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Indie Cable Operators: Small But Powerful

Related: As the Bundle Unravels, Relationships Shift Too

Small cable operators have been the so-called canary in the coal mine for issues that have later affected the broader telecom market for years, and this year is no different. Small cable operators long have seen the competitive advantage of offering faster and faster broadband speeds, of providing consumers with easier access to subscription video-on-demand services and now, with access to over-the-top content. As the industry assembles in Indianapolis this week for The Independent Show, B&C contributing editor Mike Farrell spoke with National Cable Television Cooperative president and CEO Rich Fickle about the co-op’s biggest priorities and its plan to dive headfirst into one of the industry’s most pressing issues, retransmission consent. An edited transcript follows.

What’s at the top of your priority list?

From our standpoint, we’ve been blessed with a year where we’re not doing any of the major network renewals this year. We’re always working on trying to work on them and improve them, but we don’t have any major renewals going on right now. So we have shifted our focus to an area that we’ve dabbled, but that has been a high-cost growth issue for our members, and that’s retrans [retransmission consent].

I’m not saying we are going to turn back the hands of time on the economics, but hopefully we bring some efficiencies to the table in negotiating some of the larger retrans deals that benefit our cable-operator membership, as well as the major broadcasters. They have had to deal with close to 1,000 entities and almost 3,000 markets, and for some of those guys that’s a horrendously inefficient process. So, we’re in the thick of it with a handful of the large broadcast networks to try to help on the retrans side this year.

Second is OTT. We finished another OTT deal and have three or four in the works. Our theory is that you’ve got different flavors of OTT content options out there for consumers but, if you really study the numbers, the guys that have been out there in front have had some initial success on the consumer direct side but their growth is not easy to come by either and their churn is pretty high. From our members’ standpoint, they’re looking for ways to bring new content choices to the consumer, or in some cases bring a different packaging lineup to the consumers that have different price points and more flexibility. For these OTT players, whether it’s a single brand or a multichannel brand, it makes some sense to structure some arrangement where our members can redistribute those packages or that content. You’ll see at the show a panel with some pretty notable guys from the OTT world. We’ll be formally announcing a deal with some of the larger digital MVPDs any day now. That’s a big deal for us. You diversify the content, you find other ways to create choices for consumers.

Just to make sure we’re clear — is this a deal with a virtual MVPD like a Sling TV or a Hulu, or is it with an individual network?

We’re working on both, actually. The digital MVPDs, they’re multichannel, just like a cable operator, but they may have different packaging, price points, they may not have all the content that most cable operators carry and that might appeal to a segment. And so you can be a little bit more targeted. We’re also doing individual channel deals for brands that we think add differentiated content. These are companies that are notable — maybe they rank pretty high in the app space on Roku or things like that. And there is a business model attached to it that makes some sense, and it can be delivered just through those devices as it is today, but we also have the capability in some cases to integrate it into the set-top so a consumer can get their regular cable content and also get content delivered over IP and be fairly stable. Some of our members have been doing that for four years with Netflix on the TiVo platform and it’s grown from there. The idea of creating this convenient way for consumers to get traditional cable and OTT content is a key value that some of our members have been working on for a while and we’re going to continue to do that.

NCTC has considered dipping into retransmission-consent negotiations in the past, but the market was too scattered. Has consolidation on the broadcast side made it easier?

I think so. I think the other thing that goes along with that is the customization of those things by market, taking into account relationships have kind of gone away to some extent. These larger station groups have standardized their approach to make it more efficient. One of the barriers for us has been each market was different and had their own quirks and trade-offs and historical relationships. Those things have kind of diminished over time. So it makes more sense. It’s an equation that hopefully helps our members and also the broadcast station groups because they have to have something that they get out of it too. We’re very mindful of that. To be able to focus just on huge changes in the rates, I think that is probably unrealistic. But there are probably going to be some benefits for both sides.

Is the fact that some of these large station groups have begun to buy cable networks and are looking for national distribution for them playing a role in this too?

Yep. That’s a playbook that we saw 10 years or 14 years ago, and now it’s kind of coming back in a slightly different form, and it’s happening with a couple of groups. In our base we have probably 25 station groups. You have maybe two or three that are playing that card.

When are you going to negotiate your first deal?

Who knows? We’ve been working on it a couple of months. It’s new, we have to get the station groups comfortable with what we’re doing. We’re not going to be able to get to all the broadcast groups. Some are going to want to sit on the sidelines and do what they have always done. But I think we will wind up with a significant number of deals.

NCTC has long been a proponent of helping its membership transition to IP video. How is that initiative going?

We think there is a way to leverage the next generation of technology to provide even more benefit. So it’s lower costs, for example. Taken to the extreme, you can use consumer electronics devices like maybe a Roku device, or Apple TV or Android device to be a set-top. It’s more bandwidth efficient in some cases, it provides easier access maybe to some of the OTT content and the cost structure for provisioning some of those services should in many use cases be lower. We’ve worked on a project, we kicked it off earlier this year, to do an RFI [request for information] with companies in that space. We’re narrowing the field down to a handful of companies and hopefully we’ll have a deal done with the first one in 30 to 60 days. That’s an important area, too, to accelerate the evolution to IP video and allow members to use it as either a complement to what they do today or in some cases they’ll start to migrate the current video base over to an all-IP delivery system.

Another one that touches it on the fringe is the advanced advertising side. You’ll see a panel at the show focused on that. I think it’s got a good lineup of experts. We think that’s an important area for helping work with the current programming community and also as a way to make sure that we’re keeping up with where the digital MVPD world is going. Advanced advertising is pretty important, but for us anyway, it’s probably a little but further off than like it is maybe for a Comcast or a Charter. We don’t want to be too far behind.

Let’s talk a bit about the Independent Show. Is it going to be heavily tech-oriented, like a lot of shows have been recently?

A little bit. It’s focused more on content and business. I would say the thing that is going to stand out more than that is the financial side. We have a really good financial panel that is going to talk about M&A and IPOs and all that stuff. You’re going to see a lot of bankers attending. You’re going to hear from one of the more interesting and outspoken analysts from [Sanford] Bernstein [Todd Juenger] talk about the state of cable networks. I think the financial side is kind of a key thing in this conference.

Is M&A coming back into the picture for small operators now because the federal spectrum auction is over? Already we’ve seen deals for Wave Broadband and RCN and Grande (from TPG), Cogeco just agreed to buy MetroCast, all at pretty high prices. Is that encouraging for your membership?

Yes, I think so because if you look underneath the numbers, they’re pretty strong valuations. The transactions you’re seeing now are with companies that have a certain size and connectivity into those markets. I think it’s positive overall. The idea is that there is value in the network it’s not all about video margin, and that network is pretty darn valuable.

It’s not all just M&A either, it’s access to capital to build out networks, buy equipment and become more efficient. That’s a good sign.

I think that’s right. In light of no dramatic improvement on video margins — video margins continue to get crunched — it should give smaller operators and the market a sense that hey, there’s a good story here and there’s good value.