to people familiar with the situation, a lot of these complaints occurred shortly after the mandates for working from home came down, while Charter and other operators were trying to determine the logistics of shifting those employees to working remotely. Since then many of those problems have been addressed.

One of the biggest challenges in shifting call center employees to work-from-home status is ensuring that the customer data they are privy to remains secure. For that reason, most operators have to maintain some presence at their call centers, but they are taking the necessary precautions to ensure that employees are practicing social distancing and following other CDC safety guidelines.

“We are providing all employees an additional 15 days paid time off, to be used for any COVID-19-related personal need,” Charter said in a statement. “We are developing and implementing increased social distancing plans in our call centers and operations facilities. And we will provide the option for remote work to employees whose jobs allow them to work outside the office without endangering our obligation to provide critical services.”

“As one of FEMA’s Community Lifeline sectors, our services are essential,” Charter continued. “We are working around the clock to deliver uninterrupted internet, telephone and TV news services to our 29 million customers including critical institutions like hospitals, first responders and government facilities. During this time, continuing to maintain our operations, while applying the latest CDC guidelines, ensures we provide these vital communications which help flatten the curve and protect the country.”

People familiar with the company said that Charter management has insisted that any employee that is sick or is caring for a sick person remains at home, is educating staff regarding best practices according to CDC health and safety guidelines, staggering shifts and break schedules to limit the number of employees gathering in break rooms and cafeterias, using online chat to assist call center workers with customer escalations and coaching and have halted in-person desk-side consultations. In addition, those people said that employees that do not take advantage of the increased sick days will receive compensation for the days they do not use at the end of the year.

Altice USA, which has 10,700 employees servicing 4.9 million customer relationships, said in a statement that its immediate focus is on the safety of its employees, customers and communities and starts with awareness and ensuring the workforce has the proper information and guidance.

“We are keeping our staff up-to-date on the latest protocols from the relevant health and government agencies to promote wellbeing and healthy habits among our employees and their families,” the company said. “As always, we encourage sick staff members to stay home. We have limited travel for our employees and continue to reinforce safe behavior in every environment – from customer homes and businesses to our stores and offices, where we have ramped up cleaning.”

Altice USA also said it has restricted employee travel, postponed large-scale events, limited the size of meetings and provided remote-work solutions. It also continues to enforce safe behavior in all environments, including customer homes, businesses, and its own stores and offices where it has ramped up deep-cleaning.

Programming: Games are Gone But Sports Nets Go On

In addition, Altice USA said it is partnering with manufacturers to source as many sanitizers and protective supplies as possible and are prioritizing distribution to our customer-facing locations, and has protocols in place that activate closures, disinfection and appropriate quarantine procedures based on recommendations by government and health agencies.

Altice also asked for help from customers, urging those customers that are experiencing flu-like symptoms with service appointments to let customer care personnel know so alternative means of solving the problem can be discussed.

Cox Communications, which has about 20,000 employees servicing 6 million customers, said that 2 ½ weeks ago fewer than 15% of its call center employees were working remotely. By the end of this week (March 27), the company estimates that more than 92% of call center workers will be performing their jobs from home.

Cox said the key challenges in shifting to a remote workforce is ensuring that phones were getting the correct power source, maintaining quality by using physical phones instead of “softphones,” formatting each computer for appropriate security, and boxing up computers, monitors and phones with the right cabling and making sure they were connected properly in the agent’s home workspace.

“For the people who have to work on site we practice social distancing by ensuring people have adequate (>6ft) of space between them, moving to virtual training and coaching, providing hand gel and wipes for each person,” Cox said.

At Atlantic Broadband, 100% of its call center team members -- all local residents of the communities they serve, the company notes -- are working remotely from home. The company also closed its front counters on March 18 and informed customers of easy online payment options to eliminate the need for them to travel to office locations.

Atlantic Broadband also has deployed remote support tools that allow customer care agents and technicians to assist customers in real time via a live, interactive video streaming without the need for an in-home appointment. The company also has deployed self-install options to reduce the need for in-home tech support. In the event an in-home visit is necessary, agents are calling ahead before appointments to assess the wellness situation in the household, and are re-confirming at the door if inside work is required.

“We are facing a new reality in which we must adjust our operational practices in the wake of the COVID-19 virus, even as we find new ways to serve our customers,” Atlantic Broadband president Frank van der Post said in a press release. “With the goal of protecting our team members and our customers, and reducing the spread of the COVID-19 virus in our communities, we have implemented a range of measures that will significantly reduce the need to enter customers’ homes, while continuing to provide the vital connections our customers need at this time.”

As the country began to settle in for what may be a prolonged period of working from home and limiting exposure to the outside world to curb the spread of the coronavirus, the media business is bracing for the long-term impact.

So far, the industry has managed to absorb a 10,000-point drop in the stock market, the indefinite delay of production schedules for programming, the cancellation of industry events and the postponement of pretty much every major sporting event for the foreseeable future. Along the way, Americans learned a new term — social distancing — and are readying themselves for what could be a months-long confinement to their homes.

Early on, the cable industry responded quickly to the outbreak, ensuring broad access to the internet by offering free broadband service to low-income homes, and vowing to keep WiFi hotspots open to all residents. About 390 telecom companies, including most large and small cable operators, also have committed to Federal Communications Commission chairman Ajit Pai’s Keep America Connected Pledge, vowing not to disconnect any broadband customer for nonpayment linked to the outbreak, and waive late fees.

Large operators like Comcast, Charter Communications, Cox Communications and Altice USA all extended their data networks to include more lower-income homes with school-age children, offering qualifying non-customers free access to broadband for 60 days.

Mediacom Communications chairman and CEO Rocco Commisso, whose company is raising broadband speeds and offering free service to qualifying homes for 60 days, said the outbreak has emphasized cable’s importance to a community as more and more people are needing reliable broadband to live their lives.

An Essential Service

“We are an essential service to people that have to work from home,” Commisso said. “The industry that is making that possible is the cable industry, and that makes me feel good.”

Mediacom executive VP of operations John Pascarelli said that the outbreak has given some people in its service territory who had been on the fence concerning buying broadband service a needed push.

“We’ve certainly seen an increase of households that may have been living on the edge with DSL or trying to make do with just the cellphone for data consumption in the home,” Pascarelli said. “They’ve hit a wall and are calling us to get service. Our sales levels are up significantly year-over-year in the last three days.”

With more people working from home, it could revitalize the home landline business, he added, as people look for more reliable connections than their cellphones.

Mediacom is about to launch a promotion to allow broadband customers to add landline phone service for $5 per month, Pascarelli said. But he added that the uncertainty of how long the outbreak will last and how intense it will be can worry consumers and providers as well.

“As a company we’ve dealt with storms, hurricanes, the California fires, and you know as you’re progressing through the end of it, you can see a recovery,” Pascarelli said. “In this situation it’s like we’re trying to manage a power outage and you can’t see the end of it. There’s no playbook for how we’re supposed to behave. We just continue to try to do what we think is right for our customers, our employees and our communities.”

Fitch Ratings director Patrice Cucinello said a lot of the impact will depend on how long home confinement lasts.

“Firms with better capitalized balance sheets, better liquidity situations, that are more diversified — they can manage through this period,” Cucinello said. “If this extends for a whole year, there are going to be a lot of businesses that face significant hurdles.”

Nowhere is that uncertainty more apparent than in the stock market, which has shed more than 10,000 points in the past several weeks. According to one former media executive who asked not to be named, don’t expect many major corporate decisions to be made while the market continues to be volatile.

Schedules to Fill

With all the major sports leagues — NBA, NHL, MLB, MLS and the PGA Tour — suspending their seasons indefinitely (see Programming, page 8), and with big events like the Kentucky Derby and the French Open tennis tournament pushed to September, there arises the question as to how networks that rely on that programming can fill the hole.

ESPN, for example, brought back “The Ocho” on March 22, airing 24-hours of arm wrestling matches, cherry-pit spitting, robot fighting and other seldom seen sports.

While that tongue-in-cheek effort could last for a while, there is a real concern that a prolonged lack of sports programming will be an incentive for fans to cut the pay TV cord.

“That scares me more than anything right now,” Pascarelli said. “If that group becomes disenchanted and says, ‘I can save money because there is nothing on that I want to watch,’ if they end up disconnecting, that is going to be an acceleration of video losses.”

Cucinello added that the impact of the sports blackout will all depend on the duration.

“If this is two or three months, then it is a postponement and it’s less material,” she said. “If it’s longer than that, I think that all bets are off.” 

A widespread coronavirus outbreak could have a short-term negative effect on ad-supported TV, Moody’s Investors Service said Wednesday -- mainly due to a broader economic pullback -- while a longer period of quarantine could actually help viewership numbers.

So far there have been more than 120,000 reported cases of coronavirus COVID-19 worldwide, with about 4,400 deaths so far. In the U.S., about 1,000 people have tested positive for the illness, with 32 deaths.

In a research report Wednesday, Moody’s said a widespread outbreak of the coronavirus in the U.S. could have a brief negative effect on ad-supported TV, with advertising sales impacted by the scarcity of consumer goods.

“If the virus spreads widely in the US, economic contraction and short supply of consumer products and durables is likely and would last through to the end of the outbreak, which could be more than one quarter,” Moody’s SVP Neil Begley wrote in the report. “The effect on US media companies’ advertising revenue would be significant. Yet, because of the nature of the disruption, we believe the duration could be short — unlike the longer consumer-led recession during and following the 2008-2009 financial crisis.”

Begley added that cable and broadcast networks; broadcast station owners; sports leagues, teams and regional sports networks; and internet advertising companies would all be affected by a broader coronavirus outbreak. So would pay TV service providers, but to a lesser extent.

According to Moody's should the spread of the virus require more people to self-quarantine, it could have a positive effect on TV viewership.  

“Pay-TV and streaming services may benefit from higher engagement and increased subscriptions as people remain at home,” Begley wrote. “That, together with political advertising ahead of the Presidential election, may partially offset the reduction in demand for ads.”

According to Moody’s more than two-thirds of ad-spending comes from areas that are at risk to see declines due to the outbreak, including retail and auto,travel and tourism, consumer products, restaurants, and theatrical films. Less vulnerable sectors - some that actually could see increased ad spending -- include telecom, financial services, insurance, political, pharma and media and home entertainment.

Moody’s added that even if ad sales do decline, broadcasters and cable networks are partially shielded by affiliate fees they are paid by distributors. 

Cable operators and local franchise authorities continue to spar over the FCC's decision that in-kind considerations in franchise agreements count toward the statutory on such fees.

At issue is the status of franchise agreements in place when the decision became effective and the impact of the FCC's deregulatory decision.

Following that August decision, the National League of Cities, United States Conference of Mayors, the National Association of Regional Councils, the National Association of Towns and Townships, and the National Association of Telecommunications Officers and Advisors asked the FCC to stay that decision that any in-kind services or equipment local cable franchising authorities (LFAs) require cable operators to provide count toward the FCC's 5% (of cable revenues) cap on franchise fees charged by the LFAs. 

After the FCC's Media Bureau denied a request by those LFA's that the order be stayed, NCTA-The Internet & Television Association sought clarification of language in that stay order that NCTA said conflicted with the original decision.

NCTA said that the FCC stay denial order’s statement that “[t]he rules in the Order
did not supersede provisions in existing franchise agreements," with language in the Third Report and Order that 'expressly preempt[ed]' obligations on cable operators
that contravene its terms as of the effective date of the Order.

In the latest twist, LFA's told the FCC this week that that NCTA had "grossly mischaracterized" an legal alert sent to local governments about the issue.

It said that while NCTA alleged that the alert informed governments that the stay denial provided justification for LFA's to "to refuse to renegotiate unlawful franchises and to improperly extend the imposition of excess franchise fees in clear contravention of the Order.”

Instead, said the LFA's, the alert simply informed them that the current franchise agreements remained in place until a cable operator affirmatively challenged them and sought to renegotiate.

