Don’t Blame the Cable Guy For Channel Carriage Disputes

For the past few years it’s been the NFL Network battling cable providers, now the NFL’s latest creation, the Red Zone Channel faces a similar fate, meanwhile the Tennis Channel wages war with Cablevision in NY. As fans all you want is the channel and all you hear are the networks chirping about how the cable providers are standing between you and your favorite programming.

What customers don’t hear in detail are the outlandish requests these networks make, and the lack of economic sense of a deal from the cable provider perspective. Consider this – reports say the NFL wants to charge cable providers 25 cents per subscriber to carry the Red Zone channel on digital basic cable. For a provider with 10 million subscribers that amounts to a $30mm annual expense for a channel that is only available for about 6-7 hours a week for 17 weeks (Sunday afternoons during the season).

From an operator perspective, it’s difficult to issue a rate increase to customers for barely 100 hours of annual programming, thus picking up the channel on digital basic would be an additional expense without much added revenue, compromising significant profits. Sure, it may help retain or add some subscribers, but will many people change cable providers for what amounts to an insignificant amount of overall programming. If customers didn’t already switch to DirecTV for the complete NFL package or leave over not having the NFL Network, it’s likely they have found a way to satiate their NFL fix. Further, playing the game theory side, if multiple operators pick up the channel, soon all will follow, removing any leverage on customers and reducing profits for all providers.

The Tennis Channel case adds another layer of complexity. It does not have exclusive rights to any significant programming. As Cablevision advertised, viewers can watch about as many hours of tennis as they can hope for on ESPN and CBS, especially with DVR aided viewing. Cablevision failed to mention USOpen.org will provide live online streaming of matches and the US Open iPhone application will have a live video component. Similar options exist for all tennis Grand Slam events. At this point, does anyone outside of the niche, die-hard tennis fan need the Tennis Channel? Better yet, is anyone willing to pay higher cable rates to get the Tennis Channel or switch to satellite or telco-cable just to get the Tennis Channel? Didn’t think so, therefore Cablevision does not have incentive for increasing expenses to add the network to basic digital service.

Cable operators feel squeezed from both sides – networks increasing fees and new competition putting downward pressure on rates. With online streaming about to emerge in the form of TV Everywhere and other authenticated services, cable providers need to revisit channel packages and become more creative to offer customers more options and maximize the value they capture from each additional channel. This may include introducing a la carte packages for niche programming above and beyond digital basic, or putting a stronger marketing push and new packaging around tiered programming (sports tiers, etc), or creating new service bundles that integrate online and VOD access. Providers need to make sure they provide enough upside potential for channels to make it attractive. That comes back to the reason why content owners (or distribution owners, in the case of cable operators) need to charge a premium for good content – whether online or offline. For now, if the cable operators are smart, they will continue to push back on these niche networks with outlandish, unsubstantiated demands and develop a system that pays these niche channels based on actual customer demand. Networks may not want to hear this, but on the flip side the larger revenue per subscriber may compensate for the lower subscriber number, however any revenue is better than none, which each faces during a contract dispute with operators.

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