A group of 20 Democratic Senators led by Sen. Ben Ray Luján (D-N.M.) is asking the Federal Communications Commission to refresh the record on its 2014 proposal to define some video-streaming services as MVPDs subject to agency regulation.

They join House Democrats and others who have also called for a new look at an old issue. By contrast, Republicans have told the FCC not to reopen the issue of applying traditional cable operator regulations to streaming services that offer similar channel lineup offerings online.

Nothing came of that 2014 notice of proposed rulemaking (NPRM), but the senators, in an October 18 letter to the FCC, said a refresh was necessary to make sure that unique local broadcast content could be accessed over streaming platforms.

Also Read: FCC Chair ‘Exploring’ Streaming Regulations

“The shift from broadcast, cable and satellite to streaming has profound impact on existing laws, regulations and agreements that have been foundational in support of public safety and access to local news,” the senators wrote. Those foundational agreements are a reference to the must-carry/retransmission consent rules that require multichannel video programming distributors (MVPDs) to negotiate for carriage of that unique broadcast content if broadcasters seek payment, or carry the signals if a broadcaster elects must-carry.

Given that sea change in how consumers see their content, the senators said the FCC needs to “seriously consider” how to prevent the “explosion” of streaming technologies do not undermine “a thriving, locally focused broadcast system that is the envy of the world.”

That consideration, they said, translates to “[refreshing] the aging, unclosed record from the 2014 proceeding by seeking new public comments to provide updated video marketplace information.”

The effort is being applauded by broadcasters.

“We are grateful to Sen. Luján and his Senate colleagues for urging the FCC to examine the impact of streaming on viewer access to local broadcast stations by refreshing the record in the virtual MVPD proceeding,” National Association of Broadcasters president and CEO Curtis LeGeyt said.  

The National Association of Broadcasters is looking to get the FCC to classify over-the-top video services as multichannel video programming distributors (MVPDs) subject to carriage and program-negotiation obligations.

Under then-chairman Tom Wheeler, the Federal Communications Commission opened a proceeding in 2014 on whether video services should have to be facilities-based -- wires, satellites -- to be subject to the agency’s rules applying to MVPDs, or whether over-the-top services delivered by broadband providers but without their own physical facilities should qualify as well. That proceeding remains open, but dormant.

Wheeler was looking to promote over-the-top (OTT) video as a competitor to traditional cable and to anticipate traditional cable's move to internet protocol-based delivery of its multichannel services.

NCTA-The Internet & Television Association has long argued that a transmission path is necessary to be an MVPD.

In an interview with Politico Pro, NAB president and CEO Curtis LeGeyt said the NAB’s board has decided to ask the FCC to collect new feedback on the Wheeler proposal given “changes in the marketplace.” LeGeyt told Politico Pro that the association wanted to "re-engage with the FCC” on the issue.

Broadcasters, facing major competition for eyeballs from over-the-top video, have also been pushing the FCC to make streamers and other edge providers pay FCC user fees. The commission supports its ongoing operations on those fees, currently levied on broadcasters, cable operators and satellite operators, but not edge providers.

Broadcasters have argued that the FCC should not continue to burden broadcasters with helping subsidize their online competitors for eyeballs and ads by charging broadcasters a fee and not big tech. The FCC recently declined to add Big Tech to its fee schedule.

The FCC’s effort to bring over-the-top video under its program carriage and access rules dates back almost a decade.

In 2014, Wheeler proposed to reverse a tentative, bureau-level conclusion in the Sky Angel program-access complaint that having a facilities-based transmission path was necessary to be an MVPD. The FCC tentatively concluded that an MVPD has to have control of both the content and the transmission path — copper, fiber and satellite signals delivering a channel — and that an OTT distributor lacks that path since it does not control a facilities-based channel to deliver it.

The FCC signaled in the 2011 Comcast-NBCUniversal merger approval that it expected over-the-top video to become a competitor to traditional MVPDs going forward and, therefore, included conditions requiring the company to make its programming available to OTT providers on nondiscriminatory terms and conditions.

The American Television Alliance, whose members include cable and satellite operators, was not pleased with the signals out of NAB.

“The broadcast industry wants to take the current framework, which is already responsible for thousands of consumer blackouts and massive annual price increases, and expand it to streaming,” ATVA spokesperson Jessica Kendust said. “The FCC should focus on modernizing and fixing the broken system, not imposing new costs on streaming customers.”

An NAB spokesperson was not available for comment at press time. ■

With its publication in the Federal Register, the comment deadlines for the Federal Communications Commission's request for input on making multichannel video programming distributors' (MVPDs) closed captioning settings more accessible have been set.

Initial comments are due February 17 and replies March 4.

The FCC is revisiting a 2015 proposal to require manufacturers and MVPDs to make closed captioning display settings on TV sets “readily accessible“ to deaf and hard-of-hearing viewers and whether to expand that potential mandate beyond TV sets to the wealth of other video display technologies in an IP, over-the-top world.

Among the issues on which the FCC’s Media Bureau wants comment on is whether both device manufacturers and MVPDs should be responsible for making sure consumers can find and use the closed captioning display setting controls.

The FCC proposed the display rules in 2015 under Democratic then-chairman Tom Wheeler. The initial comment period closed, though, and the agency took no action on the item in the ensuing six years. Under new chair Jessica Rosenworcel, the FCC‘s Media Bureau is reopening the issue to “refresh the record,” signaling action could now be taken.

Also: FCC Convenes Forum on OTT Closed Captioning

The FCC adopted a mandate in 1990 that TV receivers have the circuitry to display closed captions, and in 2000 adopted display and performance standards to allow users to customize captions by changing font, size, color and more.

In 2010, Congress passed the Twenty-First Century Communications and Video Accessibility Act (CVAA), which expanded the closed captioning display and function requirements to any “apparatus designed to receive or play back video programming transmitted simultaneously with sound,” which now covers a host of technologies for accessing traditional and online video. But while the rules require equipment functionality, they do not mandate how those must be provided to the user.

Also: Advocates, Industry Spar at FCC Over Strict Caption Mandates

The FCC said there are ongoing complaints about the difficulty of accessing those settings via a remote or on-screen menu.

Enter the 2015 proposed rules to mandate ready access, on which no action was taken but which drew a lot of comment from industry players who questioned the FCC's authority to impose new device mandates.

The FCC wants new input on that authority issue, as well as, given the complaints it has received, “to what extent are manufacturers and MVPDs currently ‘making caption display settings accessible via mechanisms reasonably comparable to a button, key or icon,‘ such as ‘a button on the remote or access through the first level of a menu.‘” ■

A coalition of diversity groups has asked Congress to pass HR 5056, the MVPD Tax Credit Program, which would give a tax credit to MVPDs and their over-the-top streaming counterparts for carrying diverse, including minority targeted, independent programming.

The bill was introduced by Rep. Yvette Clarke (D-N.Y.).

In a letter to House leadership, the groups, which included the Multicultural Media, Telecom & Internet Council and the National Urban League, "implored" them to pass the bill, which they said would help level the playing field for indies in the pay TV business, including on OTT platforms, such as You Tube TV, Hulu, and Sling.

Also Read: Starks: Broadcast Ownership Report Still Shows Diversity Deficit

Specifically, Clarke's bill provides that:

"For each qualifying carriage agreement with eligible independent programmers, an MVPD will be eligible for a tax credit equal to 1) the lesser of the net license fees paid or incurred by the MVPD or 2) the product of $0.10 multiplied by the number of subscribers per month receiving the independent programming provided under such agreement. 

"Programming credits will not exceed the product of $0.10 multiplied by 3 times the average number of an eligible distributor’s subscribers in a given taxable year. Tax credits received under this Act cannot also be claimed as a tax deduction."

The American Television Alliance said the FCC was right to propose fining Gray Television a half-million dollars for violating, as the FCC alleged, the commission's local ownership rules.

The commission, for the first time, has proposed fining an affiliation purchase for resulting in what it said was a violation of its prohibition on owning two of the top-four rated TV stations in a market.

Also Read: FCC Proposes Fining Gray Half Million Dollars

ATVA, whose members include cable and satellite MVPDs that negotiate retrans deals with broadcasters, said so, too.

“We agree with the FCC that Gray’s manipulation of the local ownership rules was an egregious ‘evasion’ that warrants this fine,” said ATVA spokesperson Jessica Kendust. She said the proposal should be just the beginning of a closer look at a variety of loopholes she says broadcasters use to evade FCC ownership rules.

“Gray’s attempt to cure its violation in Anchorage by then moving the CBS programming from its full power station to the low power station and another feed on its NBC station is just another workaround broadcasters employ to exploit the system,” said Kendust. “We urge the FCC to close these additional loopholes.”

The FCC prohibition on owning two of the top four stations only applies to full powers.

ATVA has long argued that the FCC's rules allow broadcasters to skirt ownership restrictions and unfairly bundle retrans negotiations.

Gray had not returned a request for comment at press time on the FCC's proposed fine. It still has the opportunity to challenge the fine, which remains proposed until it exercises that option, and the FCC either reverses or upholds the fine, or Gray chooses to pay rather than challenge it.

NATPE is launching a broad new initiative to embrace the MVPD ecosystem, which will continue throughout 2021 and beyond. In addition to forming a soon to be named MVPD committee and conducting special MVPD-focused keynotes and sessions during the NATPE Virtual Miami conference on Jan. 19-21, there is a kickoff event planned for Dec. 15.

“Content Distribution on a Global Scale: MVPDs and the Worldwide Content Market” will take a look at where "the industry's global MVPD content sector is going." Moderated by Horowitz Research president Howard Horowitz, the session will feature comments and insights from Verizon Consumer Group chief content officer Erin McPherson, Liberty Latin America VP chief programming officer Stephane David, and Virgin Media, Liberty Global head of programming, David Bouchier.

Related: NATPE Slates Virtual Miami Confab in January

“Our goal at NATPE is to continue to advance the content conversation," NATPE CEO and president JP Bommel said in a statement. "While evolving rapidly, the relationship between content producers, rights-holders, and networks with MVPD buyers is more important today than ever. MVPDs remain a key conduit for delivering content to homes and screens everywhere.”

NATPE MVPD committee and COO of TV5 USA Patrice Courtaban added: “TV5MONDE is pleased to support NATPE in launching this new MVPD initiative and hosting this exciting first event. With the executives in charge of content acquisition for three global MVPDs, Erin, Stephanie and David, fielding Howard’s probing questions, I anticipate a very lively and informative discussion that provides a wide range of strategic insights.”

Broadcasters have teamed up with TV content companies--broadcast and cable--to ask the FCC not to allow MVPDs to include integrated receiver/decoder equipment (IRDs) in the lump sum they can opt for in their move out of C-Band spectrum, arguing that would artificially inflate the payments to cable operators.

IRDs receive and decode satellite signals from programmers.

That pitch was made to Aaron Goldberger, legal advisor to FCC Chairman Ajit Pai, by the National Association of Broadcasters and representatives of A+E, Discovery, Fox, Disney, Univision, and ViacomCBS (collectively the "content companies").

They argue that the expenses are properly assigned to programmers and satellite operators, not MVPDs. Categorizing IRD costs "would both artificially enlarge the amount of the “lump sum” payments available to MVPDs and undermine the goal of a timely, spectrally efficient transition that preserves viewers’ uninterrupted access to the most popular news, sports, entertainment, and other programming."

NCTA-the Internet & Television Association argues that it is appropriate to include IRD costs in lump sum payments "to the extent an average earth station operator reasonably would expect to pay such expenses itself if it elected to submit actual costs for reimbursement."

The content companies suggest that would balkanize the process impeding a smooth transition out of the lower C-Band.

"Centralizing the compression upgrade process with satellite operators and programmers—the parties that have historically maintained responsibility for these upgrades—would enable coordinated installation of the correct IRDs across distribution networks that consist of thousands of earth stations," the companies told Goldberger. "Conversely, placing the transition into the hands of hundreds of MVPDs would force satellite operators and programmers to engage with a patchwork of MVPD earth stations, each of which would be subject to their own procurement standards and upgrade timelines."

The FCC is currently collecting comment on satellite operator transition plans. The FCC is moving incumbent satellite operators out of the lower 300 MHz of the band to auction spectrum for 5G wireless.

The C-Band is used to distribute network programming to broadcasters and cable operators and remote signals to studios.

For the better part of the last decade we have been hearing about how massive change was imminent in the television industry. This included everything from claims that a “massive wave of cord cutting” would soon kill off the pay TV industry, along with more mundane predictions like the rise of Netflix-like TV Everywhere apps from MVPDs and the expansion of addressable TV advertising.

And while the TV industry has been changing, those shifts have largely been incremental, which is notable in that the actual technology to enable serious changes has existed for many years now.

The culprit? Inertia. Everyone was still making money hand over fist, and if there's anything that makes people resistant to change, it’s a flush bottom line.

That all changed back in March when the pandemic hit, followed closely by nationwide social justice protests.

Not that these events particularly devastated most industry players’ bottom lines—ad budgets got cut, but not to the level of “devastating” (at least not yet)—but something about the pandemic and the protests and the way they changed the way we see the world seems to have also shocked the broader media industry into realizing that maybe it was time to stop putting off all those changes.

Time is short, stability is fleeting, and all that.

This is not unusual. Periods of great upheaval traditionally result in periods of innovation, as clinging to the old ways no longer makes sense in the new world.

For the television industry, this shift will be helped along by the fact that many of the key pieces were put in place prior to and in the early days of the pandemic.

The launch of four new Flixes (giant multibillion dollar services) from Apple, Disney, Comcast and Warner (with a fifth, from ViacomCBS on the way) has more than doubled the number of streaming options available to consumers. This, in combination with over 40 million Americans unemployed, should also result in a larger-than-expected increase in the amount of cord-cutting as many viewers realize that the bulk of their paid TV viewing has shifted to the Flixes and the money they’re spending on a cable TV subscription would be be best spent elsewhere. Take food, for instance.

There are also the FASTs, the free ad-supported streaming TV services, whose rapid growth can be attributed to their large content libraries, much lower ad loads and, above all, the fact that they’re free for anyone with an internet connection. 

Combine the Flixes and the FASTs and suddenly you have a TV ecosystem that is completely digital, still includes all of the major players and series from the good old days, and seems to be doing a good job of meeting consumer needs.

It’s also doing a good job of meeting advertiser needs, which is critical, given their critical role in making the TV industry profitable.

Advertisers like smaller ad loads (it allows their spots to have more impact) and the increased ability to run addressable TV advertising, both on OTT and on linear is also gaining traction due to the pandemic. As various parts of the country are opening up and shutting down at different times, advertisers are realizing the need for flexibility and the ability to target their messages to specific households in specific regions.

For advertisers, this scenario, often referred to as “The Hammer and the Dance”  means the ability to be able to target local audiences is more relevant than ever before, which is why both local broadcasters and MVPDs are making increased use of OTT to help reach local viewers who are not easily found on linear. By combining both linear and OTT, advertisers are able to reach those local audiences, while maintaining the ability to adapt their messages at the last minute, depending on the situation on the ground.

What’s Next?

The biggest question is whether the industry continues to double down on innovation or whether it reverts to the dysfunction of the past. We are certainly seeing the latter play out with the HBO vs Roku and Amazon beef, which feels like an updated version of the carriage fee battles that certain satellite providers were well known for. 

This is unfortunate because doubling down on innovation would actually be a boon for everyone in the industry, consumers, programmers, distributors and advertisers. 

Take something like the oft-proposed personalized linear channels on the FASTs and even the Flixes, something akin to Spotify’s Daily Mixes, where an algorithm looks at your prior viewing history and creates a linear stream especially for you. That would be a huge PR win for distributors and programmers as the feature would get them a lot of positive buzz, and it would be a big win for advertisers too, as they’d know exactly who they were targeting and could potentially even personalize the ads,

The technology for these sorts of algorithms certainly exists and it wouldn’t be too hard to implement. It would even help the FASTs get viewers to sign up for an account, at which point their targeting could become even more precise.

Another area where innovation is needed is in managing TV subscriptions. While Roku, Apple and Amazon have made great strides, their approach is not necessarily appreciated by larger platforms (hence the current beef-fest with AT&T) but there’s still a need for a service that helps viewers manage their existing subscriptions, find new services and find shows they want to watch without having to resort to Google.

While there are no guarantees that the current global crises will lead to increased innovation when we get to the other side, history seems to indicate that is indeed what will happen. As people and organizations are knocked out of the old, comfortable ways of doing things, newer, better and more efficient methods suddenly seem a lot less scary. 

Broadcasters took aim Thursday at MVPDs' argument that TV stations have too much bargaining power in retransmission consent negotiations and that the FCC should apply ownership limits to their multicast streams and to LPTV stations. 

The National Association of Broadcasters was responding in reply comments to the FCC's request for input on its upcoming Communications Marketplace Report to Congress on the state of media competition. 

Related: ATVA to FCC: Retrans Is Marketplace Competition Problem 

As to MVPDs' comments? NAB said essentially, "nothing to see here." 

"[T]he predictable and unmeritorious complaints of the multichannel video programming distributor (MVPD) parties about retransmission consent – complaints that have not improved with age and repetition – do little to inform the FCC’s inquiries here and have no bearing on the need to reform the local TV ownership rule," NAB said.  

Related: FCC Seeks Comment on Competition 

NAB reiterated some points that it said it has made countless times: "MVPDs’ unhappiness about paying retransmission consent fees does not mean that TV broadcasters have any undue bargaining power over MVPDs; that those fees are, in any economic sense, too high; or that changes to FCC rules intended to enhance large pay-TV/broadband companies’ position at the negotiating table are in any way justified." 

Related: NAB to FCC: COVID-19 Challenges Emphasize Need for Dereg 

The FCC report is not expected to offer any policy recommendations, instead providing an overview of the state of competition. But NAB suggests the inescapable takeaway from that view is that broadcasters face plenty of competition from unregulated competitors and they need room to maneuver, which means fewer ownership regs.

In what could signal a big change in regulatory approach, FCC chair Ajit Pai has scheduled a vote on an item that would set the precedent that streaming services qualify as "effective competition" to MVPDs sufficient to trigger basic rate deregulation of those MVPDs. 

Charter had asked the FCC to rule that AT&T's video streaming bundles available in Hawaii and Massachusetts are comparable to their cable video service. When the FCC determines a cable system is subject to effective competition, that system is no longer subject to basic rate regulation by local franchise authorities or mandatory basic tier carriage of broadcast signals. 

Pai said in a blog post about the upcoming Oct. 25 public meeting that the vote would be on an item at that meeting granting Charter's request for a finding of effective competition. He almost certainly has the votes to approve it (otherwise he would be unlikely to schedule it for a public vote).

"Adopting this order would be a major step toward the Commission recognizing the realities of the modern video marketplace, and the increasingly important role that streaming services are playing in it," the chairman added.

“ACA Connects is pleased that the FCC has circulated an order that would grant Charter’s effective competition petition," said the group, which backed Charter's petition. "The order reaches a legal conclusion that catches up with what consumers already understand -- online streaming services like AT&T NOW are a source of ‘effective competition’ for cable operators’ traditional video offerings.”

The FCC has yet to define over-the-top services as MVPDs subject to the same regulatory regime--program access, program carriage rules--but the Charter ruling could fuel that debate anew.  

Pai has said the FCC should not redefine some over-the-top video providers as MVPDs subject to FCC program access regulations. But that was back in 2015. 

FCC chairman Tom Wheeler proposed redefining linear over-the-top providers (with day-and-date channel lineups similar to those of traditional cable and satellite) as a way to promote online video competition, but got pushback from some OVD providers as well as from cable operators. 

Rep. Frank Pallone (D-N.J.), chairman of the House Energy & Commerce Committee, used his first media policy speech as ranking member of the House Energy & Commerce Committee to advise the FCC to "hit the pause button on regulating streaming video," but that was also back in 2015.

"The cable industry is positioned to remain the first choice of viewing and not just become a fat pipe." --Stuart Smitherman, Vivicast Media

If you were to make an attempt to peer ahead at what’s in store over the next decade for the cable industry, what would you see? How much does Hollywood — the majors, the production community, the consumers — care about its survival? If cable is to be more successful than ever, what elements would be responsible for its success? Conversely, what elements would be responsible for its decline?

Looking at the overall landscape, one can’t help but consider how the very networks that have greatly benefited from cable exposure over the past decades are engaged in a full-court press to cut them out of the supply chain — while also going after their customers.

But change often brings a silver lining if operators are prepared to think a little outside the box (literally and figuratively). It is time for cable executives to become the leaders they once were, rather than followers. Estimates are that 25% of U.S. households now have some form of 4K TV and the numbers are growing at about five times the speed as the adoption from SD to HD. The cable industry is positioned to remain the first choice of viewing, and not just become a fat pipe.