For years, Wall Street heaped praise and lofty multiples on content providers, turning a jaundiced eye to the distributors that delivered that programming. For many investors, cable networks were the growth engines while distribution was a declining business that should best be avoided. In 2019, cable operators got their revenge.

Cable distribution stocks, fueled by continued strong broadband growth, grew 78% for the year, their largest gain in more than 20 years. The last time the distribution sector had a comparable gain (80%) was in 1998, according to Multichannel News estimates.

Although there are substantially fewer publicly traded cable distribution companies in 2019 (4) than in 1998 (10), today’s cable operator is facing competition on several fronts — satellite, telco and OTT — increasing programming costs and a customer base that is increasingly moving away from the traditional pay TV subscription model.

The lift was a big change from the prior year, when the four stocks in the sector rose about 5%, and signals an even bigger shift in sentiment. In a landscape where content is increasingly delivered over broadband connections, losing video customers doesn’t seem to matter much anymore.

Reliable Broadband Is Golden

“I think people have realized that broadband products have higher margins, they have lower churn, you don’t have to market them, you don’t have to deal with content providers,” FBN Securities media analyst Robert Routh said. The argument that younger viewers don’t watch TV also falls to cable’s advantage, because the streaming video they do watch requires a fast, reliable connection. “There are only so many entities that have that ability,” he said.

Video subscriber losses continued to rise and are expected to travel along that path for the foreseeable future. The sector lost about 3.8% of its video base in Q3, but broadband growth is steady. Leichtman Research Group estimated that cable grew its high-speed internet base by 14% in Q3 and represents more than two-thirds of total broadband connections across the country.

In addition, past fears that over-the-top providers like AT&T’s DirecTV Now, Sling TV and Sony’s PlayStation Vue would chip away at cable’s video subscriber base have been largely unfounded. Sony said in October it would shutter PlayStation Vue in January. DirecTV Now (now AT&T TV Now) was on pace to crack 2 million subscribers after a strong Q3 2018 but a series of price increases halted that growth and now the service has about 1.1 million customers. Some analysts believe that once AT&T launches IPTV offering AT&T TV in 2020, AT&T TV Now could disappear.

Sling TV had a resurgence in Q3, adding about 214,000 customers after five straight quarters of additions of fewer than 50,000 subscribers. At the same time, Sling parent Dish Network saw subscriber losses at its satellite-TV unit slow to 66,000 in the period (compared to a loss of 367,000 in Q3 2018) indicating to some that it may have reached equilibrium, as its rural subscriber base has fewer choices when it comes to pay TV and broadband. Dish, whose stock was up 34.3% for the year, also has been focusing on building out its wireless spectrum. Dish also agreed to buy wireless assets from Sprint and T-Mobile as a condition of those firms’ pending merger. That would make Dish the fourth largest facilities-based wireless communications provider in the country.

Fears that video distribution mantle would be passed to over-the-top competitors only heightened in 2019, with the debut of The Walt Disney Co.’s Disney+ and Apple’s Apple TV+ direct-to-consumer services and the pending launch of HBO Max and AT&T TV in 2020. While Disney+ lived up to the hype, signing on more than 10 million subscribers on day one, the fear that these services would replace pay TV has shifted to a belief that they, like Netflix, Hulu and Amazon Prime Video, will complement linear offerings. Even if they don’t, cable still has the most reliable broadband connection over which all these new services travel.

Programming stocks were up about 3.4% for the year, mainly driven by gains at Disney, up 33.2%, and Discovery, up 30.3%. Other stocks in the sector fell as declines in overall pay TV rolls negatively affect affiliate fees.

“Altogether, U.S. cable network distribution revenues continue to look shaky,” MoffettNathanson media analyst Michael Nathanson wrote in a research report.

On the distribution side, analysts like MoffettNathanson principal and senior analyst Craig Moffett have been saying for months that cable operators shouldn’t sweat video customer losses as long as their broadband service thrives. So far, it looks like that is exactly what is happening.

“Just a few years ago, video subscriber losses were the foundation of the cable bear case,” Moffett wrote in a recent note to clients. “Gradually, that fear faded. Video subscriber losses became something that investors were willing to ignore. Now, it’s something investors are hoping for.”

In initiating coverage of the sector earlier this year, Sanford Bernstein media analyst Peter Supino wrote that the “decline of cable video obscures rapid and durable cash-flow growth.”

It is no accident that the top performing stock in the cable distribution sector for the past three years has been Cable One, which began de-emphasizing video service in 2014. Cable One, which renamed itself Sparklight this year to reflect its focus on high-speed data service, has lost about 21% of its video customer base since 2015. During that same period, its stock price has risen 265%.

This year was one of Cable One’s best: Its share price has risen 86.1% this year to close at $1,526.06 on Dec. 10, nearly double the Dec. 31, 2018, closing price of $820.10.

Cable One has the highest cash-flow margins in the industry at 49.5% in the third quarter, almost 10 percentage points higher than the largest cable operator in the country, Comcast, at 39.8%. Cable One’s trading multiple, at 19.4 times cash flow, outpaces its closest peer, Charter Communications (11.29 times), by a wide margin.

“There was a time when a 10 times multiple for a cable stock would have been unthinkable,” Moffett noted.

The other stocks in the sector are also flirting with that benchmark. According to Yahoo Finance, Comcast is trading at an 8.8 times multiple and Altice USA at a 9.6 times multiple.

High trading multiples can mean positive things — investors becoming comfortable with video declines and confident that the sector’s broadband dominance is sustainable — and negative things: the stocks could be overvalued.

Routh said the rise in distribution multiples is more a sign that the market is valuing these stocks correctly.

“The question is what is the right valuation given the long-term prospects for those businesses,” Routh said. “I don’t think they’re overvalued yet and I do think they are certainly safe and better investments than other things I can think of. But I do question how much more is there, given where they are now.”

Charter, Altice, Comcast All Rose

Distribution stocks all had a strong year. Aside from Cable One, which led the pack, Charter stock was up 62% for the year and Altice USA, which despite a churn spike in the third quarter, finished the year up 53.8% to $25.41 per share. Comcast stock rose 25.6% from the year’s start to close at $42.77 on Dec. 10.

What also seems to set this year apart from the rest is that there were no major M&A deals in the distribution sector to drive the stocks. Cable stocks are traditionally deal driven. In 1998, the stocks were bolstered by widespread industry consolidation — 1997’s so-called Summer of Love — and AT&T’s purchase of Tele-Communications Inc. in June 1998. In 2016, when distribution stocks rose 40% for the year, Charter Communications had completed its pursuit of Time Warner Cable, an $80-plus billion deal that was supposed to usher in a new era of consolidation that hasn’t yet materialized.

Most recently, the merger activity has been on the content side: Disney closed its $71.3 billion purchase of certain 21st Century Fox assets in March. The other big deal, AT&T’s $108.7 billion purchase of Time Warner, closed in June 2018, although a Justice Department attempt to block the deal was thwarted in federal appeals court on Feb. 26.

At the UBS Global TMT conference in New York Dec. 10, Altice USA CEO Dexter Goei said he believes “large scale M&A is inevitable” across the infrastructure sector, but stopped short of saying whether his company would be a buyer or a seller.

“We’re always open to having discussions,” Goei said at the conference. “No one’s going anywhere, but we’re very, very focused on maximizing shareholder value.”

Consolidation could come to the distribution sector, as many analysts believe that Cable One and Altice USA could snap up several small operators across the country. Those deals wouldn’t move the needle much, though. The top three pay TV distributors — Comcast, DirecTV and Charter — account for more than half of the 93.4 million U.S. pay TV homes.

Still, Routh believes that distribution stocks have a lot of runway left in them, adding that low to mid-teens percentage growth for the sector is possible in 2020.

“It’s not just what I think,” Routh said, adding that he has heard similar optimism from investors. “I haven’t heard anyone think the opposite, at least anytime recently, which wasn’t the case a few years ago.”

Revenue and cash flow at Altice USA were basically flat in the third quarter, as the migration of its Suddenlink Communications customers to a new billing system impacted subscriber growth.

Revenue at Altice USA increased 1% to $2.44 billion in the period, while adjusted EBITDA (a measure of cash flow) was flat at $1.07 billion. Video subscribers declined by 32,000 in the period, up from the 28,000 it lost in the prior year. Broadband customers rose by 15,000 subscribers, compared to a 14,000-customer gain in 2018.

In a press release, the cable company said the migration of its Suddenlink customers in the Midwest to a new Operating Support System/Billing Services System (OSS/BSS) in the period resulted in a temporary loss of gross additions during the period that both platforms were deactivated in the transition as planned. Adjusting for the one-time OSS/BSS impact, video losses would have been about 28,000, in line with the prior year.

Altice Mobile, which was launched in September, ended the quarter with about 15,000 lines activated. The company said the initial focus in Q3 was on customer service functions and subscriber rolls should pick up after it launches online handset sales, e-commerce and other sales channels in the coming months.

Net income rose sharply in the period to $77 million (12 cents per share) from $33 million (4 cents per share) in the previous year. For the full year 2019, Altice USA expects revenue to rise about 2.5%.

“In the third quarter, Altice USA made significant progress against our strategic growth initiatives, including the launch of Altice Mobile, further adoption of Altice One, completion of the Suddenlink and Optimum integration through the BSS/OSS transformation, capital structure simplification, and ongoing construction of our fiber to the home network,” Goei said in a press release. “We're pleased that our customer-focused initiatives are already contributing to strong underlying customer trends, reflecting the benefits of our increased investments in our networks, products and the customer experience. As we now turn our focus to scaling our efforts, we look forward to accelerating our revenue and Adjusted EBITDA growth in 2020 as we begin to realize the benefits of our investments.”

New York -- Tech giants like Amazon are expected to move more aggressively into the sports rights business as rights deals come up, but it will continue to be at a gradual pace, according to a panel discussion at the NAB Show NY here Wednesday.

In the past, tech companies like Amazon have shaken up the market with their entrance into the sports rights fray, but while the deals have made headlines, they didn’t require a huge outlay of cash, said Sports Media Advisors CEO Doug Perlman at the panel discussion, Sports Rights and the Future of Broadcasting.

“This time around it will be a material deal -- not a prime package -- but a digital player that secures significant exclusive rights,” Perlman said.

Amazon paid about $50 million for streaming rights for 10 Thursday Night Football games in 2017, later renewing that deal for an undisclosed amount for the 2018-19 seasons. 

But the panelists were split in estimating big tech’s interest in rights deals as they come up. The NFL is the highest profile league to come up for renewal -- its deal expires in 2021-2022 -- but there are other leagues that will step up to the stage like Major League Baseball, the National Hockey League and the National Basketball Association in the next several years.

Horizon Media SVP, director of Horizon Media Sports Investment team Adam Schwartz said he expects a major tech player to take a bigger slice of NFL rights this time around.

“I wouldn’t be surprised if they broke out part of the Sunday window with one of these players,” Schwartz said. “The money is going to be there regardless of what they do.”

Bevilacqua Helvant Ventures co-founder Chris Bevilacqua was a little more cautious.

“I think the NFL will sell a package, but I’m skeptical tech players are ready for an all-in jump like that. They seem to be so far dabbling with little sports deals,” Bevilacqua said, noting Amazon’s participation as a minority equity partner in The New York Yankees and Sinclair Broadcast Group’s purchase of the YES Network from Disney. 

“The NFL is an order of magnitude beyond that,” Bevilacqua added. “I’m not sure I see that yet.”

Bernstein analyst Peter Supino launched coverage of seven cable, telco and satellite companies Wednesday with a positive outlook, adding that cable operators should enjoy mid-single digit revenue growth even as video customers decline.

Supino initiated coverage of Charter Communications (Outperform, $541 price target); Altice USA (Outperform, $38); T-Mobile (Outperforms, $103), Comcast (Market Perform, $50), Verizon (Market Perform, $63), AT&T (Market Perform, $36), and Dish Network (Under Perform, $29).

Supino noted in his detailed 84-page report that while Dish Network and the telcos have their own pressures to deal with, cable appears to be well positioned, based on strong broadband performance and prospects for commercial and mobile growth.

