Wednesday, January 6, 2010

Tell Old Pharaoh to Let My Channels Go!

As a follow up to a recent post, All Foxed Up, or Time(Warn'er) for Cable Neutrality, it turns out that Fox and Time Warner came to terms, and us Time Warner customers do not have to be deprived of The Simpsons, Fringe, 24, or myriad sports events.  But at what cost?  Well, here's what the New York Times reported in a January 3rd article by Brian Stelter, Next Up on Cable TV, Higher Bill for Consumers:

On New Year’s Day, the News Corporation, the media empire controlled by Rupert Murdoch, wrangled new payments from Time Warner Cable, including subscriber fees for the Fox Broadcasting network, which is free for viewers with over-the-air antennas.

The high-stakes deal reflected the scramble by media companies to reduce their dependence on advertising.

Something else also happened that day: Time Warner Cable put another rate increase into effect.

Well, then, here we go again!  I know that cable television is Pay TV, but does it have to be Pain TV?  And maybe it wouldn't hurt so much if it was only happening this once, but here's what Stelter goes on to write:

It will not be the last time. Along with Fox, other broadcasters say they deserve a share of the cable and satellite bills that roughly 100 million American households pay each month. At the same time, the cable-only channels that have lured viewers away from broadcast, with shows like “SpongeBob SquarePants” and “The Closer,” are lining up for further fee increases.

Viewers usually do not notice until the price goes up, but their pay TV bills are a battleground for media companies. “Content providers are testing the limits — hoping to raise the bar as high as possible,” said Steve Ridge, the president of the media strategy group for the consulting firm Frank N. Magid Associates.

So, it's a game of chicken.  If enough viewers object, rebel, and opt out, things will change.  In the meantime, it's Pain TV, not in any real sense of the word, but in that viewers will have to make what may be, to them, painful choices.  In my previous post, I stated that, based on their behavior in other arenas, I suspected that Fox was more to blame than Time Warner.  Selter at first seems to suggest that it's neither media conglomerate, but rather the internet, but then goes on to paint broadcasters as the demanding ones:

These battles are playing out just as the television industry is coping with the wrenching changes brought on by new competition from the Internet.

Broadcasters have long envied the fact that their cable channel competitors are paid two ways, through advertising and subscriber fees. So now, the television networks are fighting for every penny they can.

Several years ago, CBS started asking for fees, and the News Corporation followed in negotiations last month, demanding a dollar for each subscriber every month from Time Warner Cable. The average digital cable customer already pays nearly $75 a month, the research firm Centris found last year.

The companies will not reveal what compromise they reached, but that figure will most likely become a benchmark for future deals. Disney is expected to ask for sizable fees for its ABC stations in negotiations this year.

In a twist, Comcast, the country’s largest cable provider, will soon own NBC Universal, if its acquisition is approved by the government, putting it in a position to pay out as well as collect fees for NBC.

Cable and satellite distributors are resisting the demands, but a “power shift,” as Mr. Ridge put it, is under way as broadband Internet becomes pervasive, putting a seemingly infinite variety of choices in front of consumers. Of course, broadband is not free, either, and it is often provided by the same companies that distribute television programming.

Isn't that a hoot!  These companies are involved in different ends of the business, but still have one side of the business fighting with the other over who gets how much of the consumer's dollars.  There is just enough competition to make for conflict and drama, and cause for raising rates, that is, just enough for Pain TV, but not enough competition for allow for true market forces to establish the actual value of the channels in question, and allow for competing to services to bring prices down.

Another set of usual suspects in the blame game would be advertisers, according to an Associated Press article by Dave Carpenter, also dated January 3rd, Cable TV standoffs threaten viewing costs, choices:

Until the 1990s, advertising and fees from local affiliates supported all four of the nation's main broadcast networks - ABC, NBC, CBS and Fox.

But advertising income has plunged, and by 2008 cable-only producers took in almost 39 percent of TV ad revenue, which broadcasters used to have to themselves. So the networks are increasingly dependent on the license fees they began charging cable providers in 1994.

Fox didn't get all it wanted, but Chase Carey, chief operating officer at News Corp., said Friday the agreement "recognizes the value of our programming."

 Back at the Times, Selter goes on to note the unusual public quality of the dispute between Fox and Time Warner:

The News Corporation fight was unusual because it played out in public, with Time Warner Cable arguing that it wanted to hold the line on further fee increases. That looks impossible, however, as newly powerful cable channels seek to cash in.

They argue that they deserve more money for having invested millions in their original programming. Cable executives say privately that the demands, and resulting fights, are increasing in frequency. And every time they clash, there is a chance that viewers will miss out.

But let us be clear here, the public conflict generated panic, and pain, then relief, so as to make us feel grateful and accept the rate increases.  If the conflict had remained private, there would just be rate hikes with no apparent reason.

Of course, it's one thing to lose a major network like Fox, quite another to dump niche channels with relatively small audiences:

The sports network Versus, owned by Comcast, has been off of DirecTV’s satellite service for three months in a fee battle. More prominently, the Food Network and HGTV disappeared from Cablevision’s lineups in New York and New Jersey on Friday after talks broke down with the owner of the channels, Scripps Networks.

And Carpenter adds

Time Warner continued to carry Food Network and Great American Country as its talks with Scripps went on.

And cable company Mediacom Communications Corp. will keep carrying Fox and CBS signals from Sinclair Broadcasting Group Inc. stations in markets such as Des Moines and Cedar Rapids, Iowa, in a temporary deal that extends to next Friday.

Telephone messages left for Sinclair and Mediacom on Saturday were not immediately returned.