How 4K Comes Into Play

Over the last 12 months, I’ve been discussing the merits of 4K with cable companies, and the positive impact it could have. Several operators have shared that they may opt to discontinue any and all video programming altogether in favor of only providing broadband services. Programming is simply not generating profits due to the per-subscriber fees charged by networks. 

That leads to an obvious follow- up question: Why can’t operators pass on this cost to their customers? As you might have guessed, there is not an easy answer, as consumers often think that the cable industry is increasing costs for their video offering to simply increase profits. If the true cost of carriage is unknown to the customer then they will continue to seek a more cost-effective viewing experience, and the major networks will become the beneficiaries with their direct-to-consumer apps.

As the average 4K channel streams at between 15 Megabits per second and 25 Mbps it would take some serious changes and upgrades to the current codecs to deliver 4K over a CDN network. I would suggest that it would be incredibly difficult to keep the true integrity of the picture quality to mass consumers today in order to deliver 4K OTT. As a reference point, there were some serious issues reported with OTT platforms performance when trying to deliver an HD version of the Super Bowl to their customers. If it was 4K and HDR, the issues would have been even more severe.

For an OTT provider that has tens of thousands of subscribers, it is not such an issue, but to the OTT providers that have hundreds of thousands and potentially millions of direct customers, it is a headache that will not be cured overnight.

Companies such as Netflix rely heavily on cable company infrastructure and some clever routing to get 4K directly to the consumer, and even that 4K picture quality is not always as sharp as it should be. If the OTT providers and network-owned apps can’t deliver 4K effectively, then that leaves the cable company as the best solution. 

An apparent solution is to give customers the 4K and HDR experience they are increasingly demanding. Cable companies are more optimally positioned to provide true 4K and HDR, unlike OTT and apps. However, cable operators are telling me they are waiting for the big networks to deliver 4K channels and then they will deliver to their cable customers. This seems like an astonishing position given that the networks are going directly after the cable subscribers.

Why would a group that is trying to attract your customer offer cable a 4K channel that they would then be reliant on to deliver the product? We are very well aware in the 4K world that most content that is now shown on many major networks is originally shot in 4K and down-converted to HD and as the networks move forward this trend will continue. But if the cable companies don’t have 4K clients then the networks don’t need to deliver 4K, and so the way is clear for the status quo to continue. Ultimately, it would appear that the winner will be the network, not the cable company.

Slow Rollout Breeds Opportunity

There are a handful of 4K channels available today, mainly independent companies that have gotten in front of the curve to deliver 4K programming. As it remains unlikely that the big networks are going to launch 24/7 4K channels very soon this could present the industry with an opportunity. Customers want 4K and HDR based on their breakneck speed purchasing of 4K compatible TVs. 

It is safe to assume that the networks won’t be launching 4K channels because they can’t deliver directly to the consumer. That gives cable operators a window to act. Under this scenario, networks would have to rely on cable for delivery — and operators would gain back some negotiating power as they have, at the moment, the infrastructure that can meet 4K viewers’ expectations.

Cable companies have “the fat pipe” that could very well prepare them not only to meet the rising 4K and HDR demands, but also the further pressure that will eventually be forthcoming from the emergence of 5G. As that technology becomes heavily deployed, will a company that has dropped video and other sticky products even remain relevant?

Stuart Smitherman is president of Vivicast Media. He can be reached at Stuart@vivicast.com.

A look at how much the top execs at some publicly traded programmers and MVPDs made last year suggests media's CEOs fared well, on balance, compared with 2016.

On an individual basis in 2017, a number of them experienced dramatic fluctuations from the prior year, pendulum swings ranging from a nearly 300% increase for one exec to a nearly 100% decrease for another.

Among 10 whose companies had reported by May 1, half saw increases in total compensation over their 2016 pay, driven primarily by stock options and awards.

In the other half, two CEOs took hits, while two remained steady. (For one, 2017 was his first full year as CEO.)

Bookmark This: Visit MCN's Executive Compensation page to read more about media CEOs' pay, including recent stories detailing their 2017 packages.  

A look at how much the top execs at some publicly traded programmers and MVPDs made last year suggests media's CEOs fared well, on balance, compared with 2016.

On an individual basis in 2017, a number of them experienced dramatic fluctuations from the prior year, pendulum swings ranging from a nearly 300% increase for one exec to a nearly 100% decrease for another. 

Among 10 whose companies had reported by May 1, half saw increases in total compensation over their 2016 pay, driven primarily by stock options and awards.

In the other half, two CEOs took hits, while two remained steady. (For one, 2017 was his first full year as CEO.)

Bookmark This: Visit MCN's Executive Compensation page to read more about media CEOs' pay, including recent stories detailing their 2017 packages.

T-Mobile has signed a deal to acquire Layer3 TV, the Denver-based multichannel video programming distributor (MVPD) that has launched pay TV services to a handful of markets.

Financial terms were not announced, but the agreement will enable T-Mobile to enter the pay TV arena and take on incumbent cable, satellite and telco TV providers as well as a slew of new “virtual” MVPDs such as DirecTV Now, YouTube TV, Sling TV, fuboTV, Philo, and PlayStation Vue. T-Mobile said the deal, expected to close in the “coming weeks,” is not expected to impact company financial guidance or expectations.

With Layer3 TV in-hand, T-Mobile said it intends to “launch a disruptive new TV service in 2018,” adding that its LTE network will be at the “heart” of T-Mobile’s mobile video strategy. More specific details on pricing and packaging were not announced, though T-Mobile said the coming TV service will take advantage of its national retail presence, brand, and its sales and customer care organizations. 

For its part, Layer3 TV has centered on an IP-delivered, full-freight home pay TV service that has integrated a batch of OTT offerings and enabled 4K video capability on every set-top it deploys. Among other strategies, Layer3 TV has offering a pay TV/broadband bundle in Washington, D.C., under a resale agreement with Verizon Communications

RELATED: Layer3 TV Ties CuriosityStream to its Set-Tops

Layer3 TV has not announced subscriber numbers, but the service is currently available in Los Angeles; Chicago; Washington D.C.; Dallas/Ft. Worth; and Longmont, Colo., and has announced plans to extend service to New York. In Longmont, Layer3 TV is teamed up with NextLight, a Colorado-based municipal provider, via a marketing/technology relationship. 

UPDATE: Layer3 TV tweeted today that it also has plans to bring its service to San Francisco and Philadelphia.

Founded in 2013, Layer3 TV has raised about $100 million. Investors include Altice (which just struck an MVNO deal with Sprint), Evolution Media, Paulson and Company, and North Bridge Venture Partners.

T-Mobile will be introducing its twist on pay TV amid a small but growing cord-cutting trend that has been eroding the subscriber bases of incumbent pay TV providers.

RELATED: Decline of Traditional Pay TV Accelerates in Q3 

And, in making that announcement, T-Mobile CEO John Legere served up some sharp-tongued criticism of those providers.

“People love their TV, but they hate their TV providers,” Legere said in a statement. “And worse, they have no real choice but to simply take it – the crappy customer service, clunky technology and outrageous bills loaded with fees! That’s where we come in. We’re gonna fix the pain points and bring real choice to consumers across the country,” said John Legere, president and CEO of T-Mobile. “It only makes sense for the Un-carrier to do to TV what we’re doing to wireless: change it for good! Personally, I can’t wait to start fighting for consumers here!”

“No market needs Un-carrier-ing more than pay TV, so we’re completely stoked to join T-Mobile in disrupting the status quo!” added Jeff Binder, CEO of Layer3 TV. “Together with T-Mobile, we’re going to ditch everything you hate about cable and make everything you love about TV better.”

The sale represents another M&A exit for a company started up by Binder. A VOD technology pioneer he founded, Broadbus Technologies, was sold to Motorola in 2006 for about $186 million.

T-Mobile also posted a video from Legere about the proposed acquisition: 

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More than half of TV viewers -- 52% -- say they watch their favorite shows online, while 48% watch through an MVPD set-top, according to Hub Entertainment Research's annual "Conquering Content" report, published last week.

Hub said this year marked the first time since it began tracking viewing patterns in 2014 that viewers are "more likely to say they watch a recently discovered favorite show from an online source than through their pay TV set-top box."

The report reinforces last week's Parks Associates study that found viewers favor subscription video-on-demand services over virtual MVPD services.

Related: SVOD Services Still Dominate Paid OTT Landscape

Hub noted that cable/satellite set-top box use has "been steadily declining over the past several years." In 2014, 64% of viewers watched their favorite show via an STB (either live, on a DVR or through the MVPD’s video-on-demand platform). At that time, just 31% said they watched their favorite show online (via an SVOD service such as Netflix, Hulu or Amazon, through a network or MVPD site/app, or through other online sources like iTunes).

The past year saw a 12% jump (from 40% to 52%) in the online viewership preference.

“These findings suggest that the aggressive investment SVODs are making in original and exclusive content is paying big dividends,” said Peter Fondulas, co-author of the study and principal at Hub. “In this research and other recent studies, we see clear evidence that high-profile online exclusives generate buzz that draws consumers to these platform, which not only helps attract brand new subscribers, but also builds loyalty among current customers.”

Hub's Jon Giegengack, co-author of the study, characterized the SVOD companies as transforming themselves "from technology companies that distribute content, into entertainment companies that create it."

Giegengack also observed that the amount of new content "is greater than the disposable time available to watch it." He predicted that in the future, "the share of total TV time may turn out to be a more important way to evaluate platforms than looking at the number of subscribers.”

Hub conducted its research in October among 2,214 U.S. consumers with broadband access who watch at least five hours of TV per week.

Pay TV operators and equipment vendors are facing remarkable new changes, as TV consumers increasingly become “cord cutters” and migrate away from cable and satellite providers toward cellular/mobile and fixed-wireless providers. Understanding the latter two pay TV competitors thus becomes ever more critical to managing today’s cable and satellite TV landscapes.

Some very interesting data points have emerged within the last year by way of two 80-question surveys -- one of operators and one of vendors making up the fixed wireless or Broadband Wireless Access (BWA) sector.

The two surveys were conducted in late 2016 and well 2017 by my research firm, The Carmel Group, drawing from hundreds of members of the dominant U.S fixed wireless/BWA trade group the Wireless Internet Services Providers’ Association (WISPA), which was among nearly 20 investors that sponsored the findings. (The investors’ viewpoints had no effect on the surveys’ outcome.)

The study found that 169 out of 555 WISPA member respondents answered the operator questions, whereas more than 20 of WISPA’s 44 equipment vendors responded to their specific vendor survey questions. Both response rates are more than double the typical response rates for “external” and “independent” surveys done nationally by outside third parties.

Residential Consumer Broadband Comparative Economics
This section of the study compares five key Pay TV benchmarks, including capex per subscriber relative to BWA, speed, upgrade costs, broadband ARPU; and payback period.

Most telling perhaps is the payback period. In the case of cable, that timeframe is estimated at 38 months, or more than three years. Higher still is that of fiber, at 60 months or five years. Mobile/cellular payback is estimated to arrive after almost two years, while satellite and BWA best that metric by coming in at one year and 11.5 months, respectively.

However, for purposes of the relative analysis, the estimated average $250 million cost of launching a satellite was not included in the 12-month satellite return on investment (ROI) time frame. The surveys and the report confirm that the fixed wireless/BWA is the most cost-effective infrastructure for broadband and video today.

At the same time, typical and maximum delivery speeds are improving to the point where fixed wireless/BWA speeds are topping out at 100 Megabits per second (Mbps). Some can provide more than 1 Gigabit per second (Gbps) to fixed wireless/BWA end users.

Survey Questions
The surveys also asked about expectations; vendor equipment and improvements; licensed versus unlicensed and “lightly licensed” spectrum; monthly churn; ARPU; and revenue. Additional questions about ancillary services, challenges, opportunities, access and transmission points were also included.

One particularly interesting question was, “What Kinds of Licensed and Unlicensed Point-To-Point Frequencies Each Operator Is Using And What Percentage Each Represents?”

The results said 5.72-5.85 Gigahertz (AKA: U-NII-3) was used by nearly 40% of the respondents. Next, with 25%, was 5.25-5.72 Gigahertz (AKA: U-NII-2), and then, with 20% usage, was 5.15-5.25 Gigahertz (AKA: U-NII-1). A number of spectrums being considered that will be opened up in the years ahead, some point-to-point and some point-to-multipoint, in licensed, unlicensed and shared spectrums, might significantly affect this.

The Citizens Band Radio Spectrum (CBRS) deployment is one of these. Among “opportunities” in the BWA ecosystem, the surveys respondents cited “new spectrum developments” as the most promising.

Seven Growth Drivers
The two surveys also identified growth drivers that are expected to help propel the industry forward:

• As noted above, Fixed Wireless/BWA costs less.
• Spectrum trends favor fixed wireless/broadband.
• Video is fueling overall growth in demand for broadband.
• Standards-based technologies give BWA providers more choices.
• Capital availability and governmental support are growing,
• New entrants are validating the business model.
• And new market and service opportunities are creating new opportunities.

Subscriber and Revenue Growth
The study also highlights the remarkable growth that is expected in terms of both subscribers and revenue. In light of expected declines during the same timeframe among satellite and cable operators, the rather conservative estimates show that today’s BWA industry is the fastest growing sector in all of broadband.

BWA Challenges
The BWA operators also identified several key challenges they foresee. These include: (1) competition from other broadband distributors; (2) yet-to-fully-develop access to financial funding markets; (3) inadequate and uneven governmental support in the areas of spectrum allocation and financial incentives; and (4) the BWA industry’s relatively small size, lack of scale and consolidation, which in turn affects the BWA industry’s ability to educate investors, legislators, regulators, media and the general public.

Other Survey Data
The full report is available free-of-charge at The Carmel Group’s website by going to www.carmelgroup.com (click on the title, “2017 Broadband Wireless Access (BWA)/Fixed Wireless Report”). The actual sets of questions asked of both the Vendors and the Operators are also available for download (via the link titled “2017 BWA Survey”).

An old adage has it, “Know Your Friends Well, Your Enemies Better.” Whether today’s cable and satellite operators list fixed wireless/BWA as a friend or foe, and whether today’s pay TV and broadband providers combine different infrastructures to achieve their distribution ends, it is high time to learn more about BWA providers in the U.S. and around the world. Indeed, the Philippines reports a system of more than 1 million users, and significant deployments of fixed wireless technology are seen today in Russia, Brazil, Italy, Canada and Australia.

Jimmy Schaeffler is chairman and CSO of The Carmel Group, a streaming/broadband, broadcast and pay TV/video consultancy based in Carmel by the Sea, Calif.

Cable operators have a few years left of continued increased capital spending, but advances in customer equipment coupled with increasingly intelligent and high-capacity networks could drive spending down substantially.

Overall capital spending as a percentage of revenue could drop from its current level of about 15% of total revenue to 10% in the next five years, according to a report by U.K.-based New Street Research.

On average, New Street estimates that capex per home passed could fall from its current level of about $140 to around $120 per home passed. And that’s after some operators — Altice USA and Charter Communications — complete ambitious network upgrades aimed at increasing data speeds and improving efficiencies.

FTTH Buildout
Altice USA is well underway with its “Generation Gigaspeed” project to bring fiber directly to the home. The upgrade is expected to take five years, and the company recently said it is on track to reach 1 million homes with fiber by the end of 2018.

While Altice is expected to see capex rise slightly in the next few years as it goes through that project — Morgan Stanley media analyst Ben Swinburne estimated it would spend an additional $3 billion over the next five to six years on Gigaspeed — other operators will see their capital commitments shrink.

That freed up cash could be used to bolster other parts of the business, introduce new products or simply be returned to shareholders in the form of stock buybacks and dividends.

Pivotal Research Group CEO and senior media and communications analyst Jeff Wlodarczak said he believes how the extra money is used depends on the operator. For Charter, he sees most of that capital being reallocated to stock buybacks. In Comcast’s case, it could possibly go toward M&A; and for Altice USA, debt retirement and M&A.

“Eventually, after a couple years of decline, I think that all starts moving in the direction of Altice USA, to [fiber-to-the-home] where demand warrants,” Wlodarczak said.

Not everyone is convinced that capex is on the way down though. Moody’s Investor’s Service senior vice president Neil Begley said in an email message that while smaller operators may see some declines, the larger players will stay at or around current levels.

“I think that video product development and wireless spending will keep capex high for the large players,” Begley said. “But for the smaller players, since they do not possess the scale to develop their own software and hardware applications, and are unlikely to spend much on wireless other than to extend some fiber, there is a good chance for capex to decline to maintenance levels and commercial extensions of fiber.”

Capital expenditures have been up and down for cable operators over the years, especially as MSOs have embarked on new product and service initiatives.

Comcast, which began the national launch of its X1 platform in 2012, saw its capital spending rise sharply as it deployed new boxes and beefed up infrastructure across its markets. Capex for the company, which had normally risen by about $100 million per year prior to 2012, began to rise by about $500 million annually after that date. But that spending is expected to decline beginning this year, from $7.6 billion in 2016 to $7.02 billion in 2017 and to $6.8 billion by 2018, according to MoffettNathanson principal and senior analyst Craig Moffett.

Similar capex reductions are expected at other cable operators.

Longer CPE Life
Cable companies are approaching the end of the most recent upgrade cycle, according to the New Street Research report, written by analysts Frank Knowles and Andrew Entwistle.

What’s different this time is that new CPE in the form of set-tops and WiFi router equipment can be upgraded remotely, which should extend the life of the equipment substantially.

With the increasing trend of placing storage and functionality in the cloud, the era of the bulky set-top box also could be coming nearer to a close. New Street predicted that, long term, the typical set-top box will essentially be a dongle with IP access and encryption but with storage and intelligence housed in the cloud.

“We can see an end in sight for the expensive set-top box as storage and functionality move to the cloud, but offsetting this from a capex perspective is the increasing cost of solving customers’ in-home networking problems,” Knowles and Entwistle wrote. They added that additional costs for WiFi equipment, like home network hubs, could be offset in the short term by charging more for the service and in the long-term through reduced churn and better customer satisfaction.

Cox Communications is already doing this with its Panoramic WiFi product, a whole-home WiFi solution that costs about $9.99 per month. Comcast’s xFi product, a cloud-based home WiFi management platform, became available to existing customers in May at no additional charge.

New Street estimated that CPE costs per customer were fairly stable between 2012 and 2015 at about $100 per customer, but have fallen sharply in recent years, to under $80 per customer by the second quarter of this year.

Costs vary among operators – Comcast is deploying more expensive X1 boxes while operators like Cable One have de-emphasized video. But New Street expects CPE reductions alone to result in a 15% savings in overall capex per home passed from nearly $140 to $120.

“We think that core network spend can reduce as networks are modernized and virtualized, leading to savings in equipment maintenance and in space/power,” the analysts wrote.

The largest U.S. pay TV providers, representing about 95% of the market, lost about 655,000 net video subscribers in Q2 2017, improving slightly from a loss of about 715,000 subs in the year-ago quarter, Leichtman Research Group found in an analysis released Thursday.

RELATED: Kagan: Pay TV Loses 976K in Q2

Those providers had 92.6 million video subs at the end of the period, with the top six cable operators having 48.4 million, compared to satellite TV (32.7 million), the largest telcos (9.5 million), and a new breed of virtual MVPDs (1.9 million).

LRG said the top MSOs lost 190,000 in quarter, improving on 225,000 losses in Q2 2016, and representing the fewest net losses for cable in any second quarter since 2006.

RELATED: Traditional MVPDs Lose Record 941K Subs in Q2: Analyst

Satellite TV providers (Dish Network and AT&T-owned DirecTV) lost 435,000 in Q2, versus a year-ago gain of 15,000 subs. The top telcos shed about 270,000 video subs in Q2, narrowing a year-ago loss of about 550,000.

Virtual MVPDs such as DirecTV Now and Sling TV combined to add 235,000 subs in Q2, compared to 45,000 net adds in Q2 2016.

Those OTT adds helped to offset some of the traditional pay TV losses, which totaled 895,000 in Q2 2017, versus a loss of 760,000 in the year-ago quarter, LRG said.

“While satellite TV services, DIRECTV and DISH, had more combined net losses in 2Q 2017 than in any previous quarter, these losses were partially offset by gains from their Internet-delivered flanker brands, DIRECTV NOW and Sling TV,” Bruce Leichtman, LRG’s president and principal analyst, said in a statement. “These Internet-delivered services (along with the others that do not publicly report results) are now clearly part of providers’ segmentation strategies and consumers’ pay-TV options.”

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.

The Walt Disney Co.’s decision to take its powerful content direct to consumers via streaming puts its traditional distributors in an unprecedented place.

