Comcast - CBS Deal Completed Above the Fray

The announcement is out that Comcast and CBS have entered into a 10 year distribution deal that covers retransmission consent of CBS O&O stations as well as carriage of Showtime, Smithsonian Channel and the CBS College Sports Network and On Demand and online rights for certain CBS owned programming. This deal is notable for several reasons

First off is the term of the deal. Rather than keep the term to 3 years in order to mirror the usual retransmission consent election cycle, the deal has a 10 year term which is rather long by industry standards. As noted by CBS CEO Les Moonves, “There is a lot of flexibility built in”. I certainly hope so given the speed at which things change in the industry.

Secondly, the agreement encompasses more than just retransmission consent. Comcast was smart to tackle all of the networks at once. Strategically, it allowed them the ability to do some good old fashioned “horse trading”. As any negotiator and chess player knows, the more pieces you have to move around on the board, the better deal you are able to craft. There is no word whether CBS College Sports will be moved from the poorly penetrated Comcast sports tier to a more penetrated “digital basic” or “expanded basic”. Of course, it doesn’t hurt that Comcast is the largest player in the game either.

Lastly, the agreement was hammered out behind closed doors. Unlike recent negotiations between other cable operators and broadcasters, there were no public theatrics or threats of pulling the stations off the cable systems. Not that I expect this to change the very public way in which Time Warner Cable and The Walt Dinsey Co. are engaging over ESPN and ABC. To be sure, Comcast has traditionally handled their negotiations without high public drama. Even more so lately as the last thing that Comcast needs is a high profile struggle with a broadcaster at the same time that their deal to acquire GE’s NBC-Universal is under review. Perhaps CBS knew that and played it to their advantage.

As if to underline the nature of Comcast’s negotiation style, there was little chest thumping by CBS. While neither party disclosed the financial terms of the deal, there was no grand statement by CBS that the deal is proof that the "marketplace works". That pronouncement will be left to the NAB. However Moonves did say that Comcast negotiated in good faith and “kept their word” – just what Comcast needs the regulators to hear.

STARZ Original Programming: Billion Dollar Baby

Reports are that STARZ CEO Chris Albrecht has been tasked with raising $1 Billion of off balance sheet financing for original programming. This is yet another confirmation that original programming will continue to be the tentpole of the premium service business.

In 1975, when HBO launched as the first national premium service, the idea of showing Hollywood titles on a round robin basis made sense. TV viewers had little alternatives other than local broadcast stations and a handful of nascent cable nets. Early VCRs were just starting to come on the market. Fast forward to today and between online viewing, retail and rental; not to mention cable VOD, the consumer has a variety of methods to receive Hollywood titles.

So it is no surprise that premium services continue to stress the importance of original programming, whether it is True Blood on HBO, Dexter and Nurse Jackie on Showtime or the slate of programming that STARZ is looking to produce with the new financing. A large part of the reason STARZ brought Albrecht on broad is as a result of his experience with original programming while he was at HBO.

This latest foray by STARZ is a natural and necessary step in their evolution. Although they have aired some original programming along the way, it was never to the same extent as HBO and Showtime. This is a great opportunity for STARZ to really shine.

Retrans Rhetoric Heating Up

This week sees the formation of the American Television Alliance (ATA), a consortium of multichannel providers with a goal of raising awareness and ultimately changing policy on retransmission consent. Among the “strange bedfellows” in the ATA are Time Warner Cable, Direct TV, Cablevision and AT&T – companies that often compete against each other for multichannel subscribers, and in the case of Cablevision and AT&T, fight over access to and pricing of programming (but that’s for another day). A large part of the argument made by the ATA is that retransmission consent is essentially a consumer issue since any payment made by cable operators to broadcasters are ultimately passed on to the subscriber.

Predictably, the National Association of Broadcasters (NAB) scoffed at the ATA’s consumer rights stance, with an NAB spokesman berating it “as credible as BP executives joining Greenpeace”.

The rhetoric on both sides of the issue is just about as predictable as Keith Olbermann and Glenn Beck discussing the economy. Both sides passionately make valid points filtered through their own lenses. There is no doubt that the broadcast business model is changing and that cable operators have long benefitted from the carriage of local broadcast signals. However, cable operators are increasingly coming under pressure to keep rate increases in check and have even renewed an industry conversation on smaller and cheaper programming packages. All of this comes at a time when viewer options are expanding and much of the broadcast programming is finding its way to the web for free (Hulu’s premium aspirations notwithstanding). However, for the broadcasters to paint the formation of the ATA as an effort to do little more than protect the bottom line of the operators is a bit disingenuous given the boasting that NAB member companies have been doing on their quarterly calls about how much retrans dollars are contributing to their profits.