“With margins and [free cash flow] likely to improve and video less important to financial results, cable stocks enjoy multiple valuation tailwinds that offset the weight of the sector's high penetration levels,” Supino wrote.

He added that with capital expenditures expected to continue to decline, cash flow growth should be in the high-single digit percentages for cable operators.

The analyst introduced four investment themes to value the sector:

• Focus on pricing: Although the market is increasingly saturated, Supino believes there are sustainable opportunities in pricing and industry structure.
• Margins will be “stronger for longer” – Increased scale will continue to drive margins.
• Fiber is the key – As data demands grow and 5G continues to be hampered by siting and backhaul needs, “dense fiber networks are precious.”
• Video subscriber declines aren’t worth the worry: Supino believes that video losses “obscure otherwise rapid and durable cash flow growth.”

Cable stocks have been on a tear this year -- the sector was up about 50% for the first nine months of 2019 -- and are expected to continue on that pace. Supino appears to be equally optimistic -- his 12-month price targets on Charter, Altice, and Comcast represent a 10% to 30% premium of their closing prices on Oct. 15 

Almost a year after wall street basically left them for dead, cable distribution stocks have been on a torrid pace in 2019, with the sector rising more than 50% in the first nine months of the year. Those gains were fueled by broadband growth and a growing trend by analysts and investors not only to dismiss continued video losses, but to encourage them.

In the first nine months of 2019, cable distribution stocks are up 51.1%, led by Altice USA, up 77.4% since Dec. 31 to $29.30 per share, and Cable One, which crossed $1,000 per share in April and has been steadily rising ever since. Cable One closed at $1,254.76 on Sept. 25, 53% higher than its Dec. 31 close of $820.10.

No. 2 cable operator Charter Communications is up about 46% since the beginning of the year to $416.66 per share, and top MSO Comcast rose 35% to $45.83. That’s in sharp contrast to last year, when the sector rose just 0.6%, mainly because of gains at Cable One. Factoring out Cable One’s 16.6% increase in 2018, the sector was down about 21% in 2018.

Traditional pay TV’s claims that OTT providers couldn’t continue to offer programming at a loss for long has proved prescient, as major OTT distributors began to raise prices. The price hikes have led to defections, as shown with DirecTV Now (now AT&T TV Now), once one of the fastest-growing OTT service providers, losing about 168,000 customers in Q2.

Buoyed by Broadband

Comcast has subtracted 1.7 million subscribers since Q2 2016, while Charter has lost 1.1 million in the same time frame. But broadband growth, once thought to be nearing a wall, began to soar. Customers that were dropping or downsizing video services tended to remain broadband-only customers at a higher monthly rate. According to Leichtman Research Group president Bruce Leichtman, cable operators added 925,511 broadband customers in the second quarter, compared to 844,497 additions in Q2 2018. For the first half of this year, Leichtman estimated that cable added about 1.457 million broadband subscribers, compared to 1.43 million in the prior year.

“Cable operators are increasingly disinclined to defend video and investors are increasingly inclined to embrace rather than fret over video losses,” MoffettNathanson principal and senior analyst Craig Moffett said in a client note.

That is evident in the multiples that the market is assigning to cable companies. Cable One — which changed its name to Sparklight this summer to reflect its focus on broadband — has the highest multiple in the sector at 15.2 times cash flow, and the lowest reliance on video, with 34.7% of its total revenue from video, according to Moffett. Charter is next with a 10.7 times multiple and 41.3% of total revenue due to video. Comcast trades at 9.5 times cash flow, with video making up 43% of total revenue.

The strengthening of the stocks also could put some of these distribution players back into consolidation mode. At Altice USA — where video makes up about 45.3% of total revenue, according to Moffett — CEO Dexter Goei has said he thinks of adding scale daily.

Goei told Multichannel News in August that the rising stock price reflects Altice’s inherent value and could be used as an acquisition currency. He went further at this month’s Goldman Sachs Communacopia conference: “I think we’re open to creating a lot of shareholder value. So, if somebody comes and wants to have a discussion about buying us, we’re absolutely open to having that discussion.”

For programmers, the forecast is a little more cloudy. Overall, the sector was down 0.3% in the first nine months of the year, as optimism over new distribution outlets (which would mean a spike in affiliate fees) gave way to pessimism that offerings were either priced too aggressively or not aggressively enough.

Disney+ Drives Programmers

Gains at The Walt Disney Co., which plans to launch its Disney+ streaming service in November, drove most of the growth in the sector. Without Disney’s 21% gain for the period, the sector would have declined about 8.6%.

November also should see the debut of Apple TV+ from the maker of the iPhone. AT&T’s long-awaited HBO Max and AT&T TV offerings won’t be widely available until spring 2020.

Disney+ will be priced at $6.99 per month ($5.83 if customers pay for the full year) at launch while Apple TV+ is priced lowest at around $4.99 per month. AT&T is the wildcard having not released pricing for AT&T TV or HBO Max. Speculation is that the latter will be priced at $15 to $18 per month and will have HBO programming as well as content from WarnerMedia’s Turner networks and other properties.

The specter of more competition even hurt Netflix after CEO Reed Hastings mentioned at a U.K. TV conference that November is going to be “tough.” Netflix shares fell 5.5% on Sept. 20, erasing any gains for the year as the stock was down about 5% over the past nine months.

Almost a year after wall street basically left them for dead, cable distribution stocks have been on a torrid pace in 2019, with the sector rising more than 50% in the first nine months of the year. Those gains were fueled by broadband growth and a growing trend by analysts and investors not only to dismiss continued video losses, but to encourage them.

In the first nine months of 2019, cable distribution stocks are up 51.1%, led by Altice USA, up 77.4% since Dec. 31 to $29.30 per share, and Cable One, which crossed $1,000 per share in April and has been steadily rising ever since. Cable One closed at $1,254.76 on Sept. 25, 53% higher than its Dec. 31 close of $820.10.

No. 2 cable operator Charter Communications is up about 46% since the beginning of the year to $416.66 per share, and top MSO Comcast rose 35% to $45.83. That’s in sharp contrast to last year, when the sector rose just 0.6%, mainly because of gains at Cable One. Factoring out Cable One’s 16.6% increase in 2018, the sector was down about 21% in 2018.

Traditional pay TV’s claims that OTT providers couldn’t continue to offer programming at a loss for long has proved prescient, as major OTT distributors began to raise prices. The price hikes have led to defections, as shown with DirecTV Now (now AT&T TV Now), once one of the fastest-growing OTT service providers, losing about 168,000 customers in Q2.

Buoyed by Broadband

Comcast has subtracted 1.7 million subscribers since Q2 2016, while Charter has lost 1.1 million in the same time frame. But broadband growth, once thought to be nearing a wall, began to soar. Customers that were dropping or downsizing video services tended to remain broadband-only customers at a higher monthly rate. According to Leichtman Research Group president Bruce Leichtman, cable operators added 925,511 broadband customers in the second quarter, compared to 844,497 additions in Q2 2018. For the first half of this year, Leichtman estimated that cable added about 1.457 million broadband subscribers, compared to 1.43 million in the prior year.

“Cable operators are increasingly disinclined to defend video and investors are increasingly inclined to embrace rather than fret over video losses,” MoffettNathanson principal and senior analyst Craig Moffett said in a client note.

That is evident in the multiples that the market is assigning to cable companies. Cable One — which changed its name to Sparklight this summer to reflect its focus on broadband — has the highest multiple in the sector at 15.2 times cash flow, and the lowest reliance on video, with 34.7% of its total revenue from video, according to Moffett. Charter is next with a 10.7 times multiple and 41.3% of total revenue due to video. Comcast trades at 9.5 times cash flow, with video making up 43% of total revenue.

The strengthening of the stocks also could put some of these distribution players back into consolidation mode. At Altice USA — where video makes up about 45.3% of total revenue, according to Moffett — CEO Dexter Goei has said he thinks of adding scale daily.

Goei told Multichannel News in August that the rising stock price reflects Altice’s inherent value and could be used as an acquisition currency. He went further at this month’s Goldman Sachs Communacopia conference: “I think we’re open to creating a lot of shareholder value. So, if somebody comes and wants to have a discussion about buying us, we’re absolutely open to having that discussion.”

For programmers, the forecast is a little more cloudy. Overall, the sector was down 0.3% in the first nine months of the year, as optimism over new distribution outlets (which would mean a spike in affiliate fees) gave way to pessimism that offerings were either priced too aggressively or not aggressively enough.

Disney+ Drives Programmers

Gains at The Walt Disney Co., which plans to launch its Disney+ streaming service in November, drove most of the growth in the sector. Without Disney’s 21% gain for the period, the sector would have declined about 8.6%.

November also should see the debut of Apple TV+ from the maker of the iPhone. AT&T’s long-awaited HBO Max and AT&T TV offerings won’t be widely available until spring 2020.

Disney+ will be priced at $6.99 per month ($5.83 if customers pay for the full year) at launch while Apple TV+ is priced lowest at around $4.99 per month. AT&T is the wildcard having not released pricing for AT&T TV or HBO Max. Speculation is that the latter will be priced at $15 to $18 per month and will have HBO programming as well as content from WarnerMedia’s Turner networks and other properties.

The specter of more competition even hurt Netflix after CEO Reed Hastings mentioned at a U.K. TV conference that November is going to be “tough.” Netflix shares fell 5.5% on Sept. 20, erasing any gains for the year as the stock was down about 5% over the past nine months.

Chicago -- The same day that Viacom announced a comprehensive carriage renewal with the National Cable Television Cooperative, CEO Bob Bakish took the stage at The Independent Show Tuesday with a message that many small operators may not have been expecting to hear from a programmer -- let’s work together.

Bakish, during a Q&A with NCTC executive vice president, programming Judy Meyka, hit all the right buttons, telling small operators that while their past relationship may have been testy, Viacom under his watch is ready, willing and able to work with distributors to drive growth.

Bakish joined Viacom in 1996, but has been CEO since 2016, after former CEO Philippe Dauman was forced out. Bakish, who had headed Viacom’s international operations for about a decade before, said he realized Viacom’s relationships with distributors were “a bit frayed” at the time -- the networks were dropped by Cable One and by Suddenlink in 2014 -- and had a "very frictional" renewal with NCTC that same year and that it was time to mend fences.

“It didn’t strike me as a sustainable place to be, particularly if our objective was to return Viacom to growth,” Bakish said. “So we stepped back, evaluated the situation to figure out how we could work with distributors in a more partnerly way,” which he determined would be to expand the scope of the distribution relationship including licensing linear feeds, on demand content and exploring deeper relationships on the advanced advertising front.

“Since we’ve done that, we haven’t gone dark with anyone, we’ve renewed or extended the vast majority of our traditional sub base, we’ve actually increased our distribution and we’ve gotten access to plant for advanced advertising, so we can dynamically insert [ads] in over 90% of VOD homes in the Charter and Comcast national feeds.”

And Bakish said he wants to expand that partnership even more.

Small cable operators have gotten the short end of the stick in most carriage negotiations because of their lack of scale -- many NCTC members are individually dwarfed by the likes of AT&T, Comcast and Charter. And while the cooperative gives them added heft -- together the NCTC represents more than 750 cable operators across the country -- not every programmer shows it the respect it deserves. But Bakish said in today’s fragmented environment, with consumers viewing content online, over-the-top, over-the-air and by more traditional means, small operators are more valuable than ever.

"The reality is, all of you have footprints and markets all around the country in all different sized markets," Bakish said. “There is great power in that, because you have those local consumer connections. I don’t want to go build those. I would rather work with the people that have them and figure out how working together we can grow our businesses.”

Bakish said he sees a segmented pay TV industry today, with multiple players existing in multiple price points. But he foresees a day when players will move freely between those price points, creating more opportunities for choice and for smaller operators.