Already, traditional pay TV subscriptions are falling. Disney said Tuesday (Aug. 8) during its earnings call that ESPN’s subscriber total was down 3.5% -- a big bite for a network that makes about $7 per month per sub.

“There are many investors who believe that Disney, more than any other company, is responsible for holding what's left of the bundle together,” said analyst Todd Juenger of Sanford C. Bernstein, in a research note.

“Those that hold that view have been waiting for Disney to drop this bombshell, signaling the end of the bundle as we know it," Juenger added. "Did Disney just do that? The answer depends on how much you want to take the (scant) descriptions of these services at face value.”

Related: Losing Disney Movies May Not Hurt Netflix: Analyst

To Marci Ryvicker of Wells Fargo, Disney's announcement led to many unanswerable questions.

"The ESPN service sure sounded to us like management is positioning it (for now, at launch) as an 'add-on' service that would mostly sit on top of the existing ESPN linear networks and deliver extra value and features," Ryvicker said in a note. “How does this impact DIS's upcoming affiliate renewals (CEO Bob Iger did state that he has NOT had conversations with the cable distributors on these services just yet)? How will peers and partners react?”

MCN Flashback, July 27, 2015 > Report: Iger Says ESPN Could Go Direct to Consumer in Five Years

Iger indeed said during the earnings call that Disney had not discussed its plans with its distribution partners. He seemed to think there would not be a backlash.

“As we enter a new round of distribution negotiations, we have all the confidence in the world in our ability to strike deals that are favorable to the company, given the strength of the product that we offer, particularly the strength of the brands,” Iger said.

“If you look very specifically at ESPN, we still see it as a must-have service for the multichannel providers because of the array of product that ESPN has licensed, and what they produce is original programming for the service,” Iger said. “We have seen, as I think that many of you have, a pretty interesting and dramatic increase in -- I'll call it 'app-based media consumption.' Much of it is on over-the-top, direct-to-consumer services.”

How will cable operators react?

“The MVPDs also now face a tough decision," Juenger said. "View this as an upsell partnership? But watch your backs when Disney reaches the inevitable pivot point and decides to go around you.

“Disney makes it sound like they want to position this as a win/win: ‘Upsell your subscribers to new levels of service,’" Juenger continued. "On the other hand, all it will take is a flip of the switch, and Disney can cut the MVPD out of the equation entirely. We can't think of much upside for the MVPDs to be combative with Disney at this stage, at least for the big MVPDs.”

Related > Making the Right Moves: Distributors Strategize in a New Era of Programming

There will be even more pressure on small distributors who are not making money on video and might exit that business to keep making money on high-speed internet.

“But we think the MVPDs will certainly be trying to think of ways to protect themselves against the inevitable future date when Disney goes completely direct,” Juenger said.

Read more at broadcastingcable.com.

The triennial election cycle for commercial broadcast stations will occur again this fall. And where broadcasters elect retransmission consent, one can expect the negotiations to be even more contentious than the last election cycle (2014).

If recent election cycles are any guide, broadcast stations can look forward to average license fee increases of more than 1,000% over the inflation rate. For some of the smaller cable operators, the current cycle will likely see a $3-per-subscriber rate for the first time for retransmission of the Big Four network stations. Cable systems can expect broadcasters to request license fees not only for the primary broadcast signal, but for each broadcaster’s multicast signal as well. To paraphrase a line in the Mel Brooks film History of the World: Part I, “It’s good to be a broadcaster.”

In addition to license-fee increases on multiple channels, multichannel video programming distributors can expect no relief of any kind from the Federal Communications Commission. While the FCC occasionally rouses itself to the appearance of action, its record of indifference is a matter of record.

In 2000, the FCC promulgated a good-faith bargaining standard incumbent on all broadcasters. Seventeen years and thousands of retransmission-consent negotiations later, the FCC has never found a single instance of bad faith dealing on the part of any broadcaster. The FCC’s bias is so well known that MVPDs have given up filing bad-faith dealing complaints. Occasionally, the FCC will add a new category of per se violations to its bad-faith standards, but it has steadfastly refrained from ever finding either a per se violation or a totality of the circumstances violation on the part of any broadcaster. Yes, “it’s good to be a broadcaster.”

MVPDs can expect broadcasters to insist on some very expensive new asks including those with an anti-consumer flavor. Broadcasters will seek to prevent consumers from being able to skip commercials. Although the technology exists for ad skipping and the MVPDs would like to offer this functionality to their subscribers, broadcasters almost always insist on prohibiting MVPDs from offering this feature to consumers. One might be forgiven for thinking that, as consumers will ultimately bear the economic burden of the gargantuan increases in broadcaster license fees, that consumers ought to be able to avail themselves of technologies that MVPDs are willing to provide gratis. That will not be happening anytime soon.

Finally, it is reasonable to assume that broadcasters will demand a commitment from MVPDs to retransmit broadcast signals in the new ATSC 3.0 format.

Even though the ATSC 3.0 standards have not yet been adopted by the FCC, the broadcasters will be insisting that MVPDs retransmit the ATSC 3.0 broadcast signal whenever the FCC issues its final regulations. While no one can predict what the standards will be, what we do know is that it will be expensive for MVPDs to retransmit these signals, because the ATSC 3.0 format is not “backward-compatible” with current equipment. To receive and retransmit an ATSC 3.0 signal, MVPDs will need to purchase new receiving and transcoding equipment, switch out set-top boxes for many subscribers and allocate more capacity for retransmission of broadcast signals in the ATSC 3.0 standard.

It’s good to be a broadcaster.

Gil Ehrenkranz is counsel at Manatt, Phelps & Phillips in Washington, D.C.

INDIANAPOLIS — With the rest of the cable industry focused on the possibility of Scripps Networks combining with either Discovery Communications or Viacom, Sanford Bernstein media analyst Todd Juenger warned that one of the catalysts for a deal — preserving double-digit affiliate fee increases — won’t last too much longer for any cable programmer.

Update: Discovery to Buy Scripps Networks for $14.6 billion

Gross margins on video programming for the average cable operator are about $21 per subscriber per month, after affiliate fees and customer expenses, Juenger noted on a panel at The Independent Show here. Juenger estimated that by 2018, that gross margin would shrink to $15 per month per subscriber.

“If nothing else changes, how long is it until that $20 per subscriber per month goes to zero?” Juenger asked. “The answer is 2023.” In order to maintain profit margins, either affiliate-fee growth must slow down or networks have to be dropped, he added.

Juenger had an answer for that, too. Of the 10 network groups that control the bulk of programming and affiliate fees, he said distributors have several choices.

Weighing Net Losses
The greatest financial impact, he said, would come from dropping The Walt Disney Co.’s networks — including broadcaster ABC and ESPN, pay TV’s priciest network — as Disney charges the highest affiliate fees at $11.49 per sub, per month. But it could also prompt the greatest number of subscribers to switch providers: 43%, by Juenger’s estimate.

Dropping Discovery Communications, Scripps Networks, AMC Networks and CBS would have the smallest subscriber impact — under 10% for each network group — but also the least financial impact. All four networks combined have total fees of less than $4 per subscriber per month.

That leaves Viacom, which has affiliate fees of about $3.50 per subscriber per month and had already been dropped by Cable One, Suddenlink Communications (later restored after its purchase by Altice USA) and several smaller cable operators. Those distributors have lost video customers at a higher than average rate, at least partly attributable to shedding the Viacom channels. Cable One has shed about 20% of its video base in the past two years, compared to 2% to 3% for the rest of the industry. But Cable One was willing to sacrifice what it believed to be less profitable customers and has focused on broadband for years.

For Juenger, it’s a simple case of economics. Ultimately, it comes down to how many subscribers a distributor is willing to lose. According to Juenger’s calculations, dropping Viacom would result in losing about 15% of a distributor’s video base.

“If you can stand to lose 15% of your subscribers, you should drop Viacom,” Juenger said, adding that he wasn’t singling out the company because of some personal vendetta. “If you drop Disney, you’ll have a tougher time maintaining subscribers.

“Everybody has something to break,” he added. “This is why the networks cannot continue to harvest these big price increases. It’s no longer financially viable to carry it.”

But it is just that fear of eroding affiliate-fee growth that is pushing some networks together. Scripps Networks, which has about eight channels including HGTV, Food Network, Travel Channel and CMT, is in merger talks with Discovery Communications. That’s after Viacom dropped out of the running for Scripps, after reportedly readying an offer of $10.6 billion in cash.

The Discovery bid is expected to top $90 per share for Scripps, a 34% premium to its close on July 18, when merger talk first surfaced.

Read More: Complete Coverage of the Proposed Discovery-Scripps Merger

Fighting Scale With Scale
Merger proponents say smaller players need scale economics and added carriage for negotiating leverage. That’s because distributors have also been very active on the M&A front to give them more scale and leverage against programmers.

With big deals like Charter Communications-Time Warner Cable completed, and AT&T’s $108.7 billion purchase of Time Warner Inc. winding through the federal approval process, several other smaller deals have popped up in the past few months. TPG Capital has been particularly aggressive in the space — it snapped up RCN and Grande Communications last year for $2.25 billion, and in May agreed to purchase Wave Broadband for $2.36 billion. Cogeco Cable, the Canadian parent of Atlantic Broadband, agreed to buy Harron Communications’ MetroCast operations for $1.4 billion.

For smaller operators, the main catalyst for deals is to expand fiber and broadband networks. For many, video is becoming a second-class offering — small operators CableOne and Suddenlink Communications were the first to drop a major programmer (Viacom) in 2014.

According to a panel session at last week’s Independent Show, more deals are expected to come.

“Markets are strong across the board. We’re seeing that in the checks the private equity guys are writing,” said CoBank senior vice president Ted Koerner at a TIS session moderated by DH Capital co-founder and chairman Joe Duggan.

A group of privacy advocates have asked the Federal Trade Commission to act on a complaint against MVPDs' collection and use of subscribers' personal information.

The group filed a complaint a year ago charging that Comcast, AT&T and Cablevision (owned by Altice USA) were not providing adequate disclosure of their collection and marketing of customers' personal information gleaned from set-top boxes.

In a letter dated June 12, those groups -- Public Knowledge, Center for Digital Democracy, TURN–The Utility Reform Network, Consumer Watchdog, Consumer Action and Consumer Federation of America -- urged the FTC to act on the complaint.

An intervening court decision -- FTC v. AT&T Mobility -- cast doubt on the FTC's authority to act on the privacy practices of the non-common carrier businesses of common carriers; AT&T, Comcast and Cablevision are all ISPs under Title II classification at the moment.

But they pointed out in the letter to FTC chair Maureen Ohlhausen that the even-more-recent decision by that court has vacated the earlier decision, so the FTC is now free to act on the complaint, and should.

Related > FCC to Court: FTC Common-Carrier Exemption Is Activity Based

"You have underscored the important role that the FTC plays as an expert cop on the privacy beat, and now that the AT&T Mobility decision has been vacated, it is time for the FTC to do some policing." they wrote. "We ask that you now publicly and expeditiously resolve the pending complaint concerning cable TV and satellite TV privacy, an area of joint jurisdiction with the FCC."

Related > Court Throws Out Throttling Case Against AT&T Mobility

The U.S. Court of Appeals for the Ninth Circuit last month agreed to an en banc (full court) review of its three-judge panel decision that left the Federal Trade Commission's authority to oversee privacy in some circumstances very much in doubt. The court also said that in the interim that panel decision was not to be cited as precedent of the Ninth Circuit. Such en banc review is unusual, but the decision had prompted a lot of attention given that potential consumer privacy impact.

PBS, the Corporation for Public Broadcasting and America's Public Television Stations, which have been doing their FCC commenting collectively as "PTV," have told the FCC it should reject some MVPDs' suggestion that public TV stations pay the costs for operators to receive the new ATSC 3.0 signals.

That came in reply comments filed with the FCC, due this week, on its proposal to let broadcasters roll out the new IP-based transmission standard on a voluntary basis. FCC chair Ajit Pai has said he wants to have a final order allowing that rollout ready for a commission vote by year's end.

Related: Sinclair Takes Aim at MVPDs Over ATSC 3.0

In the filing, PTV pointed out that some MVPDs asked the FCC in their comments to require stations to cover both the costs of getting the signal to the MVPD and the costs MVPDs "may incur" in receiving and transmitting the signal.

PTV called that an attempt to punish stations for voluntary deployment of next-generation television.

"[T]the Commission should reject requests to shift that cost to public television stations," the noncoms said. "The fact that a PTV station may make its ATSC 1.0 signal available via an arrangement with a transmission partner is no basis for changing this well-established division of responsibilities."

The FCC has proposed allowing stations to take a Jack Spratt approach to the transition, with one station delivering both its own and an in-market partner's signal in ATSC 3.0, while the other station broadcasts both its own ATSC 1.0 signal (the current standard) and its partner's.

PTV, which was one of the original petitioners that asked for the ATSC 3.0 rollout, is squarely behind that approach and, for regulatory purposes, treating the originator as the regulatory entity. That way, noncoms could share with commercial stations, since the noncom would be credited as the originator, rather than the commercial partner that was delivering the noncom signals.

Multichannel video programming distributors have a July 10 deadline for making their TV Everywhere programming more accessible to the blind and visually impaired everywhere.

The FCC's Consumer and Governmental Affairs Bureau has been reminding those MVPDs this week that as of that date they are required to pass through a secondary audio stream of emergency information if their service allows subscribers to access linear (prescheduled) programming services via second-screen devices such as laptops and smartphones.

The agency had given MVPDs two years to bring all their applications and plug-ins into compliance.

Related: FCC Proposes Extending Emergency Alerts to Second Screens

It's yet another step in the FCC's ongoing implementation of the Communications and Video Accessibility Act (CVAA) of 2010 requirement that emergency information appearing in breaking news crawls and graphics are accessible.

The definition of linear programming subject to the requirement is network programming that "can only be received via a connection provided by the MVPD using an MVPD-provided application or plug-in." So, it does not apply to programming that is only distributed via the Internet (Netflix, Hulu) that is accessible by subs using either an MVPD-provided broadband connection or a third-party ISP connection.

The FCC also reminded manufacturers that they are required to provide a way, comparable to a button or icon, to easily activate that secondary stream. They have been required since last December to do so.

Back in May 2015, the FCC voted unanimously (with some partial dissents from the Republicans) to require cable operators and other MPVDS to make emergency alert information accessible to the sight-impaired when their traditional programming lineups are accessed on second screens.

Cable ops had been lobbying to confine the second-screen requirement to second screens in the home, but the FCC chose not to limit it.

Sinclair Broadcasting said MVPDs have been "vastly overstating" the impact on ATSC 3.0 on their business, including making false claims about royalties from patents related to the new broadcast transmission technology and disingenuous assertions about how their systems work.

The station owner's charges came in reply comments on the FCC's proposal to allow broadcasters to voluntarily roll out ATSC 3.0.

Related: MVPDs Want Retrans Buffer in ATSC Rollout

Sinclair argued that cable operators are using the rollout to justify a laundry list new regulations on broadcasters' carriage rights, calling it a "transparent" attempt to hijack the proceedings" and turn it into a referendum on retrans.

Related: ACA to FCC: Consider ATSC 3.0 Impact on Smaller MVPDs

MVPDs have told the FCC that broadcasters should have to separate ATSC 3.0 carriage from carriage of their 1.0 signals so that they can't effectively compel 3.0 carriage.

"Most of the MVPDs' asks are rehashed versions of the same overbearing rules they have failed to secure in a decade of direct challenges to the free marketplace retransmission regime Congress adopted."

While some commenters have said the ATSC 3.0 rollout could affect the timeline for repacking stations post-auction, Sinclair said flatly, "It will not."

That said, it still thinks the 39-month timeline is "wholly unrealistic," but said the ATSC 3.0 rollout does not increase the time needed for repacking.

Sinclair also took aim at the suggestion that broadcasters be treated "as secondary to unlicensed white spaces devices."

Computer companies want to make sure that broadcasters don't get any extra spectrum for ATSC 3.0 from channels they wants reserved for wireless broadband.

"The hard capacity limits of existing stations will be stretched during ATSC 3.0 rollout as the same stations attempt to double the number of streams they transmit with the same spectrum assignments," Sinclair told the FCC. "The Commission should make vacant channels available to broadcasters, or to groups of broadcasters, on a temporary basis to improve service to consumers during the transition."

It is a brave new world for television. As more consumers embrace cord-cutting, cord-shaving and skinny bundles, multichannel video programming distributors have started to gain the upper hand in negotiations with the big cable networks. It’s time for those cable channels that have been riding on the coattails of their big-brand parent companies to face the music.

Distributors are no longer being forced to take on smaller, low-rated channels to appease the Viacoms or Disneys of the world. They are no longer interested in having six MTV channels when all they want is the original-flavor MTV. They can pass on having eight Nickelodeon channels when the original Nickelodeon will do. One thing that’s been said – and bears repeating – is that distributors are looking for something non-duplicative. Having 16 music channels is clearly overkill. And being forced to take MTV Tres in order to get MTV is tantamount to being held at gunpoint.

Related: Viacom’s Bakish Touts Skinny Bundles

Earlier this year, we saw reports that Viacom is planning to narrow its focus to six key channel brands – Nickelodeon, Nick Jr., MTV, Comedy Central, BET and Spike – while shifting away from smaller brands like CMT and TV Land. What message does that send to MVPDs? Are Viacom’s other brands still viable?

We’re at a day of reckoning for the large media conglomerates who have relied on the successes of their popular networks to protect their smaller, less appealing networks. They no longer have the leverage needed to force distributors to buy their large bundles of networks. For the first time, these smaller networks must stand on their own and step out from under their parent company’s protective wings.

Before, a distributor trying to get subscribers couldn’t afford not to have the key brands like MTV, CNN, Nickelodeon, etc., so they bit the bullet and loaded up on their other channels too. That’s no longer the case. With so many other choices for entertainment, the power balance has shifted, and the MVPDs now have the upper hand. In the age of the skinny bundle, distributors are free to ignore the privileged, spoiled kids and focus on the scrappy, punk upstarts that offer the kind of content their subscribers are interested in.

The current opinion is that independent channels are in danger, that they will get lost in favor of skinny bundles. This is not necessarily true. As skinny bundles are introduced, the smaller networks that had previously secured carriage via larger network leverage will no longer have the luxury of being safe within a larger network group. Instead, the playing field has been leveled for all smaller nets – the independents and those under a larger corporate umbrella.

MVPDs should not be pressured into buying smaller nets if they want the larger nets under that same umbrella. All networks should – and soon will – prove the value of what they represent as a network. Unraveling these large network bundles into smaller, skinnier bundles will allow the independent cable network a chance to shine. In this new, free market, the indie doesn’t have to worry about competing against the smaller net that relies on its parent company. The indie can stand up against that smaller net on its own and, if the indie’s product is appealing, the indie will survive.

This unbundling is causing the smaller nets that previously had the support of their parent companies to step up their game. If they were only surviving because of their parents, they might not be long for this world. Meanwhile, the independent cable networks have been on their own and made it work. They’re at an advantage. Before, independent networks had been unable to secure as much distribution as possible simply because many of these smaller channels were taking up space. If these smaller channels go away, wouldn’t there be more opportunity for independent networks to begin to gain distribution? The demise of the smaller networks within the conglomerate portfolio could be more beneficial for independent nets.

In the past year, we’ve seen ABC Family and VH1 Classic become Freeform and MTV Classic, respectively, and go down in viewer ratings. This February, NBCUniversal announced that it would be reformatting Oxygen network with true-crime programming geared toward women. After getting dropped by AT&T’s DirecTV and U-Verse, NBCUniversal announced that it will shutter Esquire Network and relaunch it as a digital-only platform. We’ve seen ESPN2’s 19% ratings dip for parent company Disney. Syfy is down 30% for parent company NBCUniversal. USA (NBCUniversal), TNT (Turner), Discovery (Discovery Communications), History (A&E Networks), AMC (AMC Networks) and FX (Fox Entertainment Group) were all down year-to-year in viewers as well.

There are some smaller networks that have been able to grow their ratings under their parent companies: SundanceTV (AMC Networks), Logo (Viacom), Bravo (NBCUniversal), OWN (Discovery) and El Rey (Univision); but overall, ratings have been in decline. It’s a tough market.

The smaller, independent networks that never had the support of a larger parent company are already used to fighting tooth and nail to support and promote their content. They’ve always had to prove themselves. That is why you see ratings growth for indie networks like Hallmark Channel, DIY, Ovation and WGN America. If you have a product worth watching, people will show up.

Not every independent network has been so lucky. We saw what happened to Participant Media’s Pivot TV last year. While some said that Pivot was the first casualty of skinny bundling, others say that it was too niche to survive, bundling or not. If your content is not in demand, should you survive? If you don’t have a big parent company, probably not. Now, in the age of cord-cutting and cord-shaving, if you do have a big parent company, you might not either.