Well, actually, channels disappear from cable line-ups all the time, only mostly we don't notice it, or we don't do anything about it.  Whether we care or not, the bottom line is that we don't have any say in the matter.  And why don't we?  Why shouldn't we?

Once again, what we need is the cable equivalent of net neutrality, Cable Neutrality!

Speaking of bottom lines, or getting close to the dismal depths of financial matters, here's what Selter reveals:

The Food Network costs distributors 8 cents a viewer on average now; Scripps wants a roughly 300 percent raise, according to people briefed on the negotiations. That might seem drastic, but 30 other channels, some with lower ratings, already earn that much. “We were really, really undervalued,” said Brooke Johnson, the president of the Food Network.

For ardent fans of “Iron Chef America,” the Food Network is undoubtedly worth 25 cents a month. But that logic, applied to dozens of channels, can become pretty expensive for viewers. For example, the owners of Oprah Winfrey’s cable channel, set to begin one year from now, are hoping that her star power will be worth 50 cents for each subscriber a month. The channel it is replacing, Discovery Health, gets only 12 cents now.

Consumers already pay dimes or quarters for most cable channels each month, whether they watch them or not. ESPN earns the most by far, $4.10 on average, and is forecast to receive more than $5 a month by 2012, according to the research firm SNL Kagan. Fox Sports Network gets $2.37 on average.

The next-highest paid channel, TNT, gets 96 cents. The Disney Channel, NFL Network, Fox News, USA and ESPN2 each get more than 50 cents. For every channel, the price per month is expected to rise each year.

“We hear from consumers that they are paying too much and getting too little for it. And there seems to be no end to the rate hikes in sight,” Mindy Spatt, a spokeswoman for The Utility Reform Network, said.

Even as consumers recover from the recession, there is little evidence that people are canceling cable en masse, although some know that calling up their local provider and threatening to cancel can quickly earn them a big discount.

Time Warner Cable is not alone in raising rates; higher prices go into effect for DirecTV and AT&T’s customers next month.

How about some real pay to play for once?  Here's what Selter says:

In Washington, where proposals for “à la carte” cable pricing were popular in recent years, some lawmakers and regulators now look to the Web as a more attractive, market-driven solution. Viewers will increasingly be able to bypass pay TV service and watch whatever they like online.

Distributors are trying to put a system into effect that will offer some TV shows online to existing subscribers only.

Time Warner Cable asserts that the power ultimately rests with the consumer. “They’re the ones who are going to resist these price increases that the programmers are trying to push,” said Alex Dudley, a spokesman for the company. “One need look no further than the music industry for an example of what happens when consumers feel taken advantage of by an entire industry.”
So what does that mean?  That we need a Napster for television programming?  Okay, you pay for Heroes, I'll pay for 24, and we'll trade?

This all was set in motion by changes in the regulation of the broadcast industry that occurred some 15 years ago, as Carpenter explains:

The standoffs refocused attention on the law that let broadcasters start charging fees cable and satellite operators for their programs.

Advocacy groups and some politicians oppose the 1994 law because it lets both cable operators and content producers pass along to consumers the cost of programs they could watch for free when broadcast dominated the television market.

"I think there needs to be some sort of government oversight over the cable industry," Mindy Spatt, spokeswoman for The Utility Reform Network, a San Francisco consumer advocacy group, said Saturday. "There's a danger for consumers that the price is just going to keep rising with no end in sight."

Sen. John Kerry, D-Mass., said in a statement that broadcasters and cable operators should be able to reach terms without "consumers being put in the cross hairs."

The prospect of lawmakers stepping in to take action ultimately may have persuaded Fox to settle, according to Time Warner Cable.

"Engagement by key policy makers ... focused on protecting consumers, was instrumental in preventing unnecessary consumer disruption," said company spokeswoman Maureen Huff.

Indeed, and to be honest, this was why I wanted Fox to disappear from Time Warner Cable, because especially with the Democrats in power, it would have justified and motivated more regulation of the broadcast industry, and telecommunications in general, an industry that has been almost entirely deregulated, and disastrously so, since Reagan's presidency.

It is time for policy makers to step in and fix this mess.  Hell, bring Al Gore back into play, to work on the internet that he invented, repair the information infrastructure, or at least smooth out some of the bumps on the road, and fill in those potholes on the information superhighway! 

The answer is quite simple and apparent, really.  Let cable companies, and other wired and wireless services, charge a fair price as a common carrier, like telephone companies, with cable neutrality and net neutrality, that is, equal access to everything that's out there, and let consumers pay a fair price for whatever they want to watch, access, and download from broadcasters and other distributors.

Can we have no pain and a little gain for once?  Or is a touch of rationality too much to ask for?

1 comment:

Knavish Kevin said...

Hey Lance!

Yeah, regulations is one way to go. But perhaps, more authentic and more powerful, would be to join a consumer movement around the delivery of entertainment. Entertainment should be what we want, when we want it, at a reasonable price. More than ever before, backroom politics determine which channels become a part of which package... like, between Time Warner and Fox. And with cable operators like Comcast acquiring more and more programming (e.g., Versus, Spike, and now NBC U)… they are well on their way to controlling one out of every 5 hours of programming! Do you think they will be biased to favor their own networks??

Instead of this silliness where the cable operators and networks have a legal battle on which tier of programming and cost…. let’s reintroduce market forces into cable. LET THE CONSUMERS PICK!!

TV A La Carte is a consumer-driven movement so we pick our own programming. Not Big Cable. And it doesn’t take much for us to have an alternative… around 1,000 folks in a concentrated area could be enough to have a small operator launch a scrappy, nimble, tech-savvy business. Join the movement!

Instead of waiting for a seismic shift in DC, we can create change through small, collective actions.