"You fundamentally operate in smaller markets," Bakish said. "And while that might seem on the surface to be a place that’s less attractive on some levels, I actually think in the business you’re in, you’re in the most attractive place. The big challenge everybody has when you’re pursuing growth is competition. You’re not going to get overbuilt by some 5G mobile player any time soon. Why? Because they are going to inevitably go where there is a denser population, where they will get a better return on investment. And, you’re not satellite players -- you have two-way plant. I think you have a unique, sustainable advantage in this business, that of course encompasses being a telecommunications provider ,including broadband products and maybe reselling mobile products, as well as extending the life of the video bundle. I think working together we can do that.”

Bakish also said Viacom’s recent purchase of Pluto TV could bode well for small cable. Meyka assured the audience that the NCTC is trying to work out a deal.

“For years we’ve been talking to operators about working with the whole base, not just your video bundle also your broadband subscribers, but we didn’t have a product,” Bakish said. “It became obvious that Pluto could be that [product.]”

Bakish also talked about improving Viacom’s content lineup, adding that since the company has refocused on its six core brands -- MTV, BET, Comedy Central, Nickelodeon, Nick Jr. and Paramount Network -- ratings and viewership have climbed. MTV, according to Bakish, has had nine consecutive quarters of ratings growth; Comedy Central has had eight straight quarters of share growth and even Paramount Network, which had a somewhat weaker start, has shown improvement in the last three quarters.

As a result, Viacom has the No. 1 preschool show on TV (Ryan’s Mystery Playdate on Nickelodeon), the No. 1 reality show (The Hills) and the No. 1 drama on cable (Paramount Network’s Yellowstone).

“I’m not saying the job’s all done, we have more work to do, but there certainly is a vibrancy and vitality in these flagship brands that we see and that importantly advertisers saw in the upfront,” Bakish said.

And though Bakish said he continues to see more complexity for the business going forward, he appeared optimistic about the future, paraphrasing his old boss, former Viacom chairman Sumner Redstone. 

"Content still clearly matters," Bakish said. "Working together is better than fighting each other in this quest for the consumer, because other people will definitely fight us."

Video, after all, really just doesn’t matter.

Cable operators, who have spent the better part of the past two decades trying to stem the rapid loss of video customers have abandoned the chase, instead opting to retain higher margin broadband customers. And according to a report by influential media analyst Craig Moffett, principal and senior analyst at MoffettNathanson, it is about time.

Related: Moffett: Video Just Doesn’t Matter 

By focusing on broadband and pretty much letting video customers churn if they want to -- the days of calling your cable company, threatening to leave and getting a free month of HBO to stay are over -- cable operators have seen overall profit margins soar. Companies that had struggled to reach 30% margins while carrying a full load of video services are now approaching 50% overall margins. And Moffett says that is mainly because they are no longer fretting over losing video customers, or offering unprofitable promotions to get them to stay in the bundle.

Nowhere is this more evident than with Cable One, a pioneer among broadband-focused cable companies. Now called Sparklight to emphasize that switch, Cable One’s margins are the highest in the industry -- 47.8%. At Altice USA, which was formed after European telco Altice N.V. purchased Suddenlink and Cablevision Systems, margins have risen substantially from the 30% range before the purchase to more than 40%.

Related: Cable One's Approach Clicks with Investors

“Video subscriber losses are now part of the bull case. In conversation after conversation, investors talk of faster subscriber losses as a clear positive,” Moffett wrote.

Moffett isn't the first to say this. BTIG’s Rich Greenfield has for years touted the allure of over-the-top providers and encouraged cable operators to give up on traditional video distribution. 

Moffett and other analysts have hesitated to go all the way out on that limb in the past because of the belief that the bundle of video and data was a powerful tool against the competition. But now, with households getting younger and cord cutting becoming more prevalent, the notion of forcing customers to take a service they don’t want and that loses money for the provider, seems ludicrous.

The math has always been relatively simple. Customers that drop video service but continue to be broadband subscribers pay more for the standalone service -- meaning higher monthly revenue and profit margins for the operator -- and dropping video means lower costs to the operator for repair, maintenance and customer service. Video service traditionally requires more truck rolls and gets more complaints than broadband, Moffett wrote.

That should equal higher profits, but according to Moffett it hasn’t reached the scale where it shows up in financial reports. Until now.

“The change in tone among the major cable operators has been extraordinary,” Moffett wrote. “A year ago, Charter and Comcast were still largely wedded to defending video, even if it meant losing money. Both companies have now made it clear that they won’t continue to chase low value video customers.”

Moffett added that video churn, the main culprit of the cable “bear” case, has gone from feared, to accepted and most recently, to encouraged.

The analyst cautioned that cable isn’t abandoning video -- for operators like Comcast, video is as important as ever -- but more and more are becoming “increasingly comfortable letting video find its own level,” with older customers opting for fuller video packages and younger ones willing to pay more for a robust broadband service only.

Investors are beginning to see the light too, Moffett wrote.

“Just a few years ago, video subscriber losses were the foundation of the cable bear case,” Moffett wrote. “Gradually, that fear faded. Video subscriber losses became something that investors were willing to ignore. Now, it’s something investors are hoping for.”

That is beginning to translate into higher stock prices and multiples. While the sector has performed well this year -- cable distribution stocks were up about 40% in the first half -- it could get even better. Moffett argues that higher margins mean higher multiples and reaching the 50% margin level could bode very well for cable stocks.

Related: Investors Connect with Cable Broadband Strength 

Moffett estimated that at 40% margins, cable cash flow multiples would be about 9.6 times. At 45% margins, average multiples rise to about 10.3 times and at 50% margins, they grow to 10.8 times. Factor in the lower capital intensity associated with fewer video customers -- lower programming costs and fewer set-top boxes -- and multiples rise to 11.7% at a 50% margin.

Understandably, the picture is not as bright for programmers. While virtual MVPDs and other OTT players could theoretically absorb nearly all of the traditional video customer losses, Moffett adds that it is more likely that they capture a fraction of the declines.

“There’s simply no good way to spin the story for programmers like Comcast’s NBCU cable networks, or AT&T’s Turner networks,” Moffett wrote, adding that the complexity is probably why Comcast has underperformed its peers while outperforming the general market.

“But Charter and Altice USA are cleaner stories,” Moffett continued. “And their shares have performed markedly better, even after considering their higher leverage levels.”

Some scholars and and economists associated with limited-government/tech freedom groups are pushing the FCC to limit its participation in the effort to re-purpose some C-band (3.7-4.2 GHZ midband) spectrum for 5G, at least when it comes to a government auction that could take years.

That came in a letter to the commission from folks with the American Consumer Institute, American Enterprise Institute (AEI does not take policy positions, so the trio of AEI folks signing on to the letter were speaking for themselves), the Competitive Enterprise Institute, the Lincoln Network, R Street Institute, and Tech Freedom.

The FCC has been freeing up high-band spectrum through two recent auctions, but the midband spectrum is the sweet spot for 5G given its propagation characteristics, so it is under pressure, including internally from some of its own commissioners, to free up more of that.
Related: Taxpayer Groups Allied Against C-Band Alliance Plan

The FCC is currently deciding how to best reallocate at least 200 MHz of the 500 MHz C-band spectrum currently used for satellite delivery of programming from distributors to cable operators and broadcast stations, as well as from the field back to the studio. On the table are another FCC spectrum auction and a secondary market approach overseen by the FCC.

The C-Band Alliance, comprising the international satellite companies that make that delivery happen, have proposed to make the spectrum available through a secondary market auction, rather than an FCC auction, arguing that is the fastest and best way to get the spectrum into the hands of wireless carriers and promising spectrum can be freed and incumbent satellite users protected.

The letter's signatories agree. "Under regular circumstances, it can take a decade or more to bring spectrum to market. Waiting that long, the US will likely miss the 5G opportunity. Instead, the FCC should support the CBA proposal as it is a more efficient – and timely – approach to put the spectrum to work for 5G," they told the FCC commissioners in a letter.

The alliance says its approach could get spectrum into the 5G pipeline within 18 months of the FCC's final approval.

The FCC has made freeing up as much spectrum as possible for 5G a priority, as it appears to be for President Trump as well, who is looking to beat China in the race for next-gen wireless broadband. It is an issue on which he is in rare agreement with congressional Democrats.

Cable operators and broadcasters appear OK with freeing up some of the spectrum so long as they are sufficiently protected from interference and compensated for the repack, at the least have their costs covered and perhaps even getting a cut of the take from those private market deals. 

Some Five Years into an announced strategy that video just doesn’t matter, Cable One is beginning to attract some attention from Wall Street with its broadband-first focus, a strategy that seems to play perfectly into the evolving landscape of over-the-top and streaming content providers but might not be right for every cable operator.

Cable One has been the best-performing stock in the sector for two of the past three years. In the fourth quarter, it reported 4.7% revenue growth and 8.8% cash-flow growth, ahead of some larger peers. The company has consistently focused on broadband growth — its 600,000 residential broadband customers in Q4 are nearly double its 310,000 residential video subscribers — and said that is the main reason for its success.

But success can be measured in a multitude of ways. Cable One shareholders are obviously pleased with the strategy: The stock price has more than doubled since the company went public in 2015, rising from $399.84 per share on June 11, 2015, to $945.98 on March 5, 2019. Revenue and cash-flow growth have been at the top range for publicly traded cable operators.

Penetration Below Industry Average

Despite the laser focus on broadband, though, Cable One’s high-speed internet growth is the the slowest of any publicly traded cable operator. Broadband penetration has been hovering around the low 30% range for the past four years (it was 31.7% in Q4) compared to an average penetration rate of 47.9% across cable.

That lower penetration isn’t because of Cable One’s size, either. Atlantic Broadband, with about 426,000 internet customers, has 49% broadband penetration, according to Leichtman Research Group president Bruce Leichtman.

“It’s just a different strategy,” Leichtman said of Cable One’s broadband focus. “And from a valuation standpoint, it’s working. Until the market slaps them on the wrist, why stop it?”

Cable One famously dropped Viacom’s two dozen cable channels in a carriage dispute in 2014, never to return. But it hasn’t given up on video entirely. A cursory look at the operator’s website shows a channel lineup that, with a few minor exceptions, mirrors most other offerings from peer operators, including a 20-channel Economy package for $40 per month and a more robust 100-channel Standard package for $84 per month.

Cable One even offers a modestly discounted triple play of internet at 100 Megabits per second, standard cable and voice for $109 per month for the first six months, rising to $154 after that. In contrast, Comcast has a similar triple play offering for $79.99 per month for two years. Aside from the price differential, Cable One doesn’t really push the bundle hard to customers, because executives feel it doesn’t work.

“When it comes to the cost of video, the bottom line is that there’s not much left on the bottom line,” Cable One CEO Julia Laulis said at the Raymond James Institutional Investors conference in Orlando, Florida, on March 5.

Even the words “video” and “cable” have a “sort of negative halo,” she continued, which should disappear after Cable One changes its name to Sparklight later this year.

Leichtman points out that de-emphasizing video has its downside.

“It clearly impacts their broadband subscriber numbers,” Leichtman said. “By not having video, clearly their broadband subscribers are below market.”

So far the stock market has shown its approval by issuing Cable One the highest trading multiple in the sector at about 12.7 times cash flow, according to MoffettNathanson principal and senior analyst Craig Moffett. The rest of the sector trades at between 9 and 10 times cash flow.

Value of a Customer

At the National Cable Television Cooperative Winter Education Conference in Atlanta in February, Moffett said that with an increasing number of programmers lining up direct-to-consumer distribution, the value the market places on a pay TV customer has plunged. He estimated a typical video customer is valued at a multiple of about 2 times cash flow, while a broadband subscriber is attached a value of between 12 and 13 times cash flow.

Leichtman doesn’t believe it is that simple. While Cable One is enjoying success at 32% broadband penetration, getting to the next level — 40% to 45% penetration — involves a different product mix.

“To get that incremental 15%, the bundle is involved there,” Leichtman said. “To grow it, to expand the subscriber base, [video] is part of the glue.”

ATLANTA -- With the Satellite Television Extension and Localism Act Reauthorization (STELAR) set to expire at the end of the year, the chief lobbying group for small cable operators was optimistic it could manage to eke out some retransmission consent reform in its renewal.