Liz Janneman is executive vice president, network strategy, at Ovation TV. Image by Gearstd, iStock/Getty Images.

While traditional Pay TV operators have generally suffered customer declines due to new virtual MVPDs and other over-the-top providers, those very same newcomers have offset losses for the big programmers.

For at least the past two years, most cable programmers have seen traditional TV carriage dip about 2% annually as customers either drop service, reduce their programming packages or take their money elsewhere. The growing number of competitors — the latest, Hulu Live TV, launched its beta-test version last week (see Cover Story) — has steadily chipped away subscriber rolls at the top pay TV distributors.

Comcast, the only major cable operator that gained basic video subscribers last year (161,000) and in the first quarter (42,000) did so largely through retention efforts and the rollout of its next-generation X1 platform. X1 also has given customers better access to subscription video-on-demand services; X1 includes an embedded app for Netflix with others likely to follow.

In April, Comcast launched a wireless service, Xfinity Mobile, that should also boost those retention efforts.

On the programming side, some content providers are the streamlined services counteract losses resulting from their networks being part of a larger pay TV bundle.

Time Warner Inc. chairman and CEO Jeff Bewkes said on an earnings call last Wednesday that virtual multichannel video programming distributors (vMVPDs) are having an impact. “It’s mitigating some of the declines at the traditional providers,” he said. “So, if new offerings can combine that kind of attractive pricing and packaging with the sort of new 21st century on-demand platforms, interfaces, then we think they can definitely attract new subs into the network system. And that’s a great opportunity for Turner and every other network to find its natural audience.”

CBS chairman and CEO Les Moonves said the company will bundle its CBS All Access and Showtime OTT offerings for the first time this year while continuing to offer them separately. For any skinny bundle to survive, he said, it must include the CBS network.

“We are not being affected in any way by any changes in subscription numbers throughout the industry,” Moonves said on the call.

While consumers seem ready to drop premium channels such as HBO, Showtime and Starz from their traditional pay TV packages, they’re snapping them up through other avenues, Morgan Stanley media analyst Ben Swinburne found in a recent report.

In a recent survey of about 3,100 pay TV customers, Swinburne noted that premium uptake is down so far this year compared with last year — about 46% of respondents said they had at least one premium network, vs. 53% in 2016. But he still predicted premium network subscribers would be up in 2017, as they have been for the past five years, due mainly to digital distribution.

Every premium channel has a digital direct-to-consumer counterpart, which also stems the losses. And the vMVPD field, once occupied solely by Sling TV (which launched in 2015), has become increasingly crowded.

In addition to apps from individual networks, services like CBS All Access, Sony PlayStation Vue, DirecTV Now and YouTube TV are increasingly gaining customers. Swinburne estimated by the end of this year, virtual MVPDs will have 3 million subscribers.

Hulu Live’s launch is another sign of increased vMVPD traction, Swinburne said. “Notably, we believe Hulu should benefit from its existing, scaled direct-to-consumer subscriber base and its ability to drive advanced advertising innovation,” he said.

Hulu Live should do well because it will carry “gold” tier networks from The Walt Disney Co., CBS, NBCUniversal and Time Warner, as well as Scripps Networks Interactive’s three core channels of HGTV, Food Network and Travel Channel, said Swinburne. Hulu’s owners — Disney, Fox, NBCUniversal and Time Warner — should also “benefit from involvement in a new distribution platform as pay TV consumption continues to evolve,” he added.

RELATED > Four for the Money: Consolidation Wave Creates Top-heavy List of Pay TV’s Largest Players

1. AT&T-DirecTV
Subscribers: 25.3 million
As the undisputed MVPD leader for the second year in a row, AT&T has turned its eyes toward over-the-top distribution (DirecTV Now) and content, via the pending $108.7 billion purchase of Time Warner.

2.Comcast
Subscribers: 22.5 million
After six straight years of improved losses, Comcast finally entered the black in 2016, reporting its first full year of basic videosubscriber growth (161,000 customers) in a decade.

3.Charter Communications
Subscribers: 17.2 million
Six months after it closed the purchases of Time Warner Cable and Bright House Networks, Charter was said to have caught the eye of Verizon, a combination many consider too costly and too hard to pass by regulators.

4.Dish Network
Subscribers: 13.7 million
Dish surprised analysts by adding 28,000 net new subscribers in Q4, primarily driven by growth at its over-the-top service Sling TV. Sling added 273,000 customers while traditional satellite lost 245,000, according to analysts’ estimates.

5.Verizon Communications
Subscribers: 4.7 million
Verizon has been shedding some of its Fios TV assets — it sold 1.1 million customers to Frontier Communications last year — leading some to believe it is abandoning its wireline business for a mobile strategy.

6.Cox Communications
Subscribers: 4.1 million

7. Altice USA*
Subscribers: 3.6 million

8. Frontier Communications
Subscribers: 1.5 million
Frontier closed its $10.5 billion buy of Fios TV assets in California, Texas and Florida last year, suffering a series of outages after the “flash cut” switchover. Frontier said it has ironed out those problems and is fully committed to video.

9. Mediacom Communications
Subscribers: 828,000

10. WideOpenWest
Subscribers: 486,400
The sale of WOW by longtime cable private equity player ABRY Partners to Crestview Partners last year marked the industry return of a cable pioneer, namely former Marcus Cable CEO and current Crestview partner Jeff Marcus.

11.Texas Pacific Group (TPG)
Subscribers: 377,000
The new kid on the MVPD block, TPG vaulted to the No. 12 spot after purchasing RCN and Grande Communications in a deal valued at $2.25 billion.

12. Cable One*
Subscribers: 329,386
After taking a broadband-centric tack in 2012, Cable One’s video customers are down to 330,000 from 600,000. A possible seller, but bought New Wave Communications systems in January for $735 million.

13.CenturyLink-Prism
Subscribers: 325,000
High programing costs are pushing CenturyLink to de-emphasize the Prism IPTV product in favor of Prism Stream, an over-the-top offering expected to launch in Q2. Next up: closing its $34 billion merger with Level 3 Communications.

14. Atlantic Broadband
Subscribers: 246,000

15. Armstrong Cable
Subscribers: 219,700

16. Midcontinent
Subscribers: 218,300

17. Service Electric
Subscribers: 188,000

18. Blue Ridge Communications
Subscribers: 150,000

19. Telephone & Data Systems
Subscribers: 144,700

20. Wave Broadband
Subscribers: 138,000

21. Cincinnati Bell
Subscribers: 137,600
Cincinnati Bell took up the skinny bundle mantle in March 2016, launching Fioptics MyTV, a low-cost, 50-channel bundle geared at more price-conscious customers.

22. Buckeye/Block Communications
Subscribers: 128,000
Owned byToledo Blade publisher Block, Buckeye Cable launched in 1965, followed by business net Telesystems in 1997 and prepaid broadband service Nymble last year.

23. General Communication Inc.*
Subscribers: 108,900

24. NewWave Communications**
Subscribers: 86,000

25. Metrocast/Harron
Subscribers: 86,000

*Q3 figures
**NewWave agreed to be purchased by Cable One in January.

SOURCE: Individual companies, SNL Kagan,industry associations, published reports and Multichannel News estimates

Today's list of top 25 MVPDs may be the face of pay TV distribution for several years to come.

Consolidation hasn’t broken up all of the old cable gang just yet, but it has shifted the rankings of the top pay TV providers in the country. New entrants such as Texas Pacific Group, which bought Grande Communications and RCN last year, have come on the scene, as old stalwart Charter Communications, which closed on its purchases of Time Warner Cable and Bright House Networks in May, more than quadrupled its size.

But as AT&T — the biggest distributor for the second year running — now looks toward content with its pending mega-purchase of Time Warner Inc., some observers believe the age of consolidation has ended almost before it really had a chance to start.

“The industry is exiting a period of unprecedented consolidation among pay TV distributors,” Morgan Stanley media analyst Ben Swinburne said in a recent research note. “From [2015] to [2017], two major mergers led to media companies suffering from significant reductions in distribution fees, but the industry is now lapping those effects.”

The “Core Four” of AT&T, Comcast, Charter and Dish Network are expected to hold their positions for the foreseeable future, partly because none are likely to be involved in any major distribution deals in the near term and partly because if they are on the hunt for additional scale, the resulting deals probably wouldn’t move the needle much.

See the full list of Top 25 MVPDs.

BEYOND THESE: 635 MORE
The top four MVPDs control more than 80% of the 96.7 million homes represented on the list. Overall, the 25 service providers control about 96.7 million homes, or about 88% of the 110 million U.S. TV homes. With that much power concentrated in the Top 25, that doesn’t leave much for the 635 other cable operators across the country.

So unless another mega-deal is in the cards — and, despite the notion of the Trump administration’s laissez-faire attitude toward mergers, any deals involving the top four MVPDs will more likely involve a wireless provider than a pay TV distributor — the list might stand pat for at least a while.

That theory was tested earlier this month when reports surfaced that Verizon (No. 5) had approached Charter (No. 3) about a possible hookup. But even if you disregard potential regulatory and financial hurdles — most analysts think it would cost too much — combining Charter with Verizon wouldn’t push the combined company past Comcast on the list.

So much for the transformative power of scale.

“It’s hard to envision any more large-scale M&A, outside of possible wireless deals, for the next few years,” MoffettNathanson principal and senior analyst Craig Moffett toldMultichannel News. “Altice might be able to scoop up a few smaller players, but the top end of the industry is probably intractable.”

And there have been deals in the wake of Charter’s $90 billion (combined) purchase of Time Warner Cable and Bright House Networks. European telecom company Altice N.V. made the biggest splash: It snapped up Suddenlink Communications for $9.1 billion in December 2015, adding Cablevision Systems’s nearly 3 million New York-area subscribers less than a year later (June 2016) for $17.7 billion. Altice is currently taking a breather, but it could be a major player if it goes ahead with an expected initial public offering of a minority stake later this year, which could go toward cashing out some investors and providing a currency for further deals.

The year also saw new entrants (Texas Pacific Group’s $2.25 billion purchase of Grande and RCN), the return of old friends (Crestview Partners’s recapitalization of WideOpenWest) and surprises (Cable One’s $735 million purchase of NewWave Communications).

Most analysts had expected Cable One to be a seller. The midsized Phoenix-based operator embarked on a broadband-centric strategy about four years ago, forgoing cable subscriber growth to concentrate on higher-margin broadband customers. Since then, Cable One’s video customer base has dwindled from nearly 600,000 in 2012 to 329,386 in the third quarter of 2016, the latest information available. At the same time, broadband customers have grown from 459,000 in 2012 to 461,000 in the third quarter.

Meanwhile, telcos such as AT&T, which have also seen video declines, are turning their eye toward content. AT&T in October agreed to purchase Time Warner in a deal that (including debt) will set it back about $108.7 billion.

CINCY BELL MOVES UP
On the distribution side, consolidation in the wake of the Charter-TWC deal has transformed the bottom half of the Top 25 list. New entrants like Cincinnati Bell, which wouldn’t have broken the top 25 five years ago, debuted on this year’s list at No. 21.

Other telcos that have had strong past showings may be throwing in the traditional pay TV towel for an over-the-top strategy. CenturyLink’s Prism TV, which has been a steady presence in the IPTV arena, rose to 13th place this year from the No. 16 spot in 2015. But the company, citing increasing programming costs, is “de-emphasizing” IPTV in favor of Prism Stream, a new OTT product set to launch in the second quarter.

But as Moffett said, all could change — at least for the bottom half of the list — if Altice goes through with its planned IPO of a minority stake in its U.S. assets.

Telsey Advisory Group media analyst Tom Eagan expects the Altice IPO will not only unlock value — assuming mid-8-times-cashflow multiples on the other divisions, the implied value for the USA group is negative — but also could be used as currency to acquire other cable systems. Possible targets could be Cox Communciations and Mediacom Communications, Eagan speculated.

“Of course, they could split the targeted systems up with another cable buyer if they didn’t want to take on the incremental debt load alone,” Eagan said in an email message.

Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak agrees that more deals are to be done involving smaller companies outside the top five on the list, led by Altice, which he believes has the most capacity to bid aggressively for assets.

“Altice’s involvement in the U.S. is a game-changer, given their ability to take significant costs out of the business and upgrade their plant at dramatically lower costs than their peers,” Wlodarczak said.

Adding to the pressure to gain scale are rising programming costs, which puts smaller operators “in a position of either selling to a player such as Altice or moving to data-only (Cable One) strategy,” he said.

The political environment also could play a role in cable companies deciding whether or not it’s worthwhile to combine. And that’s not only because of regulatory changes expected in the Trump administration and a more favorable stance on big business combinations.

“Perhaps the biggest wildcard for consolidation among the smaller players is tax reform,” Moffett said. “Depending on how things break in Washington, you could imagine that the tax code could create a window that would make it hard for family-owned cable operators not to at least consider cashing out.”

The Federal Communications Commission released its 18th Video Competition Report on Jan. 17. Data points in the report demonstrate persuasively that the video services market is characterized by competition among cable, satellite, and telco providers of video subscription services as well as disruptive online video services. The market also is being transformed by the proliferation of media streaming devices and video apps.

Yet for all the technological advancements and proliferation of choices now available to consumers, much of the video market is still subject to regulatory restrictions that originated in the early 1990s, if not earlier. These regulatory burdens, and the uncertainty posed by the threat of new regulations based on leftover cable analog-era perceptions, impose costs and inhibit investment in advanced digital technologies and business models.

Evidence from the report revealing that the market for video products and services is innovative and competitive includes the following highlights:
MVPD Competition: At the end of 2015, 99% of all households were served by three competing multichannel video programming distributors (MVPDs), and 18% of households were served by four MVPDs. Cable MVPDs’ share of the national market was 53%, while satelitte providers served 33%, and former telephone company MVPDs served 13.4% percent. Yet total MVPD subscriptions dropped 1 million to a 99.4 million total.

OVD Competition: By the second quarter of 2016, subscriptions to online video distributor (OVD) services, such as Netflix, Amazon Prime, and Hulu Plus grew to more than 120 million. OVDs are negotiating "exclusive streaming rights, which they use to attract consumers seeking specific video content," and also "investing in original programming to attract and retain customers."

Broadcast TV Competition: Broadcast TV also remains a viable choice for video consumers. Households relying on over-the-air  broadcast service exclusive of any MVPD service increased to 12.4 million TV households in 2015. According to an analysis cited in the report, in 2015 retransmission consent fees paid by MVPDs to TV broadcast stations increased to about 23% of total TV revenue, or $6.4 billion.

Video App Use: Consumers are increasingly using apps to view video content on Internet-connected devices. More than 460 million IP-enabled consumer-owned devices support video apps.

Video Device Alternatives: The report grudgingly acknowledged “MVPDs are introducing innovative services on the devices that they lease,” yet claimed the device market lacks competition. But all MVPDs support CableCard-enabled devices manufactured by third parties. And, importantly, alternative digital devices for viewing video content today include smart TVs, Apple TV, Amazon Fire TV, Google's Chromecast, Roku, Sony Playstation and Xbox video game consoles, as well as Internet-connected Blu-Ray players, tablets, and smartphones. These developments point to a video device market that is fully competitive.

In view of the vibrant competition for video services and products reflected in the report, the FCC should review, comprehensively and promptly, its video regulations. Pursuant to its review, it should close regulatory proceedings in which it has previously proposed to expand legacy regulations.

Click here to read more of this blog.

Randolph J. May is president and Seth L. Cooper is a senior fellow of the Free State Foundation, an independent, nonpartisan free market-oriented think tank located in Rockville, Md.

Related > Viewer Watch 2017: Download the Complete Report

With new business models proliferating almost as fast as new consumer-electronics devices at this year’s CES, TV executives are recalling 2016 as a year of landmark changes that will produce even more profound developments in 2017.

“In the last year, there has been more change in the video business than we saw in probably the past five years,” said Matthew Strauss, executive vice president and general manager of video and entertainment services for Comcast Cable. “We’re just continuing to find the competitive landscape shifting. There are more services being delivered over the top to consumers. There is the growth and proliferation of Internet-connected TV devices like Roku, Apple TV or Amazon Fire. And you are also seeing new services that are delivering bundled over the top channels like Sling TV, Sony’s PlayStation Vue and DirecTV Now.”

In response, programmers and operators have introduced a flurry of new products. “In terms of video, this has been one of the biggest for Cox in all the years I’ve been here,” Steve Necessary, executive vice president of product development and management at Cox Communications, said.

Less obviously, operators and programmers continue to make massive investments in their technology infrastructures with important implications for their offerings in 2017 and beyond.

“As a company, we are investing and positioning content to be consumed on more and more platforms every day,” Discovery Communications chief technology officer John Honeycutt said, stressing that the programmer is rapidly deploying new cloud and software-based infrastructures so it can adapt to consumer needs and quickly roll out new services. “We are in the middle of a revolution in our supply chain.”

Related: Old Controversies and New Businesses

DIGITAL-FIRST REALITY

Much of this reflects longstanding changes in consumer behavior and the underlying economics of the TV, digital and media industries.

Vincent Letang, executive vice president of global market intelligence at Magna, said 2016 was the first year digital advertising exceeded total TV advertising in the U.S., garnering 39% of the total ad spend versus 37.4% for TV. Digital advertising is set to exceed total TV advertising worldwide for the first time in 2017, he added.

“We are forecasting that in five years, digital will grow to 56.0% of total advertising [in 2021 in the U.S.] while TV will plateau at 29.9%,” he said. Meanwhile, content creators and distributors are following the flow of money into digital media, fueling rapid growth in consumption of TV shows on mobile devices, computers and TVs connected to the Internet.

“The cliché of how consumers ‘want my content when I want it, where I want it and how I want it,’ is now a truism,” Mike Vorhaus, president of Magid Advisors at Frank N. Magid Associates, said. “Just five years ago, it was hard to find a lot of content. But now, in 2017, I’m really the captain of my media ship in a way that was not true in the past.”

Given ongoing rapid growth in the usage of mobile and connected TVs, it is difficult to call digital video “mature.” But researchers stress that the tectonic changes in how video is consumed and delivered have already made digital media a central part of the TV business.

“After four or five years of talking about alternative ways to access video and watching significant growth in its usage, we are now at a point where it is pretty much established,” Howard Horowitz, president and founder of Horowitz Research, said. “It’s not a fly in the ointment, but part of the business. Digital self-managed access to video content is with us and mostly that is a good thing for all the players.”

DISRUPTIVE GAINS

Others agree. After ticking off a long list of new products and initiatives designed to realign their offerings with newer consumer behavior, Comcast’s Strauss said: “Our third-quarter video results were the best we’ve had in 10 years. We added 32,000 video customers, which is an 80,000 improvement year over year. And if you look at the last 12 months, we are video-positive.”

Some programmers have been buffeted by the changes, which have hurt ratings, but those that have aggressively moved to capitalize on the newer delivery platforms are pleased with the results.

Bernadette Aulestia, executive vice president of worldwide distribution for HBO, noted that the launch of the OTT service HBO Now has allowed the programmer to tap into new markets and see healthy growth in the overall business. “Less than 1% of [the OTT] HBO Now subscribers are coming from our linear multichannel subscribers,” she said.

Executives from Dish Network and AT&T cited similar experiences with their respective OTT channel bundles, Sling TV and DirecTV Now, which are designed in part to tap into viewers outside of the pay TV ecosystem.

“There are about 20 million households in the U.S. that are either not engaged with pay TV or have opted to leave the pay TV ecosystems,” Tony Goncalves, senior vice president of strategy and business development for AT&T Entertainment Group, said.

That doesn’t mean that the industry can sit back and pretend it will be business as usual in 2017.

An acceleration in the decline in pay TV subscribers has caused Magna to revise its estimates of pay TV subscribers downward. There is also a great deal of uncertainty about the ad market.

These trends raise important questions about the changing use of video on various platforms — traditional TV, mobile, Internet-connected TVs, set-top boxes and other technologies. How these trends will impact the health of the industry and the kind of products that get launched in 2017 is the subject of the next story.

The American Cable Association told the FCC last week that if the agency decides to approve Nexstar's acquisition of Media General, it should not let Nexstar use "after-acquired" clauses to raise the retrans fees of the Media General stations it is acquiring.

Nexstar has been telling MVPDs it expects to get a waiver from the FCC so that the commission could act on the merger, perhaps as early as this week, according to a source speaking on background.

The deal proposal was not filed until after the deadline for FCC action on stations in the broadcast incentive auction. The commission had said it would not approve any deals for the duration of the auction if they involved stations potentially in the auction, which the Nexstar-Media General deal does.

Nexstar and Media General sought a waiver of that prohibition.

