Cable Operators Consider Video Business Increasingly Precarious, Though Key Product

Facing issues like rapidly growing content costs, cable operators said the inflection point where some systems might get out of the video business is coming closer, though that won't happen in the next year or two. The decision on video will be based on profit margin, "and for a lot of guys, it's [already] little or none," said Vast Broadband CEO Jim Gleason.

Video -- though "not without its challenges" -- remains important for most National Cable Television Cooperative members and NCTC will continue to support that even as it launched a group focused on broadband, CEO Rich Fickle said at last week's America's Communications Association summit (see 1903200009) in Washington. Fickle said challenges include broadcaster consolidation and retransmission costs rising to the point where private equity capital is investing in stations because it's considered a lucrative revenue stream.

Boycom, in rural southeastern Missouri, is "letting video die a natural death," not hastening it along, said President Patricia Jo Boyers. She said a big litmus test will be the next round of retrans negotiations. She "very much anticipate[s]" dropping some channels as a result -- especially since subscriber surveys indicate low interest in a couple of network affiliates. "Programmers have charged themselves out of the business," she said.

Cable consultant Steve Effros said broadcast signals are likely to go first from cable lineups. If programmers try to ratchet up rates, "they will get dropped, no question," he said. He said cable is likely to move to a model where over-the-air signals get integrated into digital lineups, though that would require an FCC rule change about mandatory carriage of broadcast signals. More cable operators likely will embrace the Cable One model of offering vMVPD service alongside its traditional cable service, he said.

Smaller operators are losing video customers faster than big cable companies are, "not because they can't keep their customers [but] because they don't want to," MoffettNathanson analyst Craig Moffett wrote investors earlier this month. He said if their moves of dropping programming, raising prices and helping migrate subscribers to vMVPDs spread to larger operators, the ongoing slide in traditional pay-TV subscribers could become "a tsunami."

The smallest cable operators are having the toughest time with video and likely would be the first to quit offering it, said Robert Wieand, Service Electric Cablevision controller. Video remains a primary offering for the cable ISP, though when marketing to new customers, broadband comes first, he said. He said Service Electric eventually would like to launch its own over-the-top package if it can get the rights.

"It's almost like the video business is leaving us," said Mediacom Senior Vice President-Government and Public Relations Tom Larsen. Financial trade-offs, with broadband growing -- helped by growing subscription VOD demand -- is acceptable, he said, saying Mediacom isn't intentionally doing anything to de-emphasize its video business such as ceasing marketing or bundling. Within two to three years, Mediacom's voice subscribers will exceed its video subscribers, he said. Likening the video business to a leaking dam, "We're watching the water go down, [but] we're not trying to make the hole bigger," he said.

Vast is in a competitive market and has to keep video because it might be hard to sell a bundled product without it, Gleason said, but some other cable operators when faced with any major capital expenses to maintain or upgrade their video systems might decide that has forced their hand. He said if C-band clearing doesn't cover capital cost of relocating earth stations, that could spur some operators to abandon video. He said the most likely option for operators that forego their own video product would be some kind of partnership with Sling TV or another vMVPD.

NAB emailed that broadcast retrans fees are a relatively small part of overall programming fees paid by cable operators -- less than 22 percent this year -- and the trend-line increase in retrans fees is moderating "even though broadcast increases are justified given that local TV and broadcast network ratings vastly dwarf cable network ratings." It said rising monthly set-top box fees, early termination fees and other hidden costs "are far more responsible for rising cable rates than broadcast fees."