Struggling With Video Business Challenges, Some Small Rural MVPDs Are Exiting

Several small rural telcos are citing programming costs, particularly retransmission consent costs, as reasons for their exits from the video business. More likely will follow, said WTA Vice President-Government Affairs Derrick Owens. The group, in comments last month in the FCC's state of video competition proceeding in docket 17-214, said many members are "on the precipice of leaving the video marketplace" and becoming broadband only.

"It was kind of a perfect storm" that drove Idaho's Cambridge Telephone in December to quit offering video service, said General Manager Jerry Piper, who also is WTA president. He said video already was a loss leader for Cambridge, and the company was unable to pass along the increased costs of delivering service without losing customers to DBS competition. He said retrans costs had been "dramatically increasing," up 185 percent year over year in at least one case. Piper also said the company would have had to convert its headend to digital in order to compete, and that "just wasn't in the cards for 220 [video] subs."

Piper said Cambridge had discussed the move for a couple of years and kept video service "longer than it should have" because of the lack of another provider. He said in retrans negotiations with broadcasters, "there was very little to absolutely no give or take," with Cambridge's few subscribers giving it no bargaining power.

USConnect shut down its video operations at its Nebraska facilities earlier this year after a declining subscriber base and heavy expenses both from retrans and engaging a third-party transport to bring in the signals, said Chief Operating Officer David Shipley. The company -- a conglomerate of seven companies operating in four states -- is shutting off its Texas headend and ending video service there at year's end, said Shipley, WTA vice president. That will affect about 600 customers, he said, saying the cost of upgrading its "antiquated" headend there is prohibitive. The company discussed the Nebraska move for three to five years before ending video business there, and Texas was a two-year decision process, Shipley said: "You get to that point where you're prolonging the inevitable."

Shipley said many such moves particularly hit rural customers who can't get over-the-air (OTA) signals because they live too far from station transmitters. Most of USConnect's 900 video subs in Colorado can't get OTA signals, he said: "We will watch (that system) probably a few more years. It has a little bit of life left in it."

Missouri's Citizens Telephone & Cablevision likely will keep offering video -- despite its declining subscriber base -- at least through 2022, said President Brian Cornelius, citing the year he plans to retire. But broadcaster requests to double the retrans rate in current elections "would hasten us exiting the business," he said. He said since 2010, when Citizens bought a cable company with 1,700 video and 300 broadband subs, broadband sub numbers have grown to around 1,200, while video is around 1,500.

Cornelius said "the entire structure" of cable regulation needs to be revisited, opening the door to MVPDs not having to carry broadcasters on the basic tier but instead let those signals be accessed via subscribers' antennas. "Let the customer have a choice," he said. Cable companies also are constrained by having to pay franchise fees that DBS and streaming services don't, Shipley added.

American Cable Association President Matt Polka said it's too soon to say if these companies represent a trend, but "it certainly suggests the writing on the wall." Many small companies increasingly focus on broadband, and use video service almost as a loss leader, but some still focus on video, he said: "That's unsustainable. If you're video only, you're in a tough spot.

Polka said the traditional cable bundle will continue to fray as more ACA members highlight broadband-only packages and other options for consumers migrating from video. He also said ACA will continue to lobby for retrans reforms.

NAB in a statement said it doesn't accept the claim retrans costs are causing companies to exit the video business: "The pay TV/broadband world is doing quite well."

Short of consolidation, there's no easy route to making video a viable business, given the cost of delivering that service, Piper said: "In today's world, I don't see that answer."