If that is the case, the ACA told a top advisor to FCC chairman Tom Wheeler last week, and the deal is approved, the FCC must limit the triggering of the clauses, which it said would force "dozens of MVPDs" and millions of their subs to pay dramatically higher fees, to the tune of $24 million in the first year alone.

The clauses allow Nexstar to apply its retrans agreement to stations it acquires in markets where it already has a retrans deal with that MVPD.

ACA called the widespread application of those clauses in the deal a merger-specific harm that needs corrective conditions.

"This merger presents an opportunity for the commission to protect consumers from paying higher cable rates as a direct consequence of the merger’s triggering of numerous after-acquired station clauses. To ameliorate the direct harm resulting from this transaction, the Commission should condition approval of any license transfers on Nexstar’s commitment not to exercise its right to trigger harmful after-acquired station clauses for the duration of its agreement with an MVPD."

Cable operators appear poised for a strong third quarter on the heels of Comcast’s stronger-than-expected results, with satellite TV continuing to slide.

Comcast outpaced most analysts’ expectations by adding 32,000 basic video subscribers in the third quarter — its best Q3 showing in a decade and well above consensus estimates of about 1,000 customer additions.

The performance helped to solidify what many analysts who follow the sector have been saying for a while: Cable is king, for now.

Comcast’s performance in light of a declining overall pay TV customer base shows cable is taking back market share. According to MoffettNathanson principal and senior analyst Craig Moffett, that performance was largely driven by the success of its X1 platform — now available in 45% of its footprint — and continued strength in broadband. Comcast added 330,000 broadband customers in the third quarter, its best Q3 performance in eight years.

CHARTER, ALTICE ON DECK

While other operators aren’t expected to fare quite as well, they are expected to show improvement on both the video and broadband front.

Charter Communications and Altice USA, parent of the former Cablevision Systems and Suddenlink Communications, are expected to release their Q3 results on Nov. 3 and Nov. 10, respectively, the latter as part of Altice N.V.

Analysts generally expect marginal video-subscriber losses for Charter — ranging from about 20,000 to 30,000 customers — but with momentum building later in the year.

The same holds true for Altice USA. Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak expects strong cash-flow growth from the U.S. cable unit, fueled by cost efficiencies, a $5-per-month price hike for data service at Suddenlink and continued cost-cutting by the Optimum (formerly Cablevision) operations.

Wlodarczak estimated that revenue-generating units, a combination of voice, data and video customers, will decline by 25,000 for Suddenlink and by about 30,000 for Optimum.

At Charter, Morgan Stanley media analyst Ben Swinburne expects more churn as customers roll off of legacy TWC promotional pricing, leading to a loss of about 34,000 video customers in Q3.

Charter will add about 390,000 broadband customers in the quarter, well above the prior period gain of 236,000 subscribers.

Charter continues to integrate Time Warner Cable and Bright House Networks operations — the deal closed in May — and Swinburne believes that after a slight early hiccup, a strong growth trajectory should continue. “We continue to believe Charter shares offer investors a rare levered equity growth story, particularly given the visibility into that growth and capital allocation for a company of its size,” he wrote.

Swinburne said recent results — in the second quarter, video losses improved to 152,000 from 170,000 in the year-earlier period, and revenue and cash flow grew by 6.6% and 9%, respectively — reaffirms his view that Charter “can successfully implement the strategy it has proven out over the last four years on its now-larger footprint.”

Overall, cable should have a good quarter on the subscriber front. Swinburne estimated that MSOs should collectively lose about 20,000 video subscribers, amended from the 52,000 he predicted earlier when he believed Comcast would lose 8,000 customers in Q3.

If cable is to be the king for the period, though, Telsey Advisory Group media analyst Tom Eagan pegs Dish Network as a pauper.

DOWN ON DISH NETWORK

Dish is coming off a string of subscriber losses — it shed 28,000 in the first quarter and 281,000 in Q2 — and the third quarter is expected to be no different. Eagan expects Dish to shed about 125,000 customers in the third quarter, ending the period with 13.3 million subscribers.

“Dish’s business model is proving increasingly unsustainable,” Eagan wrote in a research note. While cash flow will likely increase 20% for the year, that is due more to easy comparisons with 2015. Even Sling TV, which is expected to end the year with about 700,000 customers, according to Eagan and has been the main focus of the company, could be impacted by AT&T’s over-the-top offering, DirecTV Now. AT&T said it plans to launch DirecTV Now in November at $35 per month for more than 100 channels. Sling TV sells at $20 per month for more than 25 channels.

Swinburne was equally down on Dish’s prospects — he predicted it would lose about 155,000 subscribers in Q3 and estimated it would shed between 650,000 and 660,000 subscribers per year through 2019, partially offset by average annual gains of 240,000 to 245,000 customers for Sling TV.

“We expect these trends to continue over the medium-term, particularly given cable’s investment in its product and the likely launch of new offerings in 4Q16 (DirecTV Now) and 1H17 (Hulu),” Swinburne wrote.  

The programming landscape has changed dramatically in the past several years, with the advent of subscription video-on-demand and over-the-top players further complicating an already convoluted negotiating process.

Today’s programming executives at large, midsized and small pay TV service providers have to be schooled not only in the economics of traditional linear networks, but also in the nuances of online offerings, over-the-top, TV everywhere and video-on-demand rights.

Programming deals that a few years ago took only a few distribution professionals to hammer out now require dozens, and conversations can get just as bogged down and lengthy over the definition of “Internet” as they do over per-subscriber fees and ratings points. Terms like “stacking rights,” which didn’t exist just a few years ago, are now a regular part of the discussions.

As Mediacom Communications executive vice president of programming and human resources Italia Commisso Weinand put it, brands are becoming less important as younger viewers grow attached to individual shows and disregard the networks carrying them.

While a large contingent of television viewers still watch on the big screen at home — something the networks continue to bank as those subscribers increasingly pay the freight — the business is fragmenting and could splinter even more as time wears on.

Add to the mix the consolidation already underway in the distribution sector, spurred by Charter Communications’s $78.7 billion purchase of Time Warner Cable and Altice USA’s deals to buy Cablevision Systems and Suddenlink Communications, and the soup gets thicker. The mergers have led to a reshuffling on the distributor side of the negotiating table, with the people programmers need to know when they pitch their content changing jobs.

Content negotiations aren’t expected to get any more cordial as the business changes, but Commisso Weinand said they have gotten a little less contentious. Issues like pricing, sports costs and skinny bundles will be at the top of the list of pain points for both programmers and distributors for the foreseeable future. But Commisso Weinand is beginning to see a slight change in attitude.

“Not a lot has changed, however, the cockiness has been tempered somewhat,” Commisso Weinand said.

There have been changes, though, among many of the top content-acquisition executives at pay TV providers, so it’s a good time to take a look at who these “gatekeeper” executives are and to check in with some of them in sidebar conversations.

Spotlight on Mediacom's Italia Commisso Weinand: Tough but Fair

AT&T/DirecTV |Dan York
Chief content officer

York has come full circle with AT&T following its July 2015 purchase of DirecTV.

He first worked for AT&T in 2004 as president of content and advertising sales. He left in 2012 to take over programming negotiating duties at DirecTV as chief content officer and returned to the telco last year after it bought DirecTV in a $48.5 billion deal.

A seasoned executive who knows how both sides of the table work — prior to his first go-round with AT&T, York had served stints with InDemand and Home Box Office — York wields considerable clout as the top programming dealmaker for the largest MVPD in the country, with 26 million video customers.

AT&T has an iron in several content fires, which should make York’s days chock full of activity – it is migrating video customers off its U-Verse platform (which York helped form) onto DirecTV; DirecTV is readying an OTT service called DirecTV Now for launch by the end of the year; and AT&T has said mobile video, with its myriad and complicated programming rights issues, is a top priority in the future.

Key Lieutenants: Michele Barney, vice president of content and programming; Todd Mathers, senior vice president of content and programming; Rob Thun, senior vice president of content and programming

Comcast |Greg Rigdon
Executive vice president, content acquisition

Comcast has cut some landmark programming deals over the years — its comprehensive 10-year carriage deal with Walt Disney Co. in 2012 is largely considered the template for the industry — and Greg Rigdon has been in on many of them.

Looking forward, the content chief will have the chance to make history again, possibly, as Comcast’s programming deals with 21st Century Fox are expected to come due at the end of the year. Besides potentially laying new ground with iconic Fox cable networks like Fox News Channel, FX and FX Movies, the negotiations will also give Comcast the opportunity to revisit Fox’s YES Network regional sports channel, the home of the New York Yankees. YES has been dark to Comcast customers in the New York area since November 2015, over pricing and rights disputes. Some observers have said that Comcast has been waiting for all of its Fox deals to come due before addressing its YES challenge.

Prior to joining Comcast in 2010, Rigdon was executive vice president, programming, business development and strategy, at Charter Communications. He also previously held senior roles in programming strategy, business affairs and commerce, at AOL.

Key Lieutenants: Jennifer Gaiski, senior vice president, content acquisition, Comcast Cable; Sarah Gitchell, senior vice president/deputy general counsel, Comcast Cable; Justin Smith, senior vice president, content acquisition, Comcast Cable

Charter Communications |David Ellen
Senior executive vice president

Ellen came to Charter in July, through a portal that has been common for many company executives in the past two years: service at Cablevision Systems. As senior EVP, Ellen is in charge of corporate functions, including programming, news and sports networks, strategic policy development, regulatory compliance, human resources, communications and security. He will also oversee the legal support for those units.

Charter completed its purchases of Time Warner Cable and Bright House Networks in May, quadrupling its subscriber base to 17.4 million customers from around 4 million. With that added heft, Charter is expected to enjoy considerably lower programming costs. Charter itself has said that about half of the expected $800 million in synergies from the merger will be the result of programming savings.

The company has tried to enjoy some of those synergies already: It is being sued by at least three programmers — Fox News Channel, Univision Communications and Showtime — that have claimed Charter’s interpretation of the merger allows it to pay lower rates until the end of the year.

Ellen has plenty of help. Charter recently beefed up the programming ranks, adding another Cablevision alumnus, EVP of programming acquisition Tom Montemagno (see below), earlier this year. Allan Singer, who served as SVP of programming for about five years, left earlier this year, citing an unwillingness to relocate from his Denver home to Charter’s Stamford, Conn., headquarters.

Ellen served as general counsel for Cablevision for several years, working closely with CEO James Dolan on all aspects of the business, before leaving shortly after the company’s purchase by Altice USA. Ellen had also led Cablevision’s successful defense of its cloud-based DVR product as well as the legal strategy supporting the rollout of in-home streaming of its cable services to IP-enabled devices.

Prior to Cablevision, Ellen was general counsel at Barry Diller’s Internet conglomerate IAC and at Eureka Broadband, a New York-based telecom company. Before that he was a special counsel at the Federal Communications Commission, working on the implementation of the Telecommunications Act of 1996, and served as a law clerk for Judges Stephen Breyer and Judge Ruth Bader Ginsberg when they were on the U.S. Court of Appeals, and for Justice Sandra Day O’Connor during her time on the U.S. Supreme Court.

Charter Communications |Tom Montemagno
Executive vice president, programming acquisition

Montemagno is the latest former Cablevision executive to join the Charter fold, signing on Sept. 6 to head up overall programming negotiations and reporting to Ellen.

Montemagno spent 27 years at Cablevision, most recently as executive VP of programming, and over the past three decades has served in several other roles, including senior vice president of programming acquisition and as the operator’s lead negotiator with content companies.

At Charter, Montemagno oversees negotiations with its full range of content providers, from the major multichannel media companies and regional sports networks to local broadcasters and niche international programmers. The negotiations increasingly extend beyond traditional “linear” programming rights to include video-on-demand and out-of-home streaming rights on multiple platforms.

Dish Network |Warren Schlichting
Executive vice president of marketing, programming and media sales

A veteran advertising and media executive, Schlichting oversees the acquisition and renewal of all programming content for Dish, including national broadcast networks and cable channels, Latino content, local broadcast stations and premium services such as HBO, Showtime and Starz. Additionally, Warren oversees Dish’s national marketing efforts and Dish Media Sales, the company’s advertising-sales division.

Schlichting took over the programming negotiation reins from current chief financial officer Steve Swain, who temporarily served as programming chief after EVP of programming Dave Shull left in 2014.

Schlichting has upheld the Dish tradition of aggressive programming negotiations fostered by its founder, chairman and CEO Charlie Ergen. Dish hasn’t been afraid to let channels go dark as it tries to negotiate better rates and expanded rights with content companies.

In the past month alone, Dish brought back NFL Network and NFL Red Zone, signing a new deal Aug. 2 after the nets were dark for seven weeks, and lit up broadcaster Tribune Media’s 42 stations in 33 markets on Sept. 3 after 12 weeks of darkness. Longer term, Dish signed multiyear deals with Turner networks like CNN and Cartoon Network in November (TBS and TNT were not set to expire) after a few weeks of darkness, and renewed with 21st Century Fox’s Fox News Channel and Fox Business Network after a nearly one-month blackout in January 2015.

Prior to joining Dish in 2011, Schlichting led Comcast’s advanced advertising efforts on multiple media and ad delivery platforms including broadband, interactive television and video-on-demand. Before arriving at Comcast, he was CEO of Hiwire, a Los Angeles-based technology company that provided online ad replacement software for Clear Channel and other radio station groups. He also served in executive positions for Morgan Stanley and the William E. Simon private equity group.

Key Lieutenants: Josh Clark, vice president of programming, Dish Network; Andy LeCuyer, vice president of programming, Dish Network; Izabela Slowikowska, vice president of international programming, Dish Network; Melisa Ordonez, director of programming acquisition, Dish Network; and Ankit Bishnoi, head of content acquisition for Sling TV

Spotlight on Cox's Andrew Albert: Engineers on Board

Cox Communications |Andrew Albert
Senior vice president of programming

Albert oversees all video programming provider relationships and content acquisition, including the negotiation of program carriage agreements with major content producers such as The Walt Disney Co., Turner Broadcasting System, NBCUniversal, Viacom and Fox. He is actively involved in setting the company’s video product strategy, including the deployment of TV everywhere, video-on-demand and high-definition services, as well as the company’s multicultural programming strategy.

Albert joined Cox Communications in 1995 as director of programming and was promoted to executive director of programming in 2002. In 2003, Albert was promoted to vice president. He was promoted to his current role in 2013. Prior to joining Cox, he served as director of programming and director of budgets and financial analysis for TeleCable Corp. in Norfolk, Va.

Prior to that, Albert was in the Financial Management Program and served as a sales and marketing analyst at General Electric.

Key Lieutenants: Suzanne Fenwick, vice president, content acquisition; Mark Gathen, vice president, content acquisition; Chris Tygh, vice president, content acquisition

Altice USA |Michael Schreiber
Chief content officer

Schreiber is responsible for Altice USA’s programming- related developments, negotiations and agreements covering all content platforms and reports to co-president and chief financial officer Charles Stewart.

Prior to Altice, Schreiber served as senior vice president, content acquisition for Comcast, where he led the execution of new media and digital content deals. Prior to his role at Comcast, Schreiber worked at NBCUniversal, most recently as vice president, business development, digital distribution, where he assisted in the founding, development and launch of Hulu.

Altice USA |Alan Dannenbaum
Senior vice president, programming

A Comcast alumnus, Dannenbaum works with Schreiber on programming-related developments, negotiations and agreements across all platforms.

Dannenbaum spent more than 20 years at Comcast in various roles before forming his own business, Dannenbaum Consulting, in April 2015. He had joined Comcast in 1993 as associate general counsel. He also served as executive VP of Satellite Services Inc., from 2009 to 2014.

Spotlight on Verizon's Ben Grad: Giving the People What They Want

Verizon Fios |Ben Grad
Executive director of content strategy and acquisition

Ben Grad leads Verizon’s companywide content acquisition efforts with major content providers and sports rightsholders, and manages financial and strategic analysis for the telco’s key content-related initiatives. He is responsible for content acquisition and strategy for Fios, including developing Fios’s multiplatform content offering.

Prior to joining Verizon in 2007, Grad was head of strategy at Fuse, where he assessed programming and new business opportunities. Previously, he was a member of Time Warner’s Corporate Strategic Planning Group, where he developed and assessed new digital distribution opportunities for Time Warner divisions. He also negotiated agreements and developed strategy at eLabs, Universal Music Group’s digital group.

Key Leaders: Tricia Lynch, executive director of content strategy and acquisition; Michelle Webb, executive director of content strategy and acquisition

Mediacom Communications |Italia Commisso Weinand
Executive vice president, programming and human resources

With nearly 40 years of experience in the cable industry, Commisso Weinand served stints with Comcast, Tele-Communications Inc., Times-Mirror Cable and Time Warner Inc. before joining her brother’s cable company, Mediacom, in 1996 as VP of Operations. One of the most respected programming executives in the cable industry, she is known for a tough but fair negotiating style and has helped engineer some of the landmark deals in cable, including a 2014 Walt Disney Co. pact that gave Mediacom access to authenticated WATCH and video-on-demand products, the ABC broadcast network and cable channels like SEC Network, ESPN Goal Line and ESPN Buzzer Beater.

Key Lieutenants: Barry Paden, group vice president, programming; Joseph Appio, vice president of programming; Glenn Goldsmith, consultant; John Woods, vice president, advanced programming

National Cable Television Cooperative |Judy Meyka
Executive vice president of programming

It may cater to small operators, but the National Cable Television Cooperative represents nearly as many cable customers as the biggest of the big operators — Comcast — with its 850 members tallying about 20 million subscribers across the country. Meyka, who has served stints at large operators like Media One, AT&T Broadband and Adelphia Communications as well as programmers like iNDemand in her 23 years in the business, is the group’s chief programming negotiator.

That experience helps Meyka bring a new perspective to the organization, and in her time there she has completed deals with multiple major programming partners and secured new agreements with independent programmers and new-to-market content providers.

That can come in handy because although the co-op has negotiating heft, not every member has to sign on to every deal. NCTC members range from larger operators like Cox Communications, with about 4 million customers, to tiny family-owned operations with just a few dozen customers, all with different programming needs.

While pricing continues to be the biggest issue around negotiating time, bundling, online, TV Everywhere and mobile rights have become increasingly important aspects of negotiations for all NCTC members.

That was evident in recent deals with AMC Networks, where NCTC was able to avoid a blackout by hammering out a deal that didn’t force members to carry all six AMC channels on their most popular tiers — and got a more modest price increase.

FCC chairman Tom Wheeler is putting the final touches on a set-top box proposal that would create a central licensing agency to oversee standards for an apps-based approach to third-party access to video content.

Cable operators are not pleased, saying they are committed to licensing an app on reasonable terms, but that the FCC plan would create a new compulsory license.

The standards body would have to years to come up with a standard license and would enforce it, though the FCC would review its work and put it out for comment, according to an ex parte filing by the National Cable & Telecommunications Association and sources talking with FCC staffers.

The FCC would set the baseline terms of the license and be able to eliminate terms that did not promote device competition.

Read more about the FCC's efforts to create new set-top rules.

Device makers over a certain size would be eligible for the license and could negotiate additional terms with MVPDs, who would have to develop an app for the device. If an MVPD felt the terms were not doable, it could seek a waiver from providing an app for that platform.

The license would apply to both HTML5 and non-HTML apps.

Wheeler is trying to promote a competitive set-top marketplace, so MVPD apps would have to offer parity with the consumer set-top experience to the degree technically feasible. That would include things like channel lineups and recording, which MVPDs could handle via cloud DVR capability.

Cable operators with fewer than 400,000 subs would be exempt, while those with more than 400,000 and less than 1 million would get a phase-in.

MVPDs would have to let third-party devices access consumer data and would have to build in an opt-in choice in the apps for sharing personal information.

NCTA pitched an apps-based approach and wants channel lineups protected, but the centralized standards body enforcing the licenses did not sit well with the trade group.

In  a meeting with FCC staffers, NCTA execs said the proposed licensing body approach is "unnecessary and unworkable; exceeds the Commission’s authority under Section 629; essentially imposes a royalty-free compulsory copyright license on MVPDs and programmers, which would also be well beyond the Commission’s authority to adopt; and raises other legal issues."

The NCTA said MVPDs are commited to offer a standard license on reasonable terms, so a standards licensing body is unnecessary.

Wheeler is expected to bring up the proposal for a vote at the FCC's September meeting. The agency will circulate on Sept 8 its tentative agenda for the meeting.

Nearly four dozen comments -- overwhelmingly condemning the FCC's plans to regulate rates for Business Data Services (BDS) -- poured into the commission this week, as organizations and individuals replied to suggestions on how to remake the business broadband marketplace. 