At a panel session during the National Cable Television Co-operative’s Winter Education Conference here moderated by American Cable Association president and CEO Matt Polka, ACA senior vice president of government affairs Ross Lieberman said the organization has had some luck in the past in including some modest retrans reform in the act. STELAR comes up for renewal every five years -- the last was in 2014. In 2014, some cable-friendly changes to the act included re-upping the FCC requirement for “good-faith” negotiations and the agency’s ban on stations without common ownership banding together to negotiate retrans deals in a market.

Lieberman said that one of the ideas that has re-entered the mix is that of local choice, which would allow a broadcaster to set a price for its channel, which cable operators then can offer a la carte to their subscribers.

“If broadcasters think their channel is worth $10, we’ll find out,” Lieberman said.

Alpine Group executive vice president Ansley Erdel said that broadcasters have been lobbying hard to let STELAR expire, an effort she believes will fall flat. But she urged small operators to continue to inform their legislators of their side of the issue.

Related: NAB Launches Fight Against STELAR Renewal 

“Broadcasters all have a relationship with members of Congress,” Erdel said. “The only way they hear the other side of the story is if you tell them.”

Lieberman also underscored the importance of Federal Communications Commission moves to allocate a portion of C-band spectrum currently earmarked for video transport for 5G wireless transmission. While the industry was reluctantly OK with early plans to allocate about 100 MHz of the 500 MHz C-band for 5G, recently some have advocated 200 MHz, 300 MHz or even 400 MHz to be used for 5G. That could be devastating for small operators, he said.

Related: Charter: CBA C-Band Proposal Equals Backroom Deals, Windfall Profits

“This should concern your greatly because you are highly dependent on that spectrum to deliver video programming,” Lieberman said. “Higher prices are likely to result, the programmers are going to pay more and those prices will be passed along to you.”

He added that some legislators recognize the danger, but that there is a question as to whether that is fully resonating with all members of Congress.

Related: ACA: FCC Must Protect C-Band Incumbents 

Erdel said that while noise around net neutrality has gotten louder after the Democrats took the House of Representatives after the midterm elections, there is a growing feeling that a bipartisan solution could be worked out before the 2020 presidential election.

“There are people who recognize if the administration changes in 2020, we could start all over again,” Erdel said “There are a lot of legislators who would like to see something in place.”

Mediacom Communications reported mixed results for the fourth quarter ended Dec. 31, with video subscriber losses up and broadband customer increases slowing, while revenue and cash flow continued to rise at a healthy clip.

Revenue for the quarter increased 5.2% to $496.4 million, while adjusted operating income before interest and depreciation (AOIBDA), rose 6.6% to $196.2 million. Despite those gains, Mediacom lost 17,000 video customers in the period, compared to a loss of 2,000 in Q4 2017. Broadband subscribers increased by 4,000 in the quarter, about one-third of the 15,000-subscriber gain in the same period in 2017.

Average monthly revenue (ARPU) increased 2% in the quarter to $62.26 from $61.04 per month per primary service unit. ARPU per customer relationship increased 5.3% from $115.42 per month to $121.59 per month in the most recent quarter.

For the full year, revenue was up 4.2% to $1.956 billion, and AOIBDA rose 4.6% to $745 million. Mediacom shed 45,000 video customers for the full year, an increase over the 14,000 it lost in the same period in the prior year. But broadband additions were up for the full year, numbering 55,000 at the end of 2018, compared to an increase of 47,000 in the prior year. 

Moody’s Investors Service said its outlook for pay TV in 2019 is “positive,” with broadband demand and margin growth expected to outpace video subscriber losses.

“Growing broadband demand will drive more than 4% EBITDA growth among U.S. pay TV providers over the next 12 to 18 months, despite threats posed by consumers’ shift to OTT and 5G wireless broadband deployment," said Moody’s VP and senior credit officer Jason Cuomo in a statement.

For broadcasters, rising retransmission consent fees and increased M&A should help lessen the blow from ad revenue declines as advertisers shift their focus to digital. Moody’s said its outlook for broadcast TV in 2019 was “stable.”

Related: OTT Subscription Churn Rate Steady at 18%: Parks

In its report, Moody’s predicted that retrans revenue would rise 13.9% to nearly $5.5 billion in 2019, from $4.9 billion in 2018.

“Rising retransmission fees and incremental earnings generated by a strong 2018 political cycle will help offset weak advertising revenue for U.S. broadcasters, leading to 3.1% EBITDA growth in 2019," Cuomo said in a statement.

But the picture isn’t so bright for newspaper and magazine publishers. Revenue is expected to continue its downward trend in the sector as more and more consumers turn to alternative means to get their information. According to Moody’s VP and senior analyst Alina Khavulya, consolidation and cost rationalization will continue.

“U.S. newspaper and magazine publishers will continue to be challenged in 2019 by the persistent decline in ad demand, as reading habits continue to shift towards social media news sources, search engines and digital video," Khavulya said in a statement.

Whatever optimism there was around the prospects for traditional pay TV video subscriber growth was snuffed out in the third quarter, as the sector shed more than 1.2 million customers, according to Kagan, a unit of S&P Global Market Intelligence.

Accelerated satellite TV subscriber losses and sluggish growth from virtual MVPDs like Sling TV and DirecTV Now stamped out any improvements in the cable sector.

Kagan's numbers are higher than MoffettNathanson principal and senior analyst Craig Moffett's estimates -- earlier this month he saw the sector, including vMVPDs, declining by about 709,000 subscribers in Q3. According to Moffett, traditional pay TV companies lost 1.1 million video customers while vMVPDs added 414,000 customers. Kagan did not break out individual sector results, but the message was the same -- cord cutting appears to be accelerating.

According to Kagan, vMVPDs Sling TV, DirecTV Now, Hulu with Live TV, YouTube TV and PlayStation Vue gained an estimated 2.1 million subs in the trailing nine months, compared a decline of 2.8 million in the traditional segment.

Kagan said residential penetration rates were 76.2% when traditional and vMVPDs were considered. Satellite -- led by a loss of 367,000 customers at Dish -- had its worst quarter on record according to Kagan, with a loss of 726,000 subscribers. Cable operators, according to Kagan, lost nearly 1.1 million subscribers year-to-date as of Sept. 30, the sector’s worst 9-month performance since 2014. Traditional telco subscriptions were down by 94,000 in the period, with Verizon losing 63,000 subscribers on its own.

Cable MSOs sit in one of the more disrupted spots in the communications industry. By disrupted, we mean the easily changeable nature of customer loyalty, as consumers react to a less-than-perfect experience and the growing influence of other communications entities trying to acquire those customers. 

Consumers these days are increasingly willing to cut the cord and migrate to less-expensive streaming alternatives such as Roku, Google Chromecast and Apple TV. Leichtman Research Group data shows the clear reason why. An annual survey of TV households shows the average cable bill rose about 39% from 2011 to 2015, which is almost eight times the rate of inflation. The most recent cable bill average is now over $103 per month, with zero chance of that price remaining flat going into the next year.

Threats on Multiple Fronts

Bill sticker shock notwithstanding, cable providers must now face the new challenge of the eventual introduction of 5G networks delivering Gigabit performance, new fixed wireless access options and yet another unique ability to create a bundled offering that displaces the cable provider completely. Can you blame a customer with a high bill for looking at other options, especially from companies that can bundle services together just as well?

Cable MSOs have thus been forced to reshape their businesses, with much of that coming in the form of a complete digital transformation of infrastructure, and processes that help meet the expectations of consumers and business customers. Today’s cable networks have brought broadband access to households that now have become accustomed to HD and 4K video services and internet speeds of 100 Megabits per second-plus. Over the next few years, we can expect further digital transformation in the form of hybrid networks that provide higher capacity, less risk of delay or latency, lower power consumption and hopefully the ability to satisfy the end users’ demand for service at a price point that doesn’t increase the rate of cord-cutting.

With demand for internet bandwidth continuing to grow at more than 20% per year thanks to video streaming, enterprise cloud computing, big data, social media and mobile data delivery, meeting these demands must be cost-efficient, energy-efficient and reliable.

As we watch top-tier cable providers invest in fiber-to-the-home deployments, cable’s traditional fiber-coaxial networks will still provide the anchor points for service evolution and transformation, and will still have the capability to roll out new services, as ongoing investment has already been able to deliver more bandwidth.

Ongoing investments in the Converged Cable Access Platform (CCAP) and DOCSIS 3.1 have benefited the customer, with bandwidth performance metrics showing upwards of 10 Gbps downstream and 1 Gbps upstream. The embrace of CCAP has the transformative effect of increasing business agility, forging a smaller footprint, and creating lower power consumption and more IP video capability, giving the user more capabilities and enhanced security — all of which should help reduce total cost of ownership as a whole.

As SDN/NFV (software-defined networking/network functions virtualization) becomes a greater influence on the cable provider, one cannot discount the existing expectations and needs for what will be a hybrid network environment in the short to medium term. Cable providers will thus have physical and virtual functionality evolving in parallel. This, along with investments in remote PHY, which supports both FTTx (fiber to the x) and SDN/NFV initiatives, all contribute to the digital transformation around an IP network between the core and the node. The move to a virtualized, software-based architecture can help deliver network optimization, increase agility and create new opportunities for MSOs. However, any cable operator planning to reap the benefits from NFV and SDN must shift its focus from technology to business, and ensure all business support systems are up to the task. As a wise man once said, if you can’t bill for it, it’s a charity.

Virtualization Hits Home

Network-level virtualization will also transfer to the home, as we already see services move from a physical set-top box environment to an eventual virtual one. The $400-plus set-top box with a hard drive is set to be replaced by a cloud-based DVR that sources not just content, but applications such as program guides and DVR as cloud-based functions.

Cable MSOs will no longer be limited by the functionality of a dedicated set-top box and will make gains from much faster time to market for new products and services offered both from within and outside the cable provider. How about that customer call requiring a $100-plus truck roll to correct an issue that may or may not exist? It can likely be mitigated by a remote software update. What about replacing that $400 set-top box every three years or so? Virtual CPE means a $50 dumb box in the home can extract value from the cloud and be easily updated and configured on the fly and extends the life of home-based equipment. Analytics can also now be embedded in the cloud for easier data management and decision-making.

Can we calculate a long-term price for all of this digital transformation? For the cable provider, it means more innovation, faster delivery of new digital services and a much “stickier” service environment to demonstrate to the customer that all this innovation is actually worth paying for. That translates to retention.

And let’s face it: If cable bills aren’t going down any time soon, creating a product and service advantage will be a paramount requirement for the industry in the coming years.

Paul Hughes is director of strategy at Netcracker Technology.

A new survey by research firm PricewaterhouseCoopers validates what many cable customer service executives have been saying for years – customers want a better experience and are willing to pay more for it.

According to PwC’s new "Future of Customer Experience" study, customers across a wide variety of industries said they were willing to pay as much as a 16% premium for better service. For cable service, respondents said they'd pay as much as a  9% premium for a “great customer experience.”

PwC surveyed a nationally representative sample of 4,000 U.S. respondents, from Gen Z to Baby Boomers, via an online survey and in-field interviews in December 2017; 11,000 respondents from 11 additional countries (Argentina, Australia, Brazil, Canada, China, Columbia, Germany, Japan, Mexico, Singapore, U.K.) were surveyed in January 2018.

Even as companies continue to automate customer service processes, consumers still crave the human touch – 74% of those surveyed in the PwC study said they wanted more human interaction, not less. And 64% of respondents said they felt companies have lost touch with the human element of the customer experience.

Whether consumers will actually pay a premium just for service, especially as over-the-top competitors have essentially gained share through lower prices, remains to be seen. Cable has gone down the premium-service-for-a-premium-price path in the past, only to find it wasn’t as important to customers as they had hoped.

In the meantime, many operators have invested time and money in improving the customer experience with shorter appointment windows, more reliable networks, and providing ways for consumers to contact service personnel and ask questions regarding their service though social media and other electronic avenues. Comcast alone in 2015 launched a $300 million effort to build new customer call centers, hire 5,500 new customer service reps and implement new technology to make the customer experience more friendly and efficient. Other operators have launched similar efforts over the years. And many OTT services have stressed their convenience, lack of long-term contracts and flexibility alongside their lower prices, which seems to be resonating with younger consumers.

