Squeezed by soaring program costs, small cable operators have been making noise in Washington, turning to lawmakers for help out of desperation, they say. The efforts of these operators, many of them mom-and-pop shops, have finally drawn the attention of giant programmers and big MSOs alike.
It's a testament to the National Cable Television Cooperative, the small operators' buying collective, and the American Cable Association, their lobbying group, that at their joint annual meeting here last week, the mountain essentially came to Mohammed.
Top brass from both ESPN and Comcast Corp. flew in and talked. They initiated a dialogue while also warning independent cable systems about what became the meeting's catchphrase: the "unintended consequences" of asking the government to intercede and regulate programming pricing and packaging.
At the three-day NCTC-ACA gathering, attended by a record 850 participants, small operators repeatedly talked about the dire straits they're in because of spiraling license fees and restrictions on tiering, especially for sports.
With ESPN's annual 20% rate increase going into effect last Friday, Aug. 1, some tiny operators claim they will be paying as much as $2.70 a month, per subscriber, for ESPN.
The NCTC , representing 6,500 systems with over 15 million homes, is still talking to ESPN about the sports behemoth's alternate contract proposal. It would limit annual price increases on the core sports network to 16% this year — dropping to 11% in 2008 — all in exchange for additional carriage and rollouts of ESPN spin-offs and services.
In the meantime, the ACA and NCTC are still threatening to turn to Beltway policy-makers for help on what they say is essentially a populist issue — rising cable rates.
That's risky business, warned Terry Bienstock, Comcast's executive vice president and general counsel. Last Monday, he urged the ACA to be "cautious" in seeking legislation relating to tiering.
"À la carte may sound good conceptually, but really think about whether it's something you want in your business," Bienstock told the ACA, whose members represent 8 million homes.
ACA president Matt Polka said his group understands that there are risks involved going to Washington.
"We're certainly not unmindful of the problems," Polka said. "We've got to do something. Our members tell us that we've got to take action, because the current paradigm is not working … It is leading us to drastic action."
Bratches: stress value
Sean Bratches, ESPN's executive vice president of affiliate sales and marketing, appeared in Portland last Tuesday, on a scorching day when the temperature hit a record 100 degrees, to take part in the NCTC's programmers' forum. He quickly shot down the primary concession that the co-op's members want.
"I'm not interested in selling you ESPN on an à la carte basis," said Bratches, fielding some polite but grilling questions from the small-operator audience.
Rather, he stressed the importance of sports to most consumers and said cable should be emphasizing its entertainment value, not dissecting and explaining its wholesale costs in public.
"[Cable] is a great value," Bratches said. "When a company is trying to sell a hamburger, they don't talk about the cost of raising the cow, the steer. They talk about how the meat tastes."
During the session Tom Gleason, chairman of CableDirect, said that the NCTC and its members really don't want Washington intervening by passing regulation relating to cable programming.
"I agree with Sean that ESPN brings people to cable TV," Gleason said. "It's one of the greatest channels we've got. [But] it's too high-priced. I don't think anyone in this room wants to go to Congress to solve any of these problems. But … we're getting a little desperate."
NCTC president Mike Pandzik also took the microphone at the programmers' forum and said that his members can't raise their rates to subscribers enough to offset double-digit price increases from programmers.
"There is a train wreck," he said. "I know when you go to Capitol Hill what you get often bears no resemblance to what you wanted when you walked in the door, but that should give you a feeling for the level of frustration.
"If we're willing to do that, we're at the end of our rope. Let's be partners again."
Bratches did point out that ESPN's annual rate increase is across the board to the entire cable industry, not just small systems, and cited the alternative offer that's now on the table.
In fact, Pandzik complimented Bratches and ESPN for taking the time during the past few months to meet with the NCTC to discuss that alternative agreement in depth.
ESPN's alternate proposal is one of two big programming deals the NCTC is working on now. It has also been trying to nail down a master contract renewal with MTV Networks, for a deal that expired about a year ago. One of the sticking points reportedly has been that MTVN is trying to add TV Land, along with a double-digit rate increase, into that renewal pact.
Affil boards?
There are now a half-dozen programming giants, and Pandzik said, "When you sit down and do a negotiation with them, typically they include all their product lines. Well, those talks get really complicated immediately.
"They may have seven, eight, nine, 10 networks involved. Are they available individually? Of course they are, at a much higher price."
Last week, Bratches said he was "amenable" to the idea of affiliate boards of cable systems being created to advise cable networks, just like there are affiliate boards of TV stations for the broadcast networks — a suggestion made by Massillon Cable president Bob Gessner.
Pandzik also supported the idea of cable operators who don't insert local advertising, like the majority of NCTC members, having a different rate card — with lower license fees — than insertable systems. The NCTC has one such deal in place with a major programmer.