In April, the FCC proposed new rules on BDS "in an Internet Protocol environment" in which services or providers would potentially face regulation regardless of whether or not a carrier is considered an incumbent or a competitor. That raises the prospect for the first time of price-cap regulation for cable operators' business services, in the category now called BDS that used to be called special access. Cable providers, still stung by the commission's imposition of Title II regulations to broadband service, are defending the past approach of encouraging competition by light-tough regulatory oversight.

This week's reply comments and "ex parte" disclosures of recent briefings to FCC staff members included warnings about investment disincentives and threats to "technology neutrality" along with observations about the impact on emerging wireless broadband services. Many of the organizations trotted out new research reports from economists and financial analysts as well as familiar complaints about the FCC's over-reach.

The National Cable and Telecommunications Association's brief ran to more than 150 pages, including addenda documenting "the significant flaws in the various proposals for rate regulation" and "the particularly harmful effects such regulation would have in rural areas." NCTA insisted that "there is absolutely no basis for regulating the rates charged by cable operators and other competitive providers" of BDS.

"Competitive providers have been investing billions of dollars to extend facilities to business customers all over the country, and the record is clear that these investments and the additional competitive options they offer are ... reducing the prices that customers pay for these services," NCTA said. "The commission should focus on taking steps to promote more of this beneficial competition, not regulating rates in a manner that discourages entry and investment."

The NCTA urged the FCC  to "take a far narrower approach to regulation" than advocated by competitive local exchange carriers and wireless carriers.

"If the commission is to go down the highly inadvisable road of expanding rate regulation of BDS, it must at least limit that regulation to providers that exercise market power, which under the traditional and economically cognizable definition, means providers that can control price," NCTA said. "Moreover, in light of the cost and uncertainties of regulation, it should make every effort to identify appropriately limited product and geographic markets that demonstrably exhibit  market failure."

In an analysis embedded within the NCTA filing, Michael Katz,a former FCC chief economist, and Bryan G.M. Keating contended that the FCC's proposed "price regulation schemes would suppress investment and entry incentives and can be expected to distort the prices of services." They concluded that the FCC's plan "can be expected to discourage competition and prolong regulation; violate technological neutrality; create barriers to the adoption of more efficient technologies; and discourage new facilities-based entry."

The American Cable Association also stressed the need to "promote competitive investment in lieu of regulation."

"The record shows there is no economic rationale to regulate these providers and the cost of regulating non-incumbents would far outweigh any benefits, undermining the FCC's goal of spurring competition," ACA said in its comments that urged the FCC to keep a "light touch" on BDS rules.  It said that new FCC rules "would put at risk about $300 million annually that non-dominant providers invest in BDS facilities."  It claimed that BDS providers have decreased their prices by 50% on average across all geographic areas and all customer segments, with some prices decreasing more than 70%.

In a separate analysis, Scott Anderson. Chief Legal Officer at Midcontinent Communications -- a provider of voice, video and data services to 199 rural markets in North Dakota and South Dakota -- explained that "BDS is one of the fastest growing segments of Midco’s business."  He said that "rate regulation may make a number of future BDS projects simply beyond the reach of Midco and potential customers."

Anderson emphasized that Midco's rural communities already have two competitors, which he said "has created a competitive environment for the pricing and provision of BDS services."

"The market is working," he concluded. "Requiring more than two competitors in a given market to meet the definition of competitive is not necessary for BDS customers to continue to enjoy a competitive pricing environment."

Sizeable segments of the NCTA's supplemental reports were heavily redacted because they contained "highly confidential information" from companies, although the NCTA explained that the full reports were delivered to specific FCC officials who required such details.

MSOs Condemn Rate Regulation Proposals

In its filing, Charter Communications  explained that it continues "to face significant obstacles in competing with incumbent LECs and entering new markets."

"Price regulation would only further tip the scale against additional expansion and entry by cable providers, undercutting the very competition the Commission seeks to encourage," Charter claimed. "Cable providers lack any market power that could conceivably justify the imposition of price regulation on their services ... [and] if the Commission does decide to price regulate cable providers, it cannot lawfully regulate the large universe of BDS provided on a private-carriage basis."

Mediacom Communications, which also met with members of the FCC's Wireline Competition Bureau, explained "the unique challenges facing cable providers operating in rural and less densely populated areas."  Mediacom said its representatives argued that the "imposition of any form of price cap regulation on such providers is likely to create disincentives for further investment in such areas which will, in turn, undermine competition in the BDS market."

Incumbent Telcos Denounce the FCC Plan

The USTelecom Association offered findings from a new study of customer preferences that showed "more and more business customers using and expressing a willingness to use cable broadband services" for Business Internet Access (BI) and Data Networking (DN) services."

"Most business customers surveyed expressed a willingness to switch to cable-provided BI and DN services, contrary to suggestions in the record that cable services in general, and cable 'best efforts' services specifically, are not regarded as adequate substitutes for BDS," USTelecom said. "These findings contradict claims in the record suggesting that business customers feel 'locked in' by a lack of competitive choices." 

AT&T contended that compared to 2013 data "competition is now even more pervasive, particularly given that cable companies are now prioritizing the BDS marketplace to grow their revenues in the face of more intense competition for their core video offerings."

"CLECs predictably attempt to downplay this competition, mostly by twisting the data to focus on areas where there is no BDS demand and by dismissing years of commission and Department of Justice precedent under which it was recognized that the presence of sunk facilities constrain BDS prices," AT&T said. "Over-regulating the BDS market will have a predictable and very concerning result – disincentivizing investment in broadband infrastructure."

AT&T also fretted that rate regulation would "curb incentives to build the infrastructure necessary for future broadband-intensive 5G wireless services in these areas" which it said "flies directly in the face of this Administration’s efforts to expand broadband access to everyone and its bold steps to speed us toward a 5G future."

Verizon and the telecom trade group INCOMPAS offered more details on the BDS "framework" that Verizon had proposed in June, which supports both Time Division Multiplexing and packet-based services. They said that  addition information in their filing "continue to reflect a middle ground and would result in an administratively simple framework that can help guide the commission towards pro-competitive reform."    

Among other things, the Verizon/INCOMPAS plan suggests that after lowest-speed benchmarks are established, the benchmarks for higher Ethernet speeds would be derived by applying the price-cap carrier’s respective relationship of rates"

The companies concluded that their "framework should result in actual price reductions from current levels (i.e., not merely "paper gains") for TDM and Ethernet services" and they suggested that "the commission should make clear that Ethernet services provided to wireless providers are subject to this framework, including the benchmarks."

In a research paper submitted on behalf of the Invest in Broadband for America Coalition -- which consists of CenturyLink, Cincinnati Bell, Consolidated Communications, FairPoint and Frontier Communications -- James E. Prieger, an economics and public policy professor at Pepperdine University and former FCC senior economist, calculated that that the impact of the FCC’s proposed price regulation for business broadband in rural markets will reach $1.4 billion or more.

Prieger's analysis, “Investment in Business Broadband in Rural Areas: The Impact of Price Regulation and the FCC’s Blind Spot,” concluded that, "The lost opportunities for revenue will lead to less broadband investment for the communities that need it most – slowing deployment and hurting economies that need help competing," Prieger said. "Each dollar of investment discouraged by regulation costs the economy up to three dollars in lost output. Each job lost from the lack of investment costs the economy 1.4 to 3.6 jobs, half of which would have come from small business."

"The FCC is rushing to push through new regulation without giving adequate time to study the likely effects," he said. "The FCC should pause long enough to consider the consequences of the proposed regulation, allow industry and other interested parties sufficient time to investigate newly updated data and associated repercussions."

NTCA: The Rural Broadband Association argued that "a permanent regulatory framework can and should distinguish between levels of competition in markets in right-sizing regulation." It recommended that "regulatory frameworks should specifically be designed ... to achieve other important public policy objectives."

"Moreover, any regulatory framework adopted in this proceeding should address and mitigate regulatory burdens on small businesses," NTCA said. "Smaller competing firms should not be burdened with significant new ... regulations."  It claimed that the FCC's experience "reaffirms the broader need to adopt a different way of approaching regulation in a world where networks and services are no longer inextricably intertwined, and to cease in particular in giving 'free (or reduced) passes' ” without careful forethought and disciplined analysis of the public policy consequences ... solely because the transmission involved may be a 'channel termination' or 'last mile' or 'middle mile' or 'backbone,' or the technology involved may be 'IP-enabled' or 'legacy.'”

Crown Castle, the country’s largest independent tower owner and operator (more than 40,000 towers for shared wireless infrastructure),  argued that commenters who supported rate regulation "completely ignore or merely pay lip service to this critical investment dynamic."

"As the record makes clear, rate regulation would be antithetical to the commission’s goal of promoting network investment by competing providers and thereby increasing competitive alternatives for BDS," the Crown Castle filing contended.  It gave a shout-out to Comcast's earlier comments, that "that rate regulation would deter investment....[a] "well established ... matter of economic theory and market reality."

The Free State Foundation contended that rate controls "will curb financial returns on investment for business data facilities."

"This necessarily will discourage infrastructure deployment by both incumbents and by new facilities-based entrants like the cable operators," FSF continued. "Rate regulation also discourages facilities-deployment and market entry by competitors who, given a choice, prefer regulatory arbitrage to facilities-based competition."

Sprint, which generally backed the Verizon/INCOMPAS filing, characterized their agreement as one which can "fix the long broken business data services market."

"As the need for more backhaul increases with the advancement of next generation 5G networks, access to high-capacity BDS at reasonable prices will be critical to mobile networks," Sprint said. It lamented that the current  "broken market for BDS ... has left 97% of this market controlled by one -- and sometimes two -- providers."

Taking a Contrarian Stance: "FCC as Wizard of Oz"

Among those supporting the FCC plan were the Consumer Federation of America and the New Networks Institute, whose filing including an elaborate denunciation of the Verizon/INCOMPAS proposal as a being "like the story of The Wizard of Oz." In this version, "Verizon would like to set the FCC up as the Wizard – lots of smoke and mirrors, but ultimately a weak little man manipulating dials that are powerless to do anything meaningful," their filing explained.

CFA and NNI urged the FCC to take aggressive steps "to establish the legal basis for concluding that rates, terms and conditions in the BDS market are just and reasonable." It sought to link the BDS proceeding to the FCC's recent final order on the IP Transition.

"It is simply impossible not to take note of the connection between the two,"  their comments insist. "Since the IP transition is about the transition to a fully digital network, the commission should not be surprised to find that the link between Business Data Services and the recently released IP transition order actually raises the importance of the BDS docket to an even higher level."

CFA and NNI also urged that the commission "must open a cost docket to determine the appropriate level of rates and the productivity factor. The cost analysis must be updated on a triennial basis."

Competify, a coalition of competitive telecommunications, information processing and public advocacy groups and companies, acknowledged the need to "heal this long-broken marketplace." It claimed that "incumbent providers continue to obscure the facts" and encouraged the FCC to  "complete a comprehensive review of the robust data in the record and reach a pro-competitive, pro-consumer result."

"Those hardest hit are rural communities and those that rely on mobile broadband, where incumbent market power could threaten U.S. leadership in 5G and further the digital divide," said Competify, which was established last year.  Its members include the Ad Hoc Telecommunications Users Committee, Broadband Coalition, BT, Competitive Carriers Association (CCA), Computer & Communications Industry Association (CCIA), Engine, INCOMPAS, Institute for Local Self-Reliance (ILSR), Level 3, Open Technology Institute at New America, Public Knowledge, Schools, Health and Libraries Broadband Coalition (SHLB), and Sprint.

As the earnings season rapidly approaches, analysts see a strong second quarter for cable distributors, a combination of continued momentum and benefits from the six-week strike by Verizon Communications employees in April and May.

Comcast is expected to be the first cable operator out of the earnings blocks, releasing its Q2 results on July 27.

Consolidation catalysts Charter Communications and Altice N.V. — Charter completed its acquisition of Time Warner Cable and Bright House Networks on May 18, while Altice finished its purchase of Cablevision Systems on June 21 — are both slated to release results on Aug, 9.

Actual numbers for Verizon — expected to show subscriber declines, or at least slower increases — aren’t expected until July 26, when the telco officially releases results. That hasn’t stopped some analysts from estimating the damage.

Verizon employees walked off the job on April 13 and stayed out until May 27, when a deal was struck that increased hourly wages and avoided pension cuts for nearly 46,000 unionized workers. The six-week standoff ground Fios installations to a crawl, as contractors were brought in to take up the slack.

UBS Securities telecom analyst John Hodulik predicted Verizon would lose about 33,000 Fios subscribers in Q2, compared to a gain of 26,000 customers in the year-ago period.

Verizon has experienced a steady decline in Fios TV customers over the past several three-month periods: it gained about 178,000 customers in 2015, down from 387,000 additions in 2014. But the strike apparently pushed the telco into the red in the second quarter. Hodulik expects the telco to return to positive video subscriber growth in the third and fourth quarters (about 10,000 each), but at a slower pace.

Verizon chief financial officer Fran Shammo has said in the past that total wireline customers, including non-video subscribers, could flirt with negative territory because of the strike. At a Bank of America Merrill Lynch media conference in London in June, Shammo said because most of the strikers were in installations and maintenance, Verizon was in “catch-up mode” and expected broadband additions to be negative in Q2.

Comcast is expected to continue to temper basic-video subscriber losses in Q2, shedding just 10,000 video customers compared with a loss of 69,000 subscribers in the same period in 2015.

In a note to clients, Hodulik said the results were helped by the Verizon strike as well as the transition of former Fios properties in California, Texas and Florida to Frontier Communications, which wasn’t ready to do a lot of subscriber acquisition marketing while absorbing the territories with some 1.2 million Fios customers.

Overall, Hodulik estimated cable operators would lose a collective 500,000 video subscribers in the second quarter, slightly better than a year ago.

Other analysts weren’t quite as optimistic. Morgan Stanley media analyst Ben Swinburne expects Comcast to shed about 24,000 video customers in the quarter, with Charter dropping 86,000. Analysts share an enthusiasm for improvements in the cable sector for the full year, though. Swinburne estimated Comcast and Charter will both end 2016 on a positive basic-video subscriber note, with Comcast adding 100,000 subscribers and Charter adding 58,000 customers.

“We see another strong sub quarter for cable at the expense of its telco/satellite competition,” Swinburne wrote.

Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak reduced his estimates for Q2 subscriber losses at Comcast from 50,000 to 20,000, based on his belief that churn trends continue to be solid and to better reflect the effects of the Verizon strike.

“We expect a solid cable result in the seasonally weak 2Q,” he wrote.

Few companies in the cable and telecommunications industries have escaped the cyber attacks that continue to wreak havoc on just about every layer of the supply chain.

Varying degrees of security breaches at Comcast, Cox Communications, Time Warner Cable and other cable providers have raised the red flag in the cybersecurity space and prompted a new mantra: Now is the time to raise the level of security.

“A fundamental evolution is taking place and the security implications are numerous,” Michela Menting, research director at consulting firm ABI Research, said. “Above all are the issues raised by the transition to all-[Internet protocol] networks, which are already highly exploited by threat actors and will be a boon for malicious cyber-agents — and all sectors are vulnerable.

“Investment in security services and corresponding hardware and software is not something they can ignore or put off , except at great cost to their services, reputation and client base,” she said.

Cybersecurity concerns have become so paramount that in its Charter Communications-Time Warner Cable merger order, the Federal Communications Commission required Charter to submit a plan to manage its increasing security risks during the transition.

And according to the Hewlett Packard Enterprise/Ponemon Institue “2015 Cost of Cyber Crime” study, hacking attacks cost U.S. firms, on average, some $15.4 million a year. Globally, U.K. insurance firm Lloyds estimates that cyber-attacks are costing businesses a staggering $400 billion a year.

There’s also the shaken confidence of clients and subscribers about the safety of their data. And not everyone is convinced the cable industry is prepared for any attacks.

“Cable networks are archaic in many respects, as they extend the life of existing systems, and frankly, the security posture of networks and the less time spent on security leads to a lot of holes,” Chris Simkins, CEO and co-founder of supply chain analysis and risk management firm Chain Security, said.

PricewaterhouseCoopers (PwC), a consultancy moving deeper into the cybersecurity space, believes cable companies are getting the message that shoring up their networks should be of the highest priority.

“There’s a lot going on with MSOs and we’re seeing the awareness lev el rising,” Mark Lobel, a principal in PwC’s U.S. advisory practice and Cybersecurity Technology, Information, Communications & Entertainment leader, said. “But cybersecurity is like a chess game with no kings, and trying to stay ahead of who’s across the board.”

And just who is across the board?

“There are many threat vectors,” Irfan Saif, a principal in Deloitte’s Cyber Risk Services practice, said. “There are service-disruption actors, those looking at the backbone to propagate malware and those who want to compromise customers. It’s a broad range of threat actors and companies must be cognizant of them all.”

That will require a holistic approach, Saif noted. “You must understand what behavior is considered normal and what indicates a threat of attack and what are the crown jewels that require higher-grade protection.”

Cisco Systems, another player in the cybersecurity space, concurred with Saif’s assessment.

“The best approach is a holistic look at security and where each layer builds on top of each other — firewalls, advanced malware protection, email and core technologies like conditional access, DRM and anti-piracy technology — a breadth of security,” Cisco senior product and solutions marketing manager Sam Rastogi said.

Another less glamorous threat, but just as dangerous, comes from the inside.

“Employees or vendors with access to information is a growing concern,” Rastogi sad. “Who’s accessing information and how, and is there abnormal activity? A risk-based program with alerts, authentication measures and more will give companies more insight.”

CableLabs, the cable industry’s research and development consortium, is accelerating its cybersecurity activity with two initiatives: It’s working with the Wi-Fi Alliance to ensure links to hotspot access points are secure, and it’s reaching more deeply into home managed access points.

“The level of engagement is very high and there are real questions being asked,” The mindset is changing,” CableLabs principal security architect Steve Goeringer said.

That’s a good thing, said Rick Michaels, CEO of CEA, a cable industry-focused investment bank. “It’s one thing that cable is carrying 60% of the Internet traffic, but now there are data centers and multiple services with different touch points in cable. Cybersecurity should be of paramount interest to the cable industry.”

Most cable companies are understandably reluctant to discuss their cyber security strategies. Comcast, which in March hired Noopur Davis as senior vice president of product security and privacy, offered a statement from Myrna Soto, senior vice president and global chief information security officer: “We’ve committed extensive resources with a focus on risk management and built resilient and smarter networks with many security layers that are monitored continuously. Using automation, tooling and analytics is key.”

Arris, another key equipment supplier to cable networks, said in a statement (in part): “Security remains a top priority at Arris, as it does for all manufacturers of Internet and network-connected devices” and that it “employs a variety of protective measures to help ensure the safe and reliable operation of our devices including, but not limited to, DOCSIS compliance, vulnerability scanning, and monitoring programs.” It works “actively with security organizations and our service provider customers to identify and quickly resolve any potential vulnerabilities to protect the subscribers who use our CPE devices.”

Breaches cut across both residential and business markets, added Sander Smith, president of Sericon Technology.

“It’s clear that very soon we’ll see consumers filling their home networks with IoT devices, and these devices will be rushed to market with very little thought given to security.”

Yet even with the increase in cyber attacks (PwC reported a 38% increase in 2015 vs. 2014), there is cautious optimism that with emerging cybersecurity innovations, an expanding community of cybersecurity companies and a heightened awareness among service providers, security is being strengthened.

“We’re seeing various levels of maturity in cable and telecom and a raising of awareness in those organizations,” PwC’s Lobel said. “But they can’t lose focus.”

The National Cable & Telecommuications Association is focusing its cybersecurity attention on two areas, senior vice president, science and technology and chief technology officer Bill Check said.

“We are leading the industry’s Cybersecurity Working Group and working with the FCC’s Communications Security, Reliability and Interoperability Council (CSRIC), along with various cybersecurity-related working groups,” he said. “The challenge is to anticipate current and future threats and design systems of early detection and resistance, because cyber-criminals will always look for new exploits.”

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.”

Integrating apps from subscription video-on-demand services into cable set-top boxes could go a long way toward tapping into an underserved demographic for subscription video-on-demand — older viewers — while providing pay TV with another retention tool, according to some analysts.

Several cable, telco TV and satellite-TV providers already have integrated apps from Netflix and Hulu into their set-tops, and digital video recorder pioneer TiVo has had a Netflix app incorporated into its boxes for years. And TiVo’s newest product — TiVo Bolt — integrates Netflix, Amazon Prime, Hulu and other Internet streaming services with the box, while also serving as a DVR. But Morgan Stanley media analyst Ben Swinburne said there a few key operators missing, notably Comcast and Charter Communications.

POSSIBLE WIN FOR BOTH

Getting Comcast and Charter into the set-top integration fold could help the cable operators’ retention efforts while giving the SVOD services access to older customers.

