Cable Channel Blackouts for Broadband, Pay-TV Subscribers Seen by MVPD Allies

Cable channel programming fees are rising, in addition to retransmission consent fees -- which have drawn more public scrutiny recently including with an FCC rulemaking approved Monday (see separate report below in this issue), said cable and telco-TV representatives. They said that pay-TV customers are telling their operators they don’t want to pay more, and the companies want to reduce the carriage-fee price increases they expect programmers to keep seeking. Some executives said that such escalating fees raise the issue of whether the government should require programmers to break into smaller pieces bundles of multiple channels, also called wholesale unbundling.

MVPDs balking at high programming rates is a situation that has been seen among regional cable networks, where in markets including Houston and Los Angeles some regional sports networks (RSNs) aren’t distributed to all major operators because of concerns over high sports fees, said MCTV President Robert Gessner, whose company has about 40,000 video subscribers in Ohio and takes part in NCTC. “We've seen this kind of starting with the sports stuff, where big systems have refused to even start the relationship” with a high-priced RSN, he said. “There’s an enormous divide” between programmers and operators, said Gessner. “We just cannot continue to be the bill collector for these content guys who look at it like an annuity” that increases, he added. Gessner is vice chairman of the American Cable Association, which meets this week in Washington. NCTC/Viacom is likely to be a key issue at the ACA meeting, said attendees including Gessner and ACA President Matt Polka.

Major programmers such as Discovery Communications, Disney’s ESPN and Scripps Networks have carriage deals coming up for renewal this year, said Gessner. “There will have to be a lot of significant negotiations that may lead to blackouts like” the possible NCTC/Viacom one, he said. “We don’t work for Viacom. We work for our customers, and our customers are telling us two things loud and clear": That prices are rising too quickly and that they want smaller packages of channels. “We have to start fighting harder and pushing back more to keep prices low and keep the bundle” smaller, he said. “Viacom is committed to serving its audience and has been negotiating tirelessly for months to reach an agreement that will ensure no service interruption for subscribers” of NCTC members, said a company spokesman. NCTA had no comment for this story.

Blackouts Extend to Broadband

Broadband is increasingly playing a role in blackouts, both of TV stations and of other channels, said cable and telco-TV representatives. They noted that in some spats, such as CBS and Time Warner Cable’s last summer that mostly dealt with the broadcaster’s TV stations, the programmer blacks out access to all broadband subscribers of the programming. That’s done by blocking access to websites controlled by a programmer that have video of the affected programming, by targeting the Internet Protocol addresses associated with the MVPD that’s in the dispute, said MVPD representatives. Video distributors and programmers “are always going to bicker about the price,” said analyst Derek Baine of SNL Kagan, which tracks MVPD spending on content. “It has been particularly contentious the last few years, because it’s not really clear how much the online rights are worth” to operators, he said of products such as TV Everywhere.

The FCC should consider barring programmers from blocking Web content to customers of a particular ISP, if the agency bars ISPs from preventing subscribers from accessing sites as it reworks net neutrality rules after a court loss, said Polka. “Very much” worried about online blackouts when linear programming stops flowing during a carriage spat, he wants “content neutrality.” If the FCC is “going to prohibit ISPs from that behavior, you have to prohibit content companies, too,” said Polka. “We're seeing more and more instances where content companies have leverage to block consumer access to lawful content on the Internet."

There’s no technical workaround for such IP address blacklistings during linear content price disputes, said Vice President-Regulatory Affairs Micah Caldwell of ITTA, representing mid-sized telcos, some of which, like CenturyLink and Frontier Communications, also sell video. “Essentially, there’s nothing that can be done about it.” Required wholesale unbundling of cable channels could help MVPDs pay less for programming, and pass those savings onto consumers, said Caldwell. “So long as prices continue to increase, there will be additional pressure that could lead to breakdowns in negotiations, not just with broadcast programming which we see all the time, but with non-broadcast programming as we're seeing with the Viacom/NCTC dispute."

Down to Wire More

ACA, ITTA and NTCA member companies worry about more down-to-the-wire carriage talks, programming blackouts and rising prices, said executives from those associations. NCTC/Viacom is “bringing these issues to the forefront again today -- but these are issues these folks deal with every day,” said Senior Vice President-Policy Michael Romano of NTCA, which has members including TDS that are part of NCTC. “This is just the latest in a string of these things,” he said of the latest dispute. “The issue seems to be that there is no end in sight,” whether for cost increases or the potential for more disputes, said Romano.

NCTC and its members claim Viacom wants a rate hike equating to 40 times more than the rate of inflation, and the company won’t offer a contract extension. MVPDs also say that ratings for some of the channels have declined. “NCTC continues to stall our conversations and negotiate in the press rather than work collaboratively toward a compromise,” said the Viacom spokesman. “We are simply asking NCTC to pay fair value for our networks, which continue to deliver more viewers than any other cable programming group at a very reasonable price."

Fewer new channels means big programmers now need to get rate increases on existing networks from those currently carrying them, when contracts are up for renewal, said ACA’s Polka. “Price demands from the content companies are beginning to escalate beyond reason.” Longer contracts may mean disputes are less frequent, as some new deals for cable channels are stretching now to 10 years versus 3-5 for past contracts, said SNL Kagan’s Baine. “There are a lot of marginal channels that hardly anyone is watching that you end up paying for anyway,” and NCTC/Viacom illustrates that, he said.

The “large increase” sought by Viacom comes as “increases in programming costs are an industry-wide problem and affect all cable and satellite providers,” said a spokeswoman for NCTC member CenturyLink by email. “We will continue to work in good faith with Viacom to reach a fair outcome that benefits our customers, and all parties involved in the negotiation. Our ultimate goal is to protect our customers from significant programming fee increases.”