At the end of the day, retransmission consent is a consumer issue. It is one more cost that cable operators need to either absorb or pass along. Very often, these kinds of disputes turn into high profile corporate pissing contests, where the consumer is the one who ultimately gets soaked.

But really, is it wise for either side to be airing their grievances in public? Do viewers really need or want to peek into the “sausage factory”? I don’t think so. At the end of the day, viewers are not interested in the disagreements of corporate behemoths. Don’t ask them to take sides or get involved in the details or you may find they have little appetite for supporting either company in an argument over money. They just want to turn on their TV to get relevant entertainment and information without having to pay a whole lot of money to be advertised to in the process. But on the other hand, they do have a right to know why they might be losing access to their local news broadcast.

There is no doubt that both sides are preparing the battlefield and oiling the guns for upcoming renewals. The heightened rhetoric by both sides will certainly draw increased scrutiny from Washington should any of the negotiations get close to failing or actually fall apart and result in TV stations going dark on cable systems.

As with anything involving legislation, this is very much a matter of being careful what you wish for. The issues of Retransmission Consent and a la carte programming have been raised by legislators and interest groups in the course of the Comcast-NBCU merger hearings. Granted, what Retransmission Consent has turned into may indeed have been an unintended consequence of the 1992 Cable Act (which, by the way, was the result of Congress overriding a presidential veto), but can you really expect that the people who gave you the problem have any idea of how to fix it?

Is it Time for Cable MSOs to Think Small?

The coverage continues to fly about Time Warner Cable CEO Glenn Britt’s comments about the possibility of smaller packages of cable programming at a lower price. While not going so far as to endorse a la carte carriage of cable services, Britt’s comments does point towards a package of programming made up of 40 or 50 channels. The tricky part will be what gets put in the package and what gets left out.

Industry research shows that the average cable viewer watches only between 10 and 17 networks on their service on a regular basis. However, each individual cable subscriber has a different list of favorite channels. The issue is compounded even more in households where mom, dad and each of the kids all have a different list.

While Glenn Britt should be applauded for moving the conversation forward, we have yet to hear from the content providers (one wonders if Mr. Britt would have made these types of comments before Time Warner Cable was spun off by its parent company). In the final analysis, the cable operators can only do what the programmers will allow. There is an expectation that smaller operators with no programming interests would love to get in on this plan. The stumbling block in the plan is that most of the programmers currently in the large “expanded basic” package likely require broad penetration as a condition of carriage. Even networks with limited appeal like Food Network and Versus could have these kinds of packaging requirements. I ask you, what network owned by a major media company will be the first to step up and permit a cable operator to reduce their distribution by putting them on a lower penetrated tier?

If it is truly a matter of controlling costs, then logic would dictate that the networks with the highest license fees would be the first to go. While some subscribers may be indifferent to the loss of highly priced sports services like ESPN and the local regional sports networks (which are typically owned by cable operators like Comcast and Cox) in return for a reduction of their cable bill, other subscribers will certainly not be happy. Of course, all it would take to derail the plan by Time Warner would be a competitor like Verizon, AT&T, DISH or DirecTV committing to keeping these services on their expanded basic service.

An alternate strategy of placing a bunch of inexpensive and relatively low viewed services like home shopping and religious networks services on a low cost introductory tier and bundling the popular services like Discovery, Disney Channel, Nickelodeon and TNT on a more expensive tier will do nothing to truly address the issue and will further damage the low reputation that cable providers tend to have among the public.

While many cable subscribers intuitively like the idea of a la carte, the average consumer’s concept of how it would likely operate is ill informed at best. Subscribers currently now getting 100 channels for $50, will not be able to simply choose any twenty channels and only pay $10. It’s not going to work that way, as cable networks will need to increase their per subscriber rate as they lose subscribers in order to be kept whole, especially taking into account the resulting loss of advertising dollars.

At the end of the day it’s all about total revenues for the programmers with the operators increasingly feeling like collection agencies for the networks. Something tells me that we haven’t seen the last of this kind of talk. If anything, the operator/programmer relationships will continue to be thorny. Networks continue to insist on wider distribution for their new and emerging services and operators of all sizes continue to find their margins squeezed by an increasingly frugal subscriber base that is beginning to look at other options for video.