That could be a key demographic for Netflix in particular. After a strong first quarter of domestic subscriber growth — it added 2.2 million customers in the period — Netflix said subscriber increases would slow in the second quarter to about 500,000. Netflix could make up the difference by targeting older pay TV customers, Swinburne said.

According to a survey by researcher AlphaWise and Morgan Stanley, about 63% of respondents aged 18-29 were Netflix subscribers while just 30% of those aged 45-64 and 19% of those aged 65 and up used the SVOD service. Ease of use was one of the reasons those nonsubscribers gave for not being Netflix customers.

Attracting the older demo could be a coup for Netflix. Swinburne said older viewers watch more TV on their TV sets: about 19 hours a week, compared with 11 hours for 18-to-29-year-olds.

They also are more likely to subscribe to pay TV: 92% of consumers 65 and up and 88% of 45-to-64-year-olds were pay TV subscribers, compared to 86% for the 18-to-19-year-olds.

“Set-top integration would introduce Netflix to this customer base through a service the cohort is already using frequently, and reduce the friction associated with Netflix consumption on a TV set,” Swinburne wrote in a note to clients.

Swinburne has some data to back that up. In the U.K., cable operator Virgin Media saw Netflix subscriptions rise significantly after it began rolling out TiVo set-tops.

Swinburne said there was a direct correlation between customers with TiVo boxes and Netflix usage. Virgin began rolling out TiVo boxes with a Netflix app in November 2013, when Netflix usage among its customers was less than 20%. By September 2015, when 78% of its customers had an integrated TiVo box, Netflix usage grew to 28%.

Virgin Media wasn’t the only U.K. provider to experience the same phenomenon. At telecom and video service provider TalkTalk, Netflix usage increased from 17% in September 2014 to 25% in September 2015. TalkTalk began integrating the Netflix app in its boxes in January of 2015.

While there are issues that would have to be worked out still, Swinburne said he believes that adding the nearly 40 million video customers from Comcast and Charter to the mix could help tip the scales for Netflix. Comcast’s X1 platform could easily accommodate a Netflix app as it continues to roll out across the country. Although Comcast has been mum on the possibility of integrating Netflix into X1, Charter CEO Tom Rutledge has said publicly that the cable operator would investigate the possibility.

Comments like those have helped fuel Swinburne’s optimism, adding that Charter and even Comcast could be “willing partners with Netflix in the near or medium term.”

ENHANCING BROADBAND

Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said integrating the app with set-tops makes sense.

“It is pretty easy to get Netflix, but for some folks — mainly the older generation — anything that makes it easier to sign up would be beneficial for Netflix subscriptions. If Netflix is willing to give up part of the economics, it becomes more palatable for distributors.”

While cable operators may be skittish, thinking that integrating Netflix could cut into pay-per-view revenue, Swinburne believes the impact would be minimal.

And as broadband becomes more prevalent — all the major operators now have more high-speed Internet customers than video customers — making them happy becomes even more important.

“At two hours daily of viewing per member, cable operators — increasingly more ISPs than MVPDs — have growing reason to bring Netflix into the tent,” Swinburne wrote.

Sen. Claire McCaskill (D-Mo.) slammed cable operators for customer service at the opening of the Senate Permanent Subcommittee on Investigations hearing on customer service and billing.

McCaskill released a report outlining the issues addressed and problems discovered related to a year-long investigation and based on information supplied by MVPDs. "All of the companies in this investigation have increased their prices since 2011, with the cost of some packages
increasing by as much as 33%," said the report, "while all of the providers notified customers of upcoming price increases, this notification was not always effective."

Related:Senate Report Cites Charter, TWC Overcharges

She also narrated a "nightmare" customer service call she recently placed to try to get a fee removed from her bill, suggesting she was given the runaround before a customer retention rep took various steps to keep her from dropping the service. (She got $120 bucks in credits and cancelled a $7.99 fee.)She said the industry had a long way to go to cure its customer service problems. Most of the witnesses conceded the same, but said they were working dilligently to improve.

The first witness out of the gate was Tom Karinshak, SVP, customer service for Comcast, who acknowledged that Comcast and the industry in general have not always made customer service the priority it should have been, adding: "I am sorry for that."

As the weather gets hotter, pay TV customers could be shedding their television subscriptions — along with their long pants and sweaters — in greater numbers, according to Sanford Bernstein media analyst Todd Juenger.

Juenger took a deep dive into the trend of pay TV customer “seasonality,” the annual summer decline in monthly video subscriptions as customers purportedly moved to summer residences or to more permanent homes. Summer is traditionally the most popular time of the year to move, primarily because it allows parents to settle in before the school year starts.

On a conference call, of which the analyst provided a transcript to clients, Juenger conceded that the seasonality phenomenon is nothing new. But what he found in his research is that summer pay TV disconnects could be a trigger for cord-cutting because, unlike in past years, the customers who cancel service in the summer don’t seem to be coming back. He pointed to last summer, when pay TV subscriptions rose substantially in the second and third quarters.

TRIGGERED LOWER GUIDANCE

Juenger said year-over-year pay TV subscriptions declined by 0.6% in the second quarter of 2015 (compared to a gain of about 1% in Q2 2014) and by 1.4% in the third quarter (compared to a 0.9% gain in Q3 2014). That sharp decline, he said, helped to trigger decisions by The Walt Disney Co. and Time Warner Inc. to reduce subscriber and financial guidance, which, in turn, fueled even more cord-cutting fears.

Cord-cutting wasn’t as bad in Q4 2015 and in the first quarter of this year, when video subscriptions were down about 0.9% and 0.4%, respectively. But Juenger said he sees the signs.

“We have a theory that summertime is now always going to be the worst time for cord-cutting, because that’s when people move and that’s their chance to cut the cord,” he said. “We have serious concerns that this summer is going to look like last summer.”

Not everyone agrees.

Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said seasonal churn is commonplace in the pay TV business, and he sees no correlation with cord-cutting.

“I doubt it is that material of a driver,” Wlodarczak said.

Telsey Advisory Group media analyst Tom Eagan pointed to recent gains in the cable-subscriber universe — both Charter Communications and Time Warner Cable reported full-year video subscriber gains, while Comcast has consistently improved losses and reported a gain of 53,000 video customers in the first quarter, its best Q1 showing in nine years.

“If you look at the numbers, they continue to be pretty good,” Eagan said, adding that the summer is usually when churn is highest, and that’s likely to remain so. “Video is looking better than it has ever looked.”

The key to any increase in cord-cutting would be how attractive the alternatives are, Eagan said. While there have been some changes in products like Sling TV, which is testing a multistream service that includes regional sports networks, for the most part over-the-top offerings don’t offer the same value as pay TV.

“They [OTT] are nominally more attractive, not materially more attractive,” Eagan said.

Juenger argues that distributors aren’t the only ones affected by cord-cutters. With a declining subscriber base, network affiliate fees also fall. Couple that with an expected dip in advertising revenue growth and it could indeed be a long, hot summer for programmers.

Most networks have guided to slower growth in the second half of the year, Juenger noted, so that is not a surprise.

“The issue is how fast it will slow down,” Juenger said, adding that the Summer Olympics will be good for NBC’s ad sales but bad for every other network. He added that the loss of fantasy-football ad money — several states are deciding whether daily fantasy sports sites like FanDuel and DraftKings are gambling operations, or games of skill, which has caused a pullback in advertising on TV — and what he thinks will be the replacement of higher-priced scatter ad revenue with lower-priced upfront inventory all “conspires for an advertising slowdown.”

ACCOUNT REVIEWS CITED

Eagan said his main concern about the ad market is how much it will be driven by the slowdown of last year. In 2015, he said, several advertisers put their accounts up for review, which had an effect on total ad revenue.

“There was a slowdown in spending because of all the account reviews,” Eagan said. “To a degree, the significantly higher agency changes are catching up with us now.”

As a result, Eagan predicted that ad revenue could rise by the mid-to-high single digits for most programmers in 2016, compared to 1% to 8% declines in the prior year.

But that growth will depend on the company, Eagan said. In a research note last week, he predicted that ad sales would dip 2.5% for CBS in the second quarter, rising to 4% growth in the third quarter and 5.8% in the fourth quarter. At 21st Century Fox, ad revenue should spike 10.5% in the second quarter — fueled by Fox News Channel and the presidential election — and 11.9% in the third quarter before settling to 0.7% growth in the fourth.

The election, he said, could also impact local TV advertising.

“A lot of the regional advertisers that would spend locally, and spend higher on a CPM basis, can’t go local because of the elections,” Eagan said. “That should continue for the balance of the year.”

A year ago almost to the day, Showtime Networks chairman Matthew Blank announced he would be passing the CEO reins to network president David Nevins. Blank had hired Nevins — then the president of Imagine Television, responsible for such hits as Fox’s 24 and NBC’s Parenthood — in 2010 to oversee development of original programming for the premium service and to succeed him this past January, when he stepped down from the CEO role after more than 20 years.

Related:Chairman Likes Showtime’s Standing Amid TV’s Chaos: A Q&A With Matt Blank

By then, Nevins had already built a stable of successful, long-running original series, including the Emmy-winning Homeland and The Affair, Ray Donovan and Masters of Sex. As CEO, Nevins would be steering into a new digital age full of opportunities and potential pitfalls as the industry at large sorts out a new landscape that includes new over-the-top competition from Netflix, Hulu and Amazon. On the cable homefront, Showtime must also to contend with Emmy darling HBO and rising player Starz for premium TV supremacy.

Nearly six months into Nevins’s term as CEO, Showtime is firing on all cylinders. The Jan. 17 debut of Billions drew its biggest audience ever for a freshman original series. The Damian Lewis and Paul Giamatti-starrer, about an ego-driven billionaire and the ambitious U.S. attorney looking to take him down, finished its freshman run as the network’s most-watched series behind Homeland.

Nevins is high on the music-themed Roadies, debuting June 26, which chronicles the lives of stagehands who build and take down concert sets for rock ‘n’ roll bands. Showtime can also look forward to the much-anticipated 2017 return of director David Lynch’s drama series Twin Peaks.

Nevins is also spearheading Showtime’s continued push into digital, overseeing the rollout of the Showtime OTT service, available on Apple TV, Roku, Hulu, Amazon and other digital distribution platforms. Still, Showtime is building its success in a perilous TV marketplace where a lackluster performance from a high-profile series or a big breakout hit from a competitor could hit the network hard.

Nevins has his hands full guiding the fortunes of the premium programmer but took some time to discuss his strategy for Showtime’s future growth with Multichannel News, B&C and Next TV editorial director Mark Robichaux and MCN programming editor R. Thomas Umstead.

MCN:There’s been a lot of movement in the C-suite at Showtime lately. Is this a changing of the guard?

David Nevins: Matt hasn’t gone anywhere and is not going anywhere anytime soon, but sort of more and more of the daily decisions and budgeting and how we sort of organize ourselves is going through me. It’s been an orderly transition that’s been going on with Matt’s full support and kind of design, you know, going back probably three years.

I think it’s really working well and it’s a good moment for us. A lot of the trends in the business are favoring us right now.

MCN:How is your new OTT product doing?

DN: We’re about 10 months in. You can buy us on top of your Hulu subscription or through Apple or Roku and shortly thereafter Android, Google, and Amazon added us in a similar way as Hulu, and it’s been really working.

Our base business is, I think, as high as it’s ever been through our more traditional satellite/telco/cable distributors. So, there’s been no real cannibalization; we’re at an all time high in that business. And the more direct, sort of OTT business has really worked. It’s now becoming a pretty meaningful contributor to our revenue and it’s growing fast.

MCN:As the transition continues to more digital content, do you see that business rising and this linear side falling, or do you see incremental increases without losing linear?

DN: I don’t know what’s going to happen over time. I’m hoping for growth on both sides of the ledger. Thus far, we’ve seen growth on both sides of the ledger and we’re budgeting growth on both sides of the ledger for next year.

MCN:Do you think it’s a zero-sum game? Do you think there’s a limit, a ceiling, on the growth of over-the-top products and skinny bundles?

DN: There’s a de-bundling and then there’s going to be a re-bundling. And probably when there’s re-bundling, it will be good for us. We’ve taken a very agnostic position. Our attitude is we want to be sold in as many places as possible by as many sellers as possible.

MCN:How does that affect your relationship with the guys that brought you to the dance, the cable guys?

DN: I think they understand it. We’re not going to undercut them. We don’t want to undercut them. And there was cable and then satellite showed up and did good things for our business, and was a little competition to the cable guys. And then the telcos got into the business, and I think they understand that’s how the world works. So it’s kind of baked in.

MCN:Are you surprised by all the OTT competition?

DN: I come in as a programmer and as a producer, but with real interest in this sort of marketing and development of the business. It was clear to me five or six years ago, when I was a year into this job, that this is where it was going, because Netflix was already making the shift from DVDs to internet-delivered service.

And, you know, partly because I’m an outsider, it was just like a blinding glimpse of the obvious that delivering over the Internet was where it was eventually going to be, and we had to be ready for it and do it in a way that creates a good user experience. And we began building for it a while ago, so we’re doing all our programming, computer programming and service delivery, we’re doing it all in-house. And we’re going to have to start building all the core capabilities of customer service and customer attention that cable companies have spent a lot of time doing. That’s going to be competence that we’re going to have to develop.

MCN:Netflix is spending a pile of money — do you need to spend as much to compete?

DN: No. Still, we’re in expansion mode. So we probably have 11 sort of A-level scripted shows this year. It will be 12 next year, maybe even 13 next year, depending on how the year goes. So we’re definitely building up.

MCN:As opposed to what? What would be a typical year?

DN: Six years ago, it was maybe four. So we have definitely built up over the course of time. We have strength throughout the year, so that we’re able to roll from Homeland and The Affair into Shameless and Billions, into Penny Dreadful, into Ray Donovan and Roadies. They’re going to come this summer.

You know, probably in the old business, it was more important to have one giant show that forces the cable operators — like you can’t possibly drop [HBO], because how can you not have Game of Thrones? In the new business, where it’s easy to sign up and easy to cancel, it’s probably more important to have consistency across the schedule.

So we’re putting on two to three new shows a year. This year it’s Billions and Roadies. And next year it’ll be I’m Dying Up Here and Twin Peaks and some things that we haven’t announced yet in the back half of the year.

MCN:Is that sustainable? Do you want to keep that number roughly the same in coming years?

DN: I think it’s sustainable and I think it’s expandable. But we are expected to deliver earnings for our shareholders, so I’m not going to suddenly start spending 100% of our revenue. But the trick is to make your shots count when they come. And Billions counted.

And Billions was noticed. I always knew that certain power circles would love the show, but the question was, would it expand beyond that? And it really did. I mean Billions was our biggest freshman show ever. It was bigger than Ray Donovan and bigger than Homeland. And Roadies is going to count.

MCN:How do you know today thatRoadiesis going to be big?

DN: You don’t know what’s going to be a hit. I’ve never been great at predicting hits. But I know [if something has] enough cultural resonance and enough entertainment value that it’s going to get traction. It’s going to get noticed. Whether it’s going to hit or be medium, you never know. But if you’re doing something that feels original that is differentiated enough in the marketplace, that’s got enough sticky elements, whether it’s concept or actors or filmmakers behind the scenes who people want to watch, you know that you’re going to get noticed.

MCN:At what moment did you say, “Wow, this is going to connect?” Was it a song? Was it a line that was read by an actor?

DN: For me, the real moment is the script. So when I read a script and I have a certain feeling about it — I mean there’s always a leap of faith that you take. But the moment when I either emotionally connect or emotionally disconnect is reading the script. And then it becomes about trying to fulfill that vision or that’s great about the script.

MCN:Are you more like a third base coach, given your background with the showrunners?

DN: Yes. I love it. You know, you get to work with the smartest, most creative people, and ultimately, it’s their vision and I’m the third base coach; I’m not playing. But I invest in the people who I believe in and you get to make that decision. So it’s third base coach, it’s general manager, to use your baseball analogy, you get to choose who goes on the field and then try to get them to perform at their highest.

MCN:Showtime was once a network of flawed characters:Dexter,Nurse Jackie. What is it today?

DN: I think we really pride ourselves now on a diversity of shows and we try really hard not to copy ourselves. We want each show to carve out its own territory among the shows on our air and among the competition. So [if] there’s a Mafia show, it better be really differentiated from The Sopranos. Let me just say I try hard to stay away from things that are on our air and other people’s air.

But to answer your question, I think our shows have pretty deep characters, rich characters that have depths and layers to them, have kind of a deeper psychology. We’re definitely programming for adults. Now, I think we’re going to get gradually younger. You’ll see us do some things and the next couple years that are maybe slightly younger than the stuff you see on the walls now, but not dramatically so. [We] want to be forward leaning and not sort of going backwards. A lot of television is trying to do what has already had success somewhere else, and we’re trying really hard to lead the pack.

MCN:When Paramount, Metro-Goldwyn-Mayer and Lionsgate left Showtime in 2009 to form EPIX, there was a question as to whether Showtime would be able to make up for the loss of their films. Does the movie business still play a major part in your overall strategy?

DN: Well, I’d say it’s not top of the list. We know that the most important thing in terms of every buying decision that the customer makes, whether it’s to buy or to keep you, or their general perception of our brand, is based on original series. As you know, movies are seen in so many different places in so many different ways, they become more and more commoditized. That said, we’re building up, you know, we’ve added [studios] Open Road, we’ve added STX, which it looks like they’re going to be a big factor and they’ve been a big factor in the last year and a half. And they’re starting to make more adult dramas, adult comedies, thrillers.

MCN:Are you leaning to make more comedies or more dramas?

DN: More comedies, more dramas, documentaries, sports. We made a pretty big push into both sports and documentaries in the last couple years and it’s starting to pay off.

I mean, we’re very well situated right now in the boxing world with [Deontay Wilder] and Anthony Joshua. So there’s a lot of hope for renewed interest in the heavyweight division and we seem to be well-positioned there … and the documentary area is increasingly important. It’s interesting how it drives audiences more and more. And The Circus has really had impact for us.

MCN:The timing was great forThe Circus.

DN: The ongoing election — yeah, that was kind of a big risk. You have no idea what you’re going to get. You have no idea whether the campaigns are going to give you any access. And you know, you’ve got to plunk down $10 million before and just hope something good comes out of it. And it really worked.

MCN:And what gave you the cajones to put down the $10 million?

DN: I feel like it’s a kind of documentary that we’ve been working on. I’ve wanted to use this sort of All Access model of very rapid filmmaking that we did for All Access or Inside the NFL or the college football show [A Season With] … for something other than sports.

Just the ability to edit things so rapidly to be able to shoot things on a Friday, have them immediately ingested into an editing machine and be able to spit it back out and put it on the air on Sunday — that would not have been so easy five years ago. When Bernie Sanders hosted Saturday Night Live, that’s Saturday night at midnight, Sunday morning. We were on the air … 14 hours later.

MCN:What other shows do you have high hopes for?

DN:I’m Dying Up Here is based on a book of the same name about the early days of standup in L.A., and it’s a comedy and it’s a drama. It’s Jim Carrey producing. It really gets inside the minds of standup comedy, and it’s Melissa Leo and an interesting ensemble. And of course, next year, Twin Peaks. I’m incredibly excited to see what David Lynch has done. I think he’s one of the living geniuses of our business, and I think he’s going to do something magnificent.

MCN:Post-linear, on-demand viewing is growing. What percentage of viewing is done when a show’s not in season?

DN: Over half. Yeah, they’re all over 70%.

MCN:What does that tell you?

DN: It tells you people have complicated lives. [Laughs.] Television’s gotten more convenient.

But more and more, it’s on-demand. And you know, more topical shows or water cooler shows get more [live] viewers, a slightly higher percentage. But the difference is Homeland maybe it’s slightly over 30%, 35%, watching the live show versus who’s going to watch the rest of the week.

MCN:Why hasn’t Showtime dropped more entire seasons to allow binge-watching?

DN: I fundamentally don’t believe in it. … Our shows are built for hooks, and I think there’s benefit in the water cooler. And if we had to do it all in one week, I don’t think it does justice to the creativity of the shows. Our shows are very hand-crafted. Ray Donovan is going to make noise when it comes on.

MCN:What about selling to OTT providers?

DN: Our shows tend to have a lot of value when they come off of our network because they’re high-quality and they’re only seen in a limited universe, so there’s great demand from Netflix and Hulu and Amazon. We tend to do that only very late in the run, because we want people to know, “You want Ray Donovan; you want The Affair? You’ve got to go to Showtime.” So we try very hard not to muddy that by making The Affair available; just wait a season and then we’ll come on Netflix. No, you’re going to have to wait years if you want to wait for Netflix.

MCN:You’ve said in the past that Matt has been very supportive of you. And I’m just curious, what’s your vision of what you want your tenure to be like at Showtime?