“The ‘Experience Economy’ has ushered in a new B2C mindset, steering brands beyond emphasizing products and services to selling rich consumer experiences,” said PwC’s Global CxO and Experience Consulting Leader David Clarke in a statement.

But just putting a human face of the process isn’t enough. Companies have to work hard at making the experience fast, enjoyable and friendly. A bad experience, according to the survey, leads to customers dropping a service fast.

Globally, 60% of respondents said they would stop doing business with a company due to unfriendly service, 46% said unknowledgeable employees, and 50% said a lack of company trust would force them to sever the relationship. About 32% said they would walk away from a brand they love after a single bad experience.

Speed and efficiency are the cornerstones of the customer experience, according to PwC, with 52% of consumers surveyed saying they would pay more for greater speed and efficiency. About 43% would pay more for greater convenience; and 41% would pay more for knowledgeable and helpful employees. There’s also a willingness to give up personal data, especially among U.S. consumers: 63% say they’d share more information (location, age, lifestyle, preferences, and purchase history) with a company that offers a great experience.

“Brands won’t be able to solve their CX problems with technology alone – it’s just an enabler, facilitating the connection between a product or service and consumers,” Clarke said in the statement. “Instead, they must find a way to create an experience that blends consumer demand for tech with their strong desire for authentic, personal interaction. They don’t need to look far, though – employees hold the key to creating and sustaining great interactions with consumers.”

ESPN is the most valuable cable network to cable operators, according to a survey conducted by Beta Research.

The sports network has ranked first in perceived value for 18 years in a row in the Beta study.

The average perceived value of ESPN to the cable operators was 99 cents per month. They pay substantially more for ESPN, the highest-priced national cable network.

Related: ESPN Tops Cable’s Primetime Ratings Chart for January

The No. 2 network in the survey was Fox News Channel. Operators gave it a perceived value of 85 cents, also less than most operators currently pay.

Other top networks in the survey included ESPN2, 78 cents; Disney Channel, 73 cents; NFL Network, 73 cents; Discovery Channel, 69 cents; FS1, 67 cents; Food Network, 67 cents; TNT, 67 cents; CNN, 67 cents; and USA Network, 66 cents.

Related: Disney Sees ‘Modest’ Subscriber Improvement in Fiscal Q1

Beta also asked cable operators about which network organizations were very helpful in selling TV Everywhere, HDTV and/or video on demand.

The top group named by operators with 100,000 or more subscribers was NBCUniversal Cable. Disney and ESPN Media Networks comprised No. 2, followed by Fox Cable Networks, Discovery Networks, Fox News Channel and Scripps Networks Interactive.

The Beta study is based on a national sample of 102 cable operators and was conducted between August and October of 2017.

The curtain is finally raising in the U.S. for 4K/High Dynamic Range (HDR). While Hollywood has been mastering an increasing amount of programming in HDR, and Amazon, Netflix and DirecTV have been successfully delivering UHD content, we are now starting to see cable operators taking the plunge.

We knew this day would arrive. Vivicast Media launched into licensing 4K/HDR content more than four years ago, just as the dramatic 4K and 8K picture quality started to capture the industry’s attention. Key technology challenges have now been or are on the way to being successfully addressed — including the ability to compress adequate bandwidth required to deliver the signal into the home — just as HDR/UHD-ready TV sets and HDR/UHD content and delivery are finally catching up with one another.

Once 4K set-tops are more readily available, the landscape looks (literally) picture perfect.
At the same time, recent months have seen an encouraging evolution in 4K/HDR thinking by cable and IPTV operators who are beginning to trial and test 4K channels, responding to the increasingly vocal demands of subscribers.

Two forward-thinking cable systems — Marquette-Adams of Oxford, Wis., and Highlands Cable Group of Highlands, N.C. — are giving the industry a glimpse into the future of 4K/UHD. While these systems may be small in scope, they loom large for pioneering UHD and HDR into the home. As a result of their historic “proof of performance,” we are seeing an acceleration of UHD delivery to homes nationwide.

The set-top box still continues to be the largest barrier to entry for cable operators of all sizes. Although set-top manufacturers have begun in earnest to integrate the 4K chipset, we are unlikely to see these readily available in the market until later this year. Still, several of the large tier-2 operators have decided not to wait any longer and are actively pursuing either alternative STBs or have designed their own 4K compatible set-tops to meet rising subscriber demand.

Factors contributing to the inevitability of UHD in the US include:
• The sheer number of UHD TVs currently sold in the U.S. is rising. The sales rate of UHD TVs is about five times faster than the move from SD to HD, and the new technology is encouraging consumers to seek out UHD content.
• There are more dedicated 4K and HDR channels and content. Cable and IPTV operators interested in 4K channels want more than just one or two — and they are getting their wish. Vivicast media alone represents seven of the full-time 4K/UHD channels, targeting the full cross-section of core demographics.
• Viewer awareness is growing. HDR is fast transforming among consumers from a fascination to demand. Subscribers are letting operators know they want this image quality every day of the week across all of their channels. And, yes, they are willing to pay more.
• Obstacles are disappearing and the competition is increasing. Several of the larger cable companies in the U.S. are demonstrating a desire to offer 4K channels, not only because of anticipating the inevitable competition from major networks but also due to the erosion of their subscriber base from both satellite-TV and over-the-top providers such as Amazon and Netflix who have been actively offering 4K for more than a year.
The pieces of the puzzle are fitting together as television sets, delivery technology and content are converging to ready 4K/HDR for the mass market.

Stuart Smitheman is president of Vivicast Media, a Memphis-Tenn.-based content licensor to MPVDs worldwide.

Altice USA set the expected price range of its highly anticipated initial public offering Monday, stating that it expects to issue about 46.6 million shares at between $27 and $31 each, which could raise $1.3 billion to $1.4 billion.

Altice USA, the U.S. arm of European telecom company Altice NV, announced its intention to file for an IPO in April. Altice USA is the fourth largest cable operator in the country, with about 4.6 million subscribers.

In a statement, Altice USA said that of the shares of Altice USA common stock included in the offering, 12.1 million would be offered by Altice USA, 20.9 million would be offered by BC Partners, and 13.6 million would be offered by entities affiliated with the Canada Pension Plan Investment Board ("CPPIB").  BC Partners and CPPIB expect to grant the underwriters a 30-day option to purchase up to 5.2 million Class A common shares.

With the over-allotment, the IPO could raise about $1.6 billion.  

Altice added that it expects the stock will trade on the New York Stock Exchange under the symbol “ATUS.”

J.P. Morgan, Morgan Stanley, Citigroup and Goldman Sachs & Co. LLC are acting as joint book-running managers for the proposed offering and representatives of the underwriters, together with BofA Merrill Lynch, Barclays, BNP Paribas, Credit Agricole CIB, Deutsche Bank Securities and RBC Capital Markets as additional joint bookrunning managers.

Altice USA’s IPO would be the second cable stock offering this year. Last month, Wide Open West launched its IPO at $17 per share, raising about $310 million, which was short of initial expectations.

Altice USA is expected to eventually use its new stock as a deal currency. The cable  company has so far grown its U.S. business through acquisition – Suddenlink Communications in 2015 and Cablevision Systems in 2016  – but has said it will focus this year on organic growth. The company recently underwent a rebranding effort. While most analysts expect the U.S. operation to focus on its current assets for the time being, at the brand relaunch Altice N.V. chairman Patrick Drahi said the company would keep all of its options open.

How to "redistribute" the forthcoming  all-Internet Protocol ATSC 3.0 signals via cable TV systems is an emerging topic the will get its first review next month when the Digital Video Services committee of the Society of Cable Telecommunications Engineers (SCTE)  meets in San Diego.    

Broadcasters have already begun looking at the topic under the auspices of the recently created Technology Group 3, Subcommittee 37 (TG3/S37) of the Advanced Television Systems Committee.  S37 is formally called the "Specialist Group on Conversion and Redistribution of ATSC 3.0 Service," and almost everyone associated with its activities acknowledges that any action is at least several years away.

And that means the current low-key technical discussions may simmer for a while before boiling up to financially charged negotiations.

Related > ATSC 3.0: It's Here Next Year [subscription required]

ATSC expects to confirm its 3.0 standard in early 2017, and then it will take several years to deploy technology through the U.S. broadcast infrastructure. (In Korea, which has adopted the ATSC 3.0 standard already, TV stations will begin beaming 3.0 signals in February, to prepare for wider transmission of the signals in time for the 2018 Winter Olympics there).

One goal of the current discussions is to establish procedures for Multichannel Video Program Distributors to carry ATSC 3.0 content, probably by converting it to the current ATSC 1.0 standard which they distribute. According to its mandate, the ATSC TG3/S37 "develops and maintains Recommended Practices, Standards, and other documents relating to the conversion and redistribution of ATSC 3.0 services.”

Dean Stoneback, SCTE's senior director-engineering, said, "There's no need to convert 3.0 to 1.0 until the 1.0 ceases to exist -- until a broadcaster turns off the 1.0 signal."

Stoneback told Multichannel News that his group's initial discussions at the December Digital Video Services committee meeting will examine how to handle backward compatibility as well as issues such as how to ingest 3.0 content. (Also on the DVS agenda are ways to process High Dynamic Range video and immersive audio.)

SCTE is an "observer" at ATSC and has been invited to attend future S37 meetings, which will explore "redistribution," the newly adopted term for MVPD carriage.  Although ATSC 3.0 itself is in a nascent phase, broadcasters envision many interactive as well as non-video  features for the all-IP technology, many of which fall far beyond traditional cable retransmission agreements.

Mark Richer, president of ATSC, expects that ultimately 3.0 redistribution decisions will be based on business and regulatory factors, not technology.

"ATSC 3.0 is specifically designed to be carried over broadband on IP networks," Richer said. He envisions that "many layers" of the 3.0 signal could be pulled in by cable operators.  "There is no big technical problem," Richer added, but he emphasized that ATSC's  role is primarily focused on establishing standards.

Stoneback and Richer were the only two out of a half-dozen cable and broadcasting executives interviewed who would speak on the record. Others offered background insights, largely agreeing that this "redistribution" determination is in its infancy.

A cable technology executive familiar with the ATSC 3.0 process, who insisted upon anonymity, pointed out that the 3.0 switch from 8VSB modulation to orthogonal frequency division multiplexing (OFDM) is just one of the challenges facing cable redistribution.  In addition, the move away from MPEG 2 transport will mean that existing set-top boxes would be unable to receive the ATSC 3.0 signals. Moreover, 3.0 will introduce new codecs and an application layer based on HTML5 -- all of which means that 3.0 will face a lack of existing infrastructure.

Furthermore, he added, since cable uses quadrature amplitude modulation (QAM) and telco TV systems generally use IP, the arrival of broadcast 3.0 faces technical hurdles aside from the current total lack of equipment. He pointed out that there is no decision yet about which organization(s) will set the specifications and standards for 3.0 redistribution.

A broadcast technology executive familiar with the 3.0 process also pointed out that the redistribution negotiations will eventually encompass factors such as the SMPTE standard for compressed audio/video and the High Definition Serial Digital Interface -- all of which must be lined up for decisions about how/if they are included in the redistribution plans.

Hence the importance of these early-stage technology discussions.

NCTA, CableLabs and Comcast are members of ATSC, as are many equipment companies (both receiver makers such as  LG, Samsung and Sony, and transmission/studio product manufacturers, such as Gates Air, Harmonic and Panasonic) plus broadcast station groups and networks and program producers.

The S37 subcommittee includes cable and satellite distributors as well as broadcasters and technology suppliers. A member of the group explained that, 3.0's "advanced services and features will require new retransmission agreements," but said he expects that such decisions would eventually come from pacts between MVPDs and TV station owners.

