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Small Ops' New Concern: Cash Demand for Retrans

Monterey, Calif.— Fearful that financially pinched broadcast TV-network affiliates will play hardball and demand cash for carriage, cable operators are bracing for a tough round of retransmission-consent negotiations next year.

At the American Cable Association's meeting here last Monday, president Matt Polka warned that as retransmission-consent deals expire at the end of next year, cable operators will face a double whammy from broadcasters.

Firstly, Polka predicted that some TV-network affiliates would be more aggressive in their demands, seeking payment from cable systems to carry their signals. And this time around, he noted, Viacom Inc. will use the new muscle gained from its merger with CBS Corp. to try and boost distribution for its cable networks.

"CBS-Viacom will be loaded for bear," Polka said during the ACA's political panel.

The issue surfaced last week as the ACA and another group representing small cable operators, the National Cable Television Cooperative Inc., held their first joint annual meetings during a three-day conference here.

Affiliates of the Big Four broadcast-TV networks are receiving less compensation to air network programming, Polka noted. And the soft ad market is also contributing to the stations' financial squeeze.

As a result, Polka and cable operators such as Danny Jobe of Nesbe Cable in Rustburg, Va., expressed fears that to offset any revenue shortfalls, affiliate stations will insist on cash from cable operators next year in exchange for retransmission consent.

"Will network affiliates look to cable systems to make up the difference [in their compensation] from the networks?" Polka asked. "Cash [compensation for carriage] has always been an issue. But they're going to be a lot more aggressive seeking money."

He told operators that these stations have lots of leverage, because their Big Four programming "is essential for your systems to carry."

Polka pointed out that even giant AOL Time Warner Inc. succumbed to public pressure last year when it dropped ABC-owned TV stations for two days in a retransmission-consent battle with The Walt Disney Co.

On top of that, Polka predicted that Viacom will tie retransmission consent for both CBS owned-and-operated TV stations and the UPN stations it owns in order to force cable operators to either carry its cable networks or expand their distribution.

Viacom chief operating officer Mel Karmazin has already said publicly that the company would use retransmission consent to help its cable networks, Polka noted.

Regulatory issues weren't the only hot topic at the NCTC gathering. Talk also focused on a new weapon that very small operators can wield against direct broadcast satellite: HITS Quick Take.

Though attendance has lagged at many cable shows — due, in large part, to industry consolidation — the NCTC's 17th annual meeting saw it rise by 14 percent. The gathering was attended by 630 cable executives, up from 550 at last year's event in Newport, R.I.

"Most of the consolidation in the industry takes place at the top," NCTC president Mike Pandzik said. "And most of our members are not in that category."

The co-op, which negotiates discounted programming and hardware contracts for its members, now represents enough subscribers to rank as a top-3 MSO. Its 1,000 member companies have more than 13 million subscribers.

The mood at the co-op meeting was surprisingly upbeat, despite the fact that several small MSOs — such as Classic Communications and Galaxy Cable — have experienced financial problems, and that DBS continues to pick off cable subscribers.

Pandzik said that the situation with Classic and Galaxy was "atypical" of small MSOs because "banks and Wall Street got collective cold feet last year and withdrew their lines of credit. Most of our members don't depend on Wall Street for financing."

The NCTC's final panel discussion last Wednesday, "Making Digital Cable Pay," packed an auditorium. Attendees were eager to hear the different analyses of the Quick Take system, which AT&T Corp.'s Headend in the Sky offers to small cable systems.

Quick Take enables operators to uses quadrature amplitude modulation technology (QAM) at the headend to deliver digital programming from HITS to subscribers less expensively than the traditional direct-to-headend HITS Classic service.

HITS Quick Take is also an alternative to HITS2Home, a satellite-overlay system that delivers digital programming to cable subscribers through a small satellite dish installed at their homes.

To offer HITS Quick Take, operators must install a transcoder at the headend, available from either Blonder Tongue Laboratories Inc. or Drake, and a Motorola Broadband Communications Sector DSR-470 set-top in the subscriber's home. Quick Take headend costs are estimated at $20,000 to $30,000, compared with $100,000 to $150,000 or so for HITS Classic.

HITS Quick Take has been deployed at 45 cable systems to date, according to HITS senior director of business development Steve Benda. It's been launched at systems owned by Mediacom Communications Corp., Millennium Digital Media, Dixie Cable and James Cable Partners.

During the NCTC's digital panel, Buford Media Group LLC CEO Ben Hooks estimated that it costs $2,375 per subscriber to launch HITS Classic in a 500-subscriber system. It costs $485 to launch HITS2Home and $642 to launch Quick Take, he said.

Although HITS2Home is cheaper per digital subscriber than Quick Take, Hooks said that with Quick, Take he doesn't have to worry about installing and maintaining the dishes required by HITS2Home.

"We are installing Quick Take at all our small systems," said Hooks, whose Alliance Communications Network has 6,800 subscribers in Arkansas.

HITS Quick Take also is working in tandem with WSNet to permit even operators who only have 30 channels to increase their lineups by as many as 200 channels by digitizing most of their core basic cable networks.

Quick Take's drawback is that it doesn't allow an operator to offer advanced services, such as video-on-demand.