DN: My goal is for Showtime to be one of the cutting-edge creative companies making the best content in a very hungry ecosystem looking for great content.

We have the business model already that everybody in the entertainment and media ecosystem wants, which is subscription-based. People see the value of writing a check for our brand on a monthly basis.

And I think also we can be a creative haven. I want, within the Hollywood community, people to feel like, “Go to Showtime, they will take care of you. They will make you the best version of yourself. They will take care of your shows so that you feel when you’re walking in, you’re going to a place where creativity is fostered.”

MCN:Do you think we’re in a content bubble right now?

DN: I think there could be some froth. I don’t think there’s a ton, because it’s a profitable business and there’s a lot of people trying to get their share. There’s already been some failure.

But I don’t see massive contraction because I think there’s enormous demand, and you have a lot of hungry viewers around the world who are getting connected, getting wired and consuming content, enjoying it.

Cable operators were literally the best and worst of telecommunications services providers yet again in a new customer-satisfaction survey.

The good news was that cable operators, who have pumped money, resources and personnel into improving customer service across the board, stopped their two-year slide in the pay TV portion of the survey. The bad news was they still finished last.

But the data also shows something about the mindset of the typical cable subscriber. The same customers that rate their cable provider among the worst for pay TV service see them as stellar broadband service providers.

Never mind that both services are traveling over the same network and use essentially the same customer-service personnel. It’s almost as if hating your cable company is a birthright. Broadband hasn’t been around long enough yet to foster that kind of hatred.

BROADBAND IS ESSENTIAL

Part of the reason also could be that customers perceive their broadband service as more important to their lives. Maybe this is further proof that customers are paying less attention to linear TV, and when they do, it’s because their tablets don’t work.

Another anomaly: Telco TV providers are at the top of the pay TV ranks yet have been losing customers over the past several quarters.

For the most part, cable’s performance in the American Customer Satisfaction Index — an annual survey of 12,710 customers on the often-touchy subject of customer satisfaction — has been consistent. For the past five years, cable operators have mostly received scores in the high 50s to low 60s.

Cox Communications usually got the highest rating. The big exception was last year, when despite fullyear gains in basic video subscribers at Time Warner Cable (53,000) and Charter (11,000), some operators, including TWC, turned in their worst showings ever.

Mediacom Communications has been battling a PR war after being singled out by some news outlets as “The Most Hated Company in America,” based on its ACSI showing. Mediacom’s scores of 54 in pay TV and 57 in Internet service providers was the lowest in all of the industries ACSI tracks, including cellular, wireless and wireline telephone. TWC (up 15.7%) and Comcast (up 14.8%) bounced back this year off declines.

Mediacom has countered that the sample size of its customers was small, which could skew the results, and has pointed out that it has boosted Internet speeds and introduced night and weekend service calls and 30-minute appointment windows.

MERGERS AREN’T HELPFUL

ACSI director of research Dr. Forrest Morgeson said in an interview that cable’s performance will likely decline this year and next as Charter moves to integrate TWC and Bright House.

“What we generally see is in the wake of mergers, for a year or two after, both of the companies involved tend to do a little bit worse,” Morgeson said. “It’s tough to say what will happen in this case, but it is fair to say that neither Charter nor Time Warner are stellar in terms of customer satisfaction. My guess is you’ll see a little bit of erosion as new customers come on to the Charter brand and there are problems with accounts and expensive plans and so forth.”

Charter has said it has been preparing for the integration of Bright House and TWC for about two years and plans to take a slow, steady approach to minimize disruptions. It has said it plans to hire 20,000 customer-facing employees over the years to help improve the customer experience.

Charter’s intentions sound good, Morgeson said, but there is always room for unforeseen circumstances.

“It’s not the things that you prepare for that go wrong,” he said.

WASHINGTON — The battle over the future of video navigation devices, and the “one ring to unite them all” approach of combining traditional and online video via a single device or app, played out in the FCC’s set-top docket last week — with a definite tilt toward pausing or punting on the proposal.

The Federal Communications Commission received hundreds — perhaps thousands — of pages worth of reply comments on the proposal. The bulk of the commenters clearly appeared at least to have concerns with the plan, and many had much more than that.

Read more about the FCC's set-top box proposal.

FCC chairman Tom Wheeler has signaled the proposal, which would make set-top content and data available to third-party navigation device and app developers, needs to be enacted. But he has also said the proposal is a work in progress and its details may change.

Multichannel video programming distributors (MVPDs), though, are skeptical any changes will be made.

PROCESS COULD BE LENGTHY

The FCC’s Democratic majority has only approved a notice of proposed rulemaking, not an order. And the agency could take its time in voting on a final version, which even then won’t take hold for another year or two.

That timeline is cold comfort to MVPDs that face the prospect of giving up data and content to third parties with essentially only promises that their contracts, and their content providers’ copyrights, will be protected from hackers or pirates, or that competitors can’t monetize their content at will and without compensation.

AT&T was representative of those wielding hammers rather than red flags. The DirecTV parent company called the proposal “indefensible as a matter of law and nonsensical as a matter of public policy,” and an unnecessary, harmful and deeply flawed “scheme.”

The National Cable & Telecommunications Association raised a hammer and a flag: Specifically, it likened the set-top plan to the “broadcast flag” receiver-technology mandate approved by the FCC a decade ago. That mandate was thrown out by a federal court, which ruled that the agency’s reach did not extend past transmissions.

Foes of the set-top proposal were using supporters’ past opposition to that broadcast-flag proposal against them.

The NCTA noted that Public Knowledge, which supports the current set-top plan, opposed the broadcast flag, quoting the public-interest group’s statement at that time: “The market for delivering content digitally over new technologies is working. Consumers can watch and listen to the content they purchase anytime and anywhere they want. All of these great developments happened without government intervention,” which shows that “government intervention in the free market [in this case is] unnecessary.”

Gigi Sohn, then-head of Public Knowledge and now a top adviser to the FCC’s Wheeler, said at the time the flag would give the agency unprecedented power to dictate product design and would cause consumer confusion and cost.

After the flag was thrown out, the NCTA said, “Public Knowledge’s prediction of market successes unshackled by technical mandates came true … The current commission should not make the same mistake again.”

Public Knowledge senior staff attorney John Bergmayer told Multichannel News last week, “The broadcast flag case doesn’t really apply because FCC authority over MVPDs themselves can get to the functionality of competitive devices.”

MVPDs have enlisted, or been joined by, an unusual cross-section of interests, including unions, Congressional Democrats and diversity groups. House Republicans last week launched an effort to block the box proposal via the appropriations process, though it is unlikely to succeed.

OUTDATED TECH MANDATE

While few argue that the set-top market is competitive — 99% of boxes are leased from MVPDs — pay TV providers have described the FCC’s solution as yesterday’s technology mandate for tomorrow’s app-driven navigation marketplace, ignoring the trend away from provider-issued set-top boxes.

Now that replies are in, the next move is the FCC’s, though it is under no obligation to vote on an order.

For example, the FCC voted unanimously in December 2014 to propose classifying some over-the-top providers as MVPDs. The idea was to help promote online video as a competitor to traditional cable and satellite providers.

But after Wheeler got some major pushback, the proposal was put on the back burner and remains there.

Pay TV providers are hoping for a similar result.

WASHINGTON — The former chairman of the Federal Trade Commission under President Obama is among those cautioning the FCC about its framework for new broadband-privacy rules.

In comments on the Federal Communications Commission’s framework, former FTC chairman Jonathan Leibowitz signaled he was on the same page as multichannel video programming distributors, which have pushed the FCC to adopt the FTC’s model of enforcing existing privacy policies, rather than flex its rule-making muscles with new regulations that could create an uneven playing field between ISPs and edge providers.

Leibowitz, now a partner at law firm Davis Polk & Wardell who counsels on privacy and congressional advocacy, said his approach was “not to erect stop lights dictating what companies and consumers can and cannot do, but rather to strike the right balance between privacy and innovation.”

He said he found some things to applaud in the proposal, but signaled the FCC had not gotten the balance quite right.

Leibowitz praised FCC chairman Tom Wheeler for seeking rules that were consistent with the FTC’s “privacy-by-design approach.” The FCC’s design, though, “overshoots the mark,” he said.

The regulations proposed by the FCC for broadband providers “go well beyond those imposed on the rest of the Internet economy,” Leibowitz said.

MVPDs are particularly concerned with the proposal to prevent Internet providers from sharing users’ information with third parties unless they get affirmative, opt-in consent. That’s something edge providers such as Google and Facebook are not required to do.

Such regulations would undercut the consumer benefits the FCC is trying to protect, Leibowitz said.

He recommended the FTC approach of focusing on the type of data being collected, providing heightened protection for the most sensitive information.

Leibowitz also argued, as have ISPs, for a technology neutral approach. He said the government should not pick winners and losers and that browsers, social-media platforms and operating systems have access to “all or nearly all” of a consumer’s online activity.

The FCC does not have authority over edge service providers, Wheeler has contended, though ISPs counter that the FCC has not been otherwise reluctant to use its Section 706 authority to advance communications.

This week’s INTX will feature robust discussions on a variety of topics paramount to the industry’s future, ranging from the effects of potential new governmental regulations to the prospects for virtual reality.

Another issue that will be talked about in Boston that’s been getting a lot of attention of late — and concerns executives from both pay TV providers and networks — is cord-cutting. The results of various surveys meant to gauge the true effects of cord-cutting have been all over the road.

In a recent report, BTIG analyst Rich Greenfield said cord-cutting would cost the industry at least 2 million full-paying video subscribers each year.

Other observers say the issue is overblown. A Consumer Reports survey found that three-fourths of cable subscribers who also subscribe to streaming services say they won’t drop cable because they’re relatively happy with their provider.

Regardless of which side of the argument industry executives fall on, most everyone says that cord-cutting is an issue worthy of concern. Rather than bury their heads in the sand, MVPDs have sought to address the needs and desires of consumers to have more choice in the cable packages they ultimately pay for.

Companies like Comcast, Dish Network and Verizon Communications are experimenting with “skinny bundles” or cable packages with fewer channels to keep subscribers within the pay TV family. Others are building better TV-everywhere and on-demand experiences to provide viewers more viewing options and the flexibility to view content at their leisure.

Several panels during the three-day INTX show will discuss the future of pay television in an increasingly disruptive digital world, giving attendees the chance to debate the best ways to combat a growing, though not insurmountable, hurdle of retaining current customers while drawing in a new generation of potential subscribers.

Netflix, Amazon and Hulu have forced the industry to address the needs and concerns of consumers. The industry is still searching for the best ways to respond to that challenge in kind. This week’s INTX will serve as a good playing field where the industry can take a few swings at the competition.

Game on.

WASHINGTON — The cable industry is at war with Silicon Valley giants — and the U.S. government itself — over a small, black box.

And the stakes are high enough to jeopardize the most crucial part of the business relationship with a consumer — the point of first contact, specifically the first images a viewer sees when turning on a device — as well as the security of the signal. The prize is the vast trove of viewing data collected from MVPD-provided set-top boxes that is surely and not so slowly upending the $70 billion advertising market.

Content companies, unions and legislators have weighed in vigorously against Federal Communications Commission chairman Tom Wheeler’s proposed new rules for set-tops, counterpunching with major concerns that “unlocking the box” would leave valuable cable programming vulnerable to content thieves, copyright violators or powerful edge providers such as Google, who are looking to edge out MVPDs and remonetize their content for free.

Wheeler billed the proposal as a win-win, in part because he says that such a new rule would open up the retail market for set-tops, as most cable subscribers pay rental fees for their devices. Never mind that no one likes a box, and cable operators, recognizing consumer demand, are offering set-top-free alternatives.

PUSHING BACK

But a lot of people don’t see it the FCC’s way, and have pushed back on various aspects of the proposal — including on matters of privacy, copyright, diversity and more.

In just the past two weeks, House Judiciary Committee leaders from both parties have told Wheeler his proposal puts copyrights at risk. Other House Democrats, apparently unsatisfied with a Wheeler explanation of the proposal’s backing in a meeting with the House Democratic Caucus, said content creators are hardly applauding, even listing those who have weighed in against the plan.

RELATED:Content Commentary: Producers, Programmers and Affiliated Groups Against the Set-top Proposal | Get complete coverage of the FCC's set-top proposal.

Cable operators for years have been trying to get the FCC to drop its hardware-based CableCard solution for promoting competition in the set-top and navigation-device market. MSOs have long viewed the removable Cable-Card module as a clunky, hardware-based alternative to a software solution for set-top security.

The seeds of the current proposal are in the Satellite Television Extension and Localism Reauthorization Act (STELAR), which renews statutory licenses that allow satellite-TV providers to retransmit broadcast stations to their customers for five years. The mustpass bill was used as a vehicle for getting rid of the CableCard mandate, but it turned into something of a runaway train after an FCC advisory committee included the gateway device proposal, which calls for disaggregating cable content and data and repurposing it alongside over-the-top offerings for one-stop video shopping, among its recommendations. Wheeler climbed aboard.

But the chairman has run into bipartisan pushback from Congress and opposition from many in Hollywood, minority groups and others, all looking to put the brakes on that train.

Google has been pushing the notion of gateway devices for years, seeing an opportunity to promote OTT video alongside traditional TV fare and get access to set-top data in the process.

Cable operators have opposed what they continue to brand the “AllVid” approach — from a previous gateway effort under Julius Genachowski, the FCC’s chairman during President Obama’s first term — because they say it is an unnecessary technical mandate that opens their content and data up to piracy, as well as to edge providers eager to monetize cable programming without sharing the new wealth. Plus, they say an app-based approach to video navigation is already transforming the industry.

Wheeler has said his plan would not mean rebuilding networks or “all the other horrible things” the industry has cited.

Armed with the statistic that 99% of boxes are still leased, and the congressional mandate (or at least language) that the FCC is supposed to promote the availability of competitive video navigation devices, added “unlock the box” — the FCC’s slick, online branding of the effort to disaggregate set-top information, to the list of regulatory initiatives meant to promote competition. With the help of Democrats on the commission who voted with him, that would make cable content and data available for repackaging by third parties.

Obama is now very publicly on board, having made his support for the set-top box proposal part of a larger initiative to get federal agencies to promote competition across all sectors.

The president also came out very publicly for the FCC’s Title II reclassification. But while that was greeted with cheers from congressional Democrats, there has been plenty of pushback from his own party, likely stemming from the fact that all those advertisers and unions and studios and distributors with concerns about the propsal are constituents, too.

Why are cable operators apoplectic that the prospect of competing with devices and apps? Is cable just trying to keep others from milking its cash cow?

Cable operators say no. They say they’re moving away from set-tops themselves, partially because TV is evolving towards an app-driven environment and partially because — at least according to the American Cable Association, which represents smaller, independent MSOs — boxes don’t make them much money.

Cable MSOs also fear that disaggregation of channels would mean they can no longer guarantee programmers the channel positioning for which they’ve negotiated, or companies the ad placement that they’ve paid for.

Comments by Public Knowledge fueled that fear. The Washington, D.C.-based public interest group argued that contracts shouldn’t trump the FCC rules.

It has also been argued that Congress’s mandate that the FCC promote the commercial availability of boxes does translate to promoting new competitive services that rearrange that disaggregated content so it can be integrated with online video competitors.

There is also the privacy issue. Cable operators are required to adhere to set-top information privacy protections, while edge providers (as the FCC chairman keeps reminding them) are not.

The Wheeler proposal, as advertised, would require third parties to self-certify their compliance with similar rules to get access to the set-top data, but cable operators fear that approach is too hard to police. They have reason to be concerned.

Both Google and Amazon have told the FCC that even such a voluntary quid pro quo is unnecessary and should be scrapped.

The set-top proposal has set minority programmer against minority programmer — in one corner, BET founder Robert Johnson; and in the other, TV One president Alfred Liggins and Revolt TV CEO Keith Clinkscales. It has also divided Democrats. A few support Wheeler’s proposal as a proconsumer, pro-OTT move, but many others have big concerns and want the FCC to back off until Congress gets the results of studies of its effects on diversity.

If the FCC does not back off, cable operators — the National Cable & Telecommunications Association has filed 394 pages of documents in opposition to the proposal — have promised to sue.

While some lobbyists and FCC sources on both sides of the issue and the political spectrum argue the NCTA misplayed its hand by pushing for an end to the CableCard regime, NCTA president and CEO Michael Powell disagreed.

“Public Knowledge and [DVR manufacturer] TiVo have pressured the FCC on AllVid since 2010, and with the late arrival of Google seeking free access to content through regulation, I think this FCC was going to move forward regardless of STELAR,” Powell told Multichannel News. “In fact, the FCC is doing this despite Congress clearly rejecting calls for the very proposals that seem to have found favor at the FCC.”

Perhaps at the FCC, but not so much on Capitol Hill. Among those who worried about the new rules are prominent Democratics on the House Judiciary Committee, who’ve written letters expressing worries about copyright protections, and the Congressional Black Caucus, which has aired its concerns about the proposal’s effects on diversity.

Wheeler declined to comment for this story, but his press secretary, Kim Hart, echoed his talking points in a statement. “Lack of competition in the set-top box market means 99% of pay TV subscribers are forced to spend hundreds of dollars a year to lease set-top boxes,” she said. “This proposal aims to provide new options for consumers to access the content they’ve paid for, while at the same time protecting that content from illegal use.

“Chairman Wheeler appreciates all the input he has received on the proposal. He looks forward to working with all stakeholders to bring real competition and choice to consumers.”

Wheeler has doubled down on the proposal, saying recently that it had to get done. And though he has also professed to being willing to adjust it to assuage concerns about copyright and ad deletion, Powell is unconvinced.

“We have heard that in almost every proceeding and it usually comes out awfully close to the way he says it is going to come out,” he said.

But Powell said he would take Wheeler at his word. “If he sincerely is going to work on an order that doesn’t just take these things into account, but actually addresses and removes them as a concern, I think everybody will be happy.”

In the meantime, unease appears the order of the day.

SIDEBAR: The Nays Seem to Have It

The FCC has collected the first round of comments on the navigation-device proposal. The heated rhetoric suggests the high stakes involved, which include privacy and copyright protections — and potentially billions in advertising dollars. Here is a sample of the yeas and nays for the proposal in its present form:

NAYS

Roku: While streaming-device maker Roku has been cited as one of the companies whose content could benefit from the “unlocked” set-top, it strongly opposes the plan. It says the market is already moving toward choice, and the proposal could slow that with a lengthy rulemaking process that creates a de facto technical standard.

Comcast: The nation’s largest cable operator says the FCC proposal is illegal, increases consumer costs, endangers content protection, jeopardizes security, facilitates piracy, weakens consumer privacy protections and creates an unworkable standards-setting process. (Other than that, how was the play Mrs. Lincoln?)

Dish Network/EchoStar: The Charlie Ergen-owned satellite provider and tech firm say the regime proposed by the FCC is unworkable for satellite, deeply flawed for all MVPDs and would “disserve the public interest and threaten competition in the video marketplace.”

Hollywood: The major movie studios, joined by the Independent Film & TV Alliance, recording industry associations, creative unions — SAGAFTRA, IATSE and the Directors Guild — and others say the proposal will allow allow third parties to scrape data, repackage channels and monetize content without notice or compensation to content creators or distributors.

Communications Workers of America: In its filing, the union says it was all for consumer choice and competition, but the proposal would force MVPDs to give away their programs and guide information to some of the wealthiest companies, like Google.

Association of National Advertisers: ANA says that under the proposal, there is great potential for overlaying or replacing ads and degrading content, leading to the draconian effects of “less content, fewer distributors of programming, higher costs to consumers, and less innovation.”

Arris: The set-top powerhouse warned the FCC that to the extent it is expected to monitor the security of third-party boxes, it said security vendors “do not always have the capability to confirm that their security solutions are properly integrated on devices or apps.”

YEAS

Writers Guild of America, West: The WGAW paints MVPDs as gatekeepers, so it sees the box as a platform for online distributors “not sanctioned [as in distributed] by the gatekeepers” to get noticed.

Amazon: The online retailer and OTT firm commended the FCC on the effort, pointing to the “scarcity of choices consumers have to access and locate MVPD content, and the untapped potential for significant competition in this space.”

Consumer Video Choice Coalition: This group, which counts Google as a member, produced a YouTube video to make its pitch, though it says renting a box from the cable company is required, and it’s isn’t. The message is the simplicity and choice that is being prevented by mandated cable box rentals, but would be “unlocked” if the proposal becomes a reality.

Public Knowledge: PK president Gene Kimmelman said the FCC was aiming to end a “$15 billion per year ripoff” and challenge the “cable monopolies.” PK said the FCC has unambiguous authority to promote both app and device competition and that programmers and distributors would benefit.