All sides are awaiting a Notice of Proposed Rulemaking from the FCC dealing with ATSC 3.0. In response to an FCC Public Notice last spring about plans to explore ATSC 3.0 policy, the American Cable Association and NCTA opposed any rushed action.

"Cable operators have no legal obligation to carry the ATSC 3.0 signal during the transition," NCTA said its filing last May. "Carriage of an ATSC 1.0 signal will continue to fulfill cable operators’ obligations."

After a meeting of S37 members in New York last week, a broadcasting technology executive in attendance called everything "still pretty vague because it's so early."

"Each group is scoping out what to deal with," he said, citing broadcasters' concerns about how to convert signals from 3.0 to a variety of cable and satellite environments.

"The big problems are just beginning to be discussed," he said.

There is no timetable for S37's agenda or decisions/recommendations.

WASHINGTON — After weeks of heated opposition, it appears that Federal Communications Commission chairman Tom Wheeler does not have the votes to pass his set-top box reform plan — at least as originally proposed.

The proposal, which would require multichannel video programming distributors (MVPDs) to make their programming and data streams available to third-party devices and app developers, has taken shots from all sides — now including both the Senate majority and minority leader.

Wheeler, a Democrat, has said from the outset that he was willing to tweak the set-top plan if there were a better route to his goal of a competitive market in third-party video access devices — ideally a path that allows for access to both traditional video and the over-the-top video he sees as a key new competitor.

But cable operators were unconvinced, saying they feared Wheeler’s words were more talk than action and the item would pass pretty much as proposed.

The proposal was approved 3-2, on a straight party line vote, and while Democratic commissioner Jessica Rosenworcel voted with the majority, from the outset she said she had issues the plan.

DEMOCRAT CALLS FOR CHANGES

Rosenworcel last week said she remains optimistic that the FCC and the pay TV industry can find a way forward on set-tops to promote a competitive marketplace for navigation devices, but signaled that the problems with Wheeler’s proposal have become clear, as has the need for changes.

Rosenworcel was responding to a flurry of activity that surrounded the proposal, including efforts to block it in Congress via an appropriations bill; “ditch the box,” a National Cable & Telecommunications Association-backed alternative to the chairman’s “unlock the box” proposal; and the Motion Picture Association of America’s support for working with the FCC to resolve copyright issues.

“Set-top boxes are clunky and costly,” Rosenworcel said in a statement provided to Multichannel News. “Consumers don’t like them and they don’t like paying for them.

“Kudos to the chairman for kicking off this conversation [Rosenworcel voted along with Wheeler and Democrat Mignon Clyburn to kick off that conversation], but it has become clear the original proposal has real flaws and, as I have suggested before, is too complicated,” she added. “We need to find another way forward.”

Rosenworcel wasn’t explicitly advocating for the cable industry’s “ditch the box” effort. Rather, she was supporting efforts to find some variant of a compromise proposal that addresses the Wheeler plan’s flaws.

“I am glad that efforts are underway to hash out alternatives that provide consumers with more choice and more competition at lower cost,” she said.

Rosenworcel voted to approve the notice of proposed rulemaking (NPRM) proposing the set-top unbundling, but from the outset she suggested it was a work in progress that needed more work.

The set-top plan suffered another blow when Sen. Harry Reid (D-Nevada), the Senate’s minority leader, wrote Wheeler last week to say he thought the proposal did not sufficiently protect programmer contracts or consumer privacy, points that MVPDs have been making pointedly.

OPEN TO ‘DITCH’ PITCH

Even the chairman seemed eager to seek more common ground.

In his first public statements on cable operators’ proposal to “ditch” the set-top box, Wheeler said he was glad the industry offered up the compromise, but suggested it indicated that many of the problems those same parties had with the initial proposal weren’t problems after all. In a Q&A following a speech at the National Press Club on 5G wireless broadband, Wheeler was asked about the cable-backed effort.

“I think it is absolutely terrific that the cable industry came forward with this proposal,” he said. “I have been asking them to do this, and I think that by coming forward they indicated that a lot of the arguments that had been put up against our set-top box proposal really fell by the wayside.”

But he also said that the cable proposal indicated that copyrights and privacy can be protected, that small networks can continue to thrive and that providers’ networks don’t have to be redesigned to do all that.

Wheeler said he wanted to now engage in “constructive” dialogue on how to write the specific regulations to achieve those ends.

Asked if the set-top proposal was in trouble, FCC press secretary Kim Hart responded: “Chairman Wheeler has repeatedly said he is interested in a constructive dialogue with his FCC colleagues and all stakeholders to reach the best result for consumers. He welcomes the feedback to his proposal to give consumers new options for accessing the content they pay for, and he looks forward to engaging in continued conversations to inform the final rules.”

Internet giant Google, which pushed for the set-top proposal, echoed Wheeler in calling the cable-operator alternative “a constructive effort towards the goal of more competition and consumer choice,” adding, “We hope that it sparks a dialogue between the FCC and interested parties to reach a good outcome for American viewers.”

One MVPD executive said all that activity points to more than just more dialogue.

“I’ll let you determine whether chairman Wheeler’s proposal is dead,” said the executive, who asked to speak not for attribution. “But Google is now giving up the fight, Senator Reid’s letter was pretty strong and Commissioner Rosenworcel from the get-go called it too complicated and recently said it has real flaws.”

Mediacom Communications reported a 5.9% increase in total revenue to $444.8 million and a 6.7% increase in cash flow in the first quarter, as gains in its high-speed Internet and phone services offset losses on the video side.

Mediacom ended the period with 853,000 video customers, about 2,000 less than in the fourth quarter of 2015 year, but gained 29,000 high-speed data subscribers (ending with 1.1 million) and 11,000 phone customers (ending with 444,000). The increases helped fuel an overall gain in customer relationships of about 16,000 to 1.33 million.

Total operating income before interest, depreciation and amortization (OIBDA) was $169.1 million in the period, up 6.7% from $158.5 million in the same period last year. Free cash flow of $59.1 million rose 2% from $58.1 million in the prior year. Mediacom continued to invest in the business, with capital expenditures of $78.6 million were up nearly 25% compared to $63 million in the year-ago period.

Mediacom is the eighth largest cable operator in the country with 1.3 million basic video customers in smaller markets primarily in the Midwest and Southeast.  

AT&T's VP of federal regulatory, Caroline Van Wie, said the FCC appears to be "selectively suppressing the free flow of information to impede public debate on the merits of increased special-access regulation," information the telco says shows the marketplace is competitive and "heavy-handed, monopoly-era regulation" is unnecessary.

That charge was leveled in a blog post Feb. 23 about the FCC's review of the special-access market, the business-class broadband nets that incumbent telcos -- such as AT&T, Verizon and CenturyLink -- are required to lease to competitors, like cable operators, at wholesale prices.

In a 3-2 party line vote in August 2012, the FCC suspended its benchmarks for deregulating the rates of special-access services while it better determined where there is competition for that service. In December 2012, the commission launched the new data collection effort

The FCC is separately investigating multi-year special-access contracts.

But when last month stakeholders submitted analyses based on that voluminous and extended data collection, Van Wie said, the FCC would not allow those stakeholders to make public any of the aggregate data without getting the FCC's permission first.

"It has never told parties they may not publicly reveal aggregate data on competition in the marketplace, data that does not reveal any sensitive information about any carrier, and that the FCC itself routinely publicizes," she said.

Whether it intended to or not, said Van Wie, the FCC at least appears to be impeding information flows, particularly given that AT&T and CenturyLink filed requests to make that aggregate data public almost a month a go and have gotten no response.

Van Wie said the FCC might argue it was acting out of an abundance of caution--AT&T agrees un-aggregated information should be kept confidential.

An FCC spokesperson declined to comment on the blog post. 

Under FCC rules, telcos are required to lease special access lines to competitors at wholesale rates. But the FCC deregulated AT&T and others' special-access lines in 2009 in cases where competitive triggers are met.

Those lines are the "last mile" dedicated broadband lines to businesses, which incumbent local exchange carriers like AT&T dominate.

The commission over a dozen years ago removed "dominant pricing" regulations, while continuing to regulate interconnection and reasonable pricing per its Title II common-carrier regulation of Incumbent Local Exchange Carriers (ILECs). Ever since, the commission has been under pressure from public interest groups to re-regulate special-access.

ESPN is the most valuable network to cable operators, according to a new survey by Beta Research.

The survey information was also distributed by Walt Disney Co. and ESPN, which have been fighting a perception that ESPN’s distribution would be hurt if cable operators offer subscribers lower-cost skinny bundles of programming. (See: "Iger: Disney Subs Growing.")

Cable operators said ESPN was worth $1.03 and ESPN2 was worth 75 cents, according to the survey. Those networks actually cost operators and subscribers about $7 a month.

Following the ESPN networks, vable operators said the most valuable were NFL Network, Fox News Channel, Disney Channel, TNT, Fox Sports 1, USA Network, Discovery Channel, CNN and TBS.

Read more at broadcastingcable.com.

The Internet of Things (IoT) was one of the big things at the 2016 Consumer Electronics Show, but connecting lights, locks, thermostats and other “smart” devices will represent a significant challenge for cable operators as they look to flesh out their home security and automation services in the months and years ahead.

For one thing, there’s no uniformity on how these devices work together, as they tend to use a range of connection protocols, including WiFi, ZigBee, Bluetooth and Z-Wave.

Adding to the confusion is the emergence of smarthome frameworks, such as Apple Home Kit, The AllSeen Alliance, Google’s Weave, and a new “adaptive” smarthome plat form from Panasonic called ÔRA that is designed to work with the company’s own products, as well as third-party devices.

This challenge is not lost on cable operators, which view home automation and security as an important growth driver. In fact, several have already teamed up with Icontrol, including Comcast, Cox Communications, Rogers Communications, Time Warner Cable and Bright House. Suddenlink Communications (now part of Altice Group) has partnered with Alarm.com.

But that might not be enough. In fact, Comcast is already moving beyond Icontrol with a home-grown platform that supports the MSO’s own connected devices, as well as those from third parties that pass Comcast’s “Works with Xfinity Home” selection and certification program. Comcast is expected to explore licensing its new smart-home platform to other operators, as it’s now doing with its IP-capable X1 video platform. AT&T is also trying to license its platform, Digital Life, to telcos outside the United States. It’s clear that some big providers see IoT as a big opportunity.

Another company that is setting its sights on the IoT market, and with cable providers in particular, is Zonoff, a startup that has developed a white-label, protocol-agnostic platform called Z1.

Kevin Garton, Zonoff’s chief marketing officer, said one aim of the Malvern, Pa.-based company is to help partners get a grip on the interoperability challenge that has arisen as the market is flooded with an array of smart devices.

At its heart, Zonoff is a software company, and Z1 is designed to provide partners with a platform that supports data and analytics, as well as a set of hardware services, including a certification program, for hubs and routers. Zonoff has also created a series of subscription services that can enable service providers to generate more revenue from their smarthome offerings, such as cloud video storage and a “home adviser” service that can dispatch workers to the customer if the system is alerted about an issue.

As a white-label offering, that means the provider gets to call the shots on how the service is branded and marketed.

Working with service providers is relatively new for Zonoff, which cut its teeth on do-it-yourself products and counts Icontrol, MiOS and Greenwave Systems among competitors in the turnkey group. On the retail front, for example, Zonoff’s technology underpins the Staples Connect home and home-office product line.

Garton said Zonoff has already secured several service provider deals, though it’s not at liberty to name them as most of its partners don’t want to confuse Z1 with their own branded service. That group includes a large French company in the “structured wiring industry,” as well as providers in the United States and Canada, he said.

Zonoff has also integrated with several smart home product makers, including Aeotec, Centralite, Danalock, Ecolink, D-Link, Kwikset, Jawbone, LG, Netgear, Lutron and Nest, among others.

Z1 centers on “true interoperability,” Garton said, noting that the system works with all radio-based technologies, including proprietary ones from partners such as Lutron, which specializes in connected home lighting.

Z1 is also keeping close tabs on developments surrounding WiFi HaLow, an emerging low-power, long-range version of WiFi tailored for IoT, as well as Bluetooth Smart, another new energy-efficient system.