3D Spaghetti

A recent interview of ESPN’s tech guru Chuck Pagano by TV Technology Editor-in-Chief Tom Butts had me thinking again about 3DTV. For now, ESPN is the only programmer actively involved in 3D on a regular basis. Although Discovery Communications made an announcement earlier this year, their 3D channel is not slated to launch until early 2011.

Pagano likens current efforts to “throwing 3D spaghetti at the wall to see what sticks” admitting that it is largely an experimental endeavor. With 85 events scheduled for 3D in the first 12 months of the grand experiment, it seems that 3D is mirroring the early days of HDTV – limited content designed to test the waters, make sure the technology is stable, and assess consumer interest. In part, the limited schedule also harkens back to the early days of HD when there were just not enough production trucks. The same may be said for other 3D events such as The Masters and TNT’s plans to broadcast the July 4th weekend NASCAR event in 3D. There is also an element of operating less on a strict 3D business plan than putting forth a PR and branding message that the company is keeping on top of new technologies.

At this point, the limited deployment of 3D sets in the market makes for an environment where it is far too early to project whether this iteration of 3DTV will be a winner or not. But one thing is for sure, 3DTV has had more traction than ever before. Producers, distributors, and consumer electronics manufacturers all seem to be puling together this time. Still, it will be a matter of distributors being able to commit enough bandwidth should mass adoption of 3DTV come to pass. For all the commitment being shown by the likes of DirecTV, Comcast, ESPN, SONY, Discovery and IMAX, in the end there is a great deal of hoping that the consumer isn’t on a low carb diet when the 3D Spaghetti comes to the table.

ABC-Cablevision Retrans Deal Announced

The highly public dispute between ABC Network and New York’s Cablevision was settled at approximately 8:50 last night and signal was restored to Cablevision subscribers shortly after the start of the Oscars broadcast, ending a long running feud that saw the signal of WABC go dark on Cablevision for 21 hours. As expected politicians weighed in including Senators John Kerry and Joe Barton as well as 60 or so New York area politicians who signed a letter urging that the signal not go dark. In keeping with the script, both sides put a positive spin on the resolution. Cablevision thanked it customers for their support while WABC7 announced “an agreement in principle that recognizes the fair value of ABC7.”

According to the Los Angeles Times, after asking for close to $1.00 per subscriber, ABC apparently settled for a monthly per subscriber rate between 27 and 65 cents. Although Verizon mounted a strong acquisition campaign to capitalize on the dispute, there is no word how many defections Cablevision experienced. If anything, the public nature of the feud helped to heighten the issue of retransmission consent among lawmakers and the general public. However, with much larger priorities in Washington, and the deal settled, the issue will likely fade into the background until the next time a deal goes down to the wire, or beyond.

Retrans Redux

Another retrans battle is heating up. This time the battleground is New York and the contestants are Cablevision and WABC-TV 7, an ABC Network O&O station. The stakes: A threat by ABC Disney to pull Cablevision’s retransmission rights on the eve of the Oscar broadcast this weekend. The usual partisan talking points are being bandied about; WABC claiming that Cablevision should “acknowledge the station’s value to their business” and come to a “fair agreement” while Cablevision claims WABC is holding “Cablevision customers hostage by forcing them to pay what amounts to a new TV tax”, while urging ABC Disney to work with them to “reach a fair agreement.”

As is often the case, the truth lies somewhere in the middle. Most interesting in a statement from WABC Pres/GM Rebecca Campbell earlier this week, she referred to the fact the “viewers can watch their favorite ABC7 shows free, over-the-air, or by switching to one of Cablevision's competitors.” No surprise that competitors are mentioned, but to bring up “free over-the-air” to remind customers that ABC is asking Cablevision to pay for what is available free? Most curious.

So the battle lines are drawn and we all wait to see what will happen next. Who will be the first to blink? Will it go down to the wire or beyond? What New York politician will be the first to urge the parties to come to an agreement? One thing is for sure, whether WABC goes dark on Cablevision or not, eventually the parties will work out a deal and both sides will claim victory as if retrans is a zero-sum game. WABC will say the retrans regime is not broken and the market works, and Cablevision will increase its subscription rates to cover the additional cost. It’s like a remake of a movie with a stale plot.