Driven by high-margin high-speed Internet and commercial services, cable operators are expected to generate some of the largest profit margins in the media & entertainment industry in 2015, according to a report from accounting giant EY.

In its report, Spotlight on Profitable Growth, EY (formerly Ernst & Young) predicts that earnings before interest, taxes, depreciation and amortization (EBITDA) margins will reach 40% in 2015 for cable operators. Cable networks, which have been battered over fears of competition from over-the-top video services, nevertheless will post EBITDA margins of 36% according to EY, fueled by gains in digital licensing revenue and higher affiliate fees, partially offset by advertising declines.

Satellite TV services like Dish Network and DirecTV (recently acquired by AT&T) are expected to show lower margin growth, about 25%, in 2015, EY says.

TV broadcasters, expected to grow EBITDA margins 21% in 2015 should benefit from continued consolidation in the industry, particularly through higher retransmission consent fees, digital distribution growth and international syndication, EY says.  

Other segments within the media & entertainment sector tracked by EY should fare as follows: interactive media, 34%; information services, 30%; electronic games, 28%; conglomerates, 28%; film and TV production, 14%; consumer publishing, 13%; and music, 13%.

Overall the Media & Entertainment segment is expected to grow EBITDA margins 28.3% in 2015, compared to 27/8% growth for the S&P 500 Index.

"The evolution of the M&E industry continues to focus on the exploitation of digital distribution and finding new and innovative ways to reach and interact with the consumer,” said EY Global Media & Entertainment Leader John Nendick in a statement. “With surging demand for content, M&E companies are growing their profitability through multiple consumer offerings, better knowledge of consumer tastes and preferences and continued international expansion."

For operators eyeing Internet of Things projects, their best allies may be in the retail sector, while the traditionally laggard healthcare and government categories are likely to be late adopters of IoT technology.

In its "2015 Global IoT Decision Maker Survey," International Data Corp. (IDC) found that more than 90% of executives who know about IoT expect that it will be important in some way, although they don't necessarily know how or why it will be so.

The IDC study also found vast pockets of unawareness of IoT, with fewer than half of decision-makers in categories such as finance, healthcare and government familiar with IoT and its capabilities (see table, pictured).

IDC's research (which focused on enterprise, not residential IoT plans) suggests potential collaborative allies for operators that are developing IoT agendas. Opportunities range from integrated home services development to key advertising/marketing alliances between operators and application providers.

The just-released global study also found that "security remains a leading challenge," but IDC said "upfront and ongoing costs have become the top challenges" for potential IoT implementation. IDC also found that software vendors are overtaking hardware suppliers as the leading force in IoT expansion.

In addition, IDC said development trends point toward IoT processing at the edge of the network (that is, near the user site). It concluded that such a structure will pose a major challenge to "many IoT architecture designs."

"IoT momentum continues to grow, and our survey shows that it is seen as strategic to the enterprise," said Vernon Turner, IDC senior vice president and research fellow, Internet of Things. But although the decisionmakers thought IoT would be of strategic importance to their businesses, only 24% of respondents considered it to be "transformational."

Strangely, 73% of respondents told IDC that IoT is part of their current 12-month deployment plan agenda -- despite the seeming unawareness of IoT details by so many decisionmakers. The seemingly incongruous finding suggests that many executives have their own definition of what exactly constitutes an IoT plan.

Similarly, in a somewhat contradictory finding, IDC found that the healthcare industry leads the field with 72% of respondents identifying IoT as a strategic tool. Again, that suggests that healthcare -- often cited as a poster child for IoT deployment, especially for monitors, sensors and wireless capabilities -- may pose a disconnect. For example, IoT connections may be established within medical facilities but not extend as quickly as expected into residential environments. That could affect operators' enthusiasm for IoT infrastructure.

The main three reasons for IoT activity among the IDC respondents were increased productivity (cited by 14.2%), shortened time to market (11.8%) and new opportunities for business process automation (10.1%).

Cable and telco ISPs have filed their opening salvo in the legal battle against the FCC's reclassification of their service under Title II common carrier rules, including interconnection agreements, and the commission's creation of a general Internet conduct standard under which to review their conduct on a case-by-case basis, or what the FCC calls an "opportunity to make up the rules as it goes along." They are also fighting the application of the net neutrality rules to mobile wireless broadband for the first time.

They say the FCC can't reclassify broadband as a common carrier.

In the brief, the ISPs take direct aim at Title II, saying the FCC net neutrality order "distorts the Communications Act’s text and disregards the regulatory regime the statute codified" and calling it "unlawful, arbitrary, and the product of improper procedures" that "must be vacated."

Under the guise of ensuring that the Internet remains “open,” the Order upends the decades-old status quo by subjecting the service that offers consumers the capability to access and use the Internet —broadband Internet access service

— to heavy-handed, public-utility-style regulation designed for 19th-century rail roads and 1930s telephone monopolies."

July 30 was the deadline for their opening brief to the U.S. Court of Appeals for the D.C. Circuit, which is hearing the consolidated appeals to the June 12 launch of the new rules.

Actually, the ISPs are not challenging the three bright-line rules against blocking, degrading and paid prioritization, and have supported congressional efforts to establish those rules without having to resort to common carrier regs.

But they want the order vacated, which would likely have the practical effect of putting those bright-line rules in limbo.

And on the issue of Congress' intent for FCC Internet regulation, the ISPs told the court that "Congress never envisioned entrusting the FCC with the extraordinary authority that the Order  purports to exercise or subjecting the Internet to intrusive, central-planner-style oversight."

They say the FCC did not put out "countless" details for public comment after reversing field and taking a Drastically different approach" from its new rule proposal after President Obama called for Title II reclassification.

"The Order is not the culmination of a thought ful and deliberate process. It is the output of an agency determined (or pressured) to reach a particular result," They argued.

The National Cable & Telecommunication Association, CTIA, and USTelecom were among those filing the joint brief.

In a statement, the National Cable & Telecommunications Association reiterated that its legal strategy was not aimed at the rules, but at Title II.

"With the FCC’s Title II order now before the Court, it’s important to restate something we have already said repeatedly – we are not appealing the FCC action because of net neutrality. In fact, we have been vocal in our support of the FCC crafting reasonable net neutrality protections for consumers. Unfortunately, the FCC went well beyond that sensible mission and chose to impose an outdated, far-reaching and punitive regulatory model on today’s dynamic Internet. With Title II opening the door for rate regulation, higher taxes and fees and the ability for government the set the terms and conditions of business relationships, we had no choice but to appeal."

“America’s global mobile leadership is at risk under the FCC’s heavy-handed net neutrality rules on wireless broadband," said CTIA President Meredith Attwell Baker. "There is no question: wireless is different. Due to the technical realities of wireless networks, providers must be able to manage usage so that all consumers have the highest quality experience.

By all accounts, under light-touch regulation the U.S. wireless industry created jobs, boosted our economy and provided numerous benefits for Americans. We should maintain this approach that has been supported on a bipartisan basis for decades. We must make sure we remain the envy of the world by encouraging continued investment, innovation and

competition in our mobile platform.”

“USTelecom supports the open Internet standards, our member companies operate in conformance with them, and we believe that they should be enacted into law by the United States Congress," said USTelecom President Walter McCormick. "However, the FCC’s reclassification of broadband Internet access to be a Title II common carrier service involves extraordinary regulatory overreach, and a broad assertion of jurisdiction that inserts the commission deep into the management and operation of the Internet, violates two decades of established law and FCC precedent, and is contrary to the express provisions of statute. As our brief shows, the commission’s approach is both unlawful and unwise, abandoning a long-successful policy that has produced hundreds of billions of dollars in broadband infrastructure investment. While we are challenging the FCC’s action in court and believe we will be successful, we will continue to work toward positive enactment of the open Internet standards in Congress consistent with our long-standing support for an open Internet.”

“Today’s legal filings contain more of the same flimsy legal arguments broadband providers have been putting forth for more than a decade," said Free Press Policy Director Matt Wood. "As we always have, Free Press will continue to expose such spurious and unsubstantiated claims, defend the rights of Internet users and uphold the FCC’s decision at last to ground open Internet protections in established and essential law."

In what could be an industry-wide “I-told-you-so” moment, the federal Rural Utilities Service much-ballyhooed rural broadband initiative appears to have stumbled badly, with about half of the projects funded through the program failing to fully draw the money available to them and a large number of existing projects facing a looming deadline to either spend the money allotted or forfeit it forever, according to a Politico report.

In a sweeping investigation, “Wired to Fail,” Politico found what cable operators have been saying for years – the RUS broadband program is inefficient and has done little to spread high-speed Internet service to the small, rural communities that need it.

Several prominent figures in the cable community tweeted links to the Politico piece, including National Cable & Telecommunications Association CEO Michael Powell; American Cable Association vice president of communicatons Ted Hearn; and Mediacom Communications vice president of legal and public affairs Tom Larsen.

According to Politico, about half of the 300 projects that RUS has approved as part of the American Recovery & Reinvestment Act of 2009 have not yet drawn on the full amounts awarded. Also, according to the Politic report, all of the infrastructure projects funded by the program were to be completed by June 30, but the RUS has declined to say whether they’ve been finished. About 40 projects funded by the program never were started in the first place – bringing into question RUS’ screening practices.  

For the projects that are still underway an even bigger deadline looms – if they don’t draw on all their available funds by Sept, 30 they risk forfeiting the balance, meaning that about $277 million in funding will be wasted. According to Politico, that money cannot be used in other neglected rural communities.

Cable operators have complained for years that the federal broadband initiatives were merely funding overbuilds of their existing territories, not extending service to so-called underserved communities. In its investigation, Politico found 64 communities near large cities that received loans and grants because they were easier to build – their proximity to denser areas with more people and higher demand for service made it easier to recover costs.

According to Politico, it’s not going to get any better. Even the RUS admits that it is not going to provide better broadband service to the 7 million rural households it once claimed. Instead, the number will be in the hundreds of thousands.

A favored telecommunications analysts painted a bearish, if not bleak, picture for a loyal following of small and medium cable operators, as he considered new Internet rules and price regulations.

MoffettNathanson principal and senior analyst Craig Moffett, a longtime cable bull, gave the crowd at The Independent Show in Boston a mixed forecast for the next decade.

He reminded the crowd of the painful market forces that have begun to buffet cable operators – and programmers -- of all sizes at this moment in time. 

TV ratings are down, and programming costs are up. The biggest programmers are licensing more shows to OTT players. 

“They’re increasingly licensing content (to OTT) because it’s the only way to plug the hole in the income statement,” Moffett said.

He suggested that the trickle of OTT services could swell to a torrent that could do real harm to the traditional dual-revenue stream business model that has served programmers and cable operators so well for so many years.

And there is ample evidence that cord-cutting continues to accelerate, he said, triggering nods in unison around the crowd when he noted the pressure on the bottom line.

As if the current conditions weren’t bad enough, Moffett said the near future will be tougher to navigate. The one, big bright spot for cable operators from a revenue viewpoint – broadband service – may soon see the end of its heady growth as the market matures.

Penetration of broadband has been steady, but slower growth is ahead; almost everyone who can afford broadband or wants it, has it. Of the people who don’t have broadband, most are not ideal customers: Half of them make less than $25,000 annually, or are considered undereducated or don’t own computer, Moffett noted.

While he said he saw some bright spots with potential for growth, they were few. Potential growth lies in such areas as business services, and the growth of wireless demand holds promise for cable’s Wifi offerings. The most obvious option for revenue growth: Cable operators can leverage the pricing of broadband.

“It’s the one thing here that you have some flexibility to control, at least competively,” Moffett said.

But if they do, they risk the ire of the FCC, which is soliciting complaints. Title II “is absolutely about broadband price regulation,” he said, “and in that context lies the real challenge for the cable operators.”

Still, he said, Title II is not a certainty either, as the new rule could be quashed by a new congressional action or get tossed out by a federal  court or even left inactive by a new FCC chairman.

“This topic of regulation is unavoidable as you think about the next 10 years,” Moffett said.