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More Carriage Disputes: Time Warner vs. Disney, AT&T vs. Hallmark – Online Video Dispute New to Fight

Phillip Dampier August 31, 2010 AT&T, BH (See Charter), Consumer News, Online Video, TWC (see Charter), Video 6 Comments

Time Warner Cable subscribers are at reduced risk of losing access to Disney owned channels like ESPN, Disney and local television stations in several major cities now that the two companies are close to an agreement.  But, as usual, regardless of whether Time Warner Cable whittles down Disney’s demands or Disney secures dramatically higher pricing for its cable channels, one thing is certain: Time Warner Cable subscribers will ultimately lose, facing higher cable bills in 2011.

AT&T U-verse customers: your nail-biting has just begun, as AT&T sends home postcards announcing the potential loss of the Hallmark Channel and its companion the Hallmark Movie Channel.  AT&T’s contract expired at 12:01 AM this morning, but Hallmark said it was willing to keep the signals running on U-verse while negotiations continued.

Ultimately, it’s all about who gets a bigger piece of your money.  Be it local broadcasters, cable networks, or programming conglomerates who can darken a dozen channels on your basic cable lineup, all say the cable industry is enriching itself on subscriber fees and all these networks are asking for is a bigger share of the pie.  The cable industry says cable programming fees are the most significant part of rate increases, as the industry is unwilling to absorb most of the programming rate hikes.  Cable wants to continue its healthy returns, so programming rate hikes come out of your pocket, not theirs.

Sometimes the amounts involved come down to pocket change, other times several dollars a month can be involved.

For example, Disney-owned ESPN is typically the most expensive basic cable channels in the lineup.

SNL Kagan, a cable research firm, estimates Disney charges Time Warner $4.08 a month per subscriber to carry ESPN.  The costs are high because ESPN competes with major broadcast networks to secure increasingly expensive television rights to major sporting events.  ESPN’s early days were filled with coverage of volleyball, log-rolling, and billiard sports.  The rights to air these events were affordable.  But with the benefit of increased programming fees, the cable network successfully bid for professional football and other popular sports.  The more money ESPN charges, the more money they can use in bidding wars to secure television rights.

With most cable networks charging closer to 20 cents a month per subscriber, what ESPN charges (and demands) for contract renewals can, all by itself, trigger rate increases.

AT&T and Hallmark are currently arguing over an increase in subscriber fees that currently run around just four cents per month per subscriber.  AT&T argues it doesn’t want to pay the percentage increase Hallmark is demanding, even if it amounts to pennies per month.

ESPN’s rate increase demands often exceed 50 cents, if not higher.

This year a new issue enters the debate — online video programming fees. Disney wants to generate income from a whole new tier of sports programming – that streamed online to Time Warner Cable customers.  The sticking point in Time Warner Cable and Disney’s negotiations seems to hinge on the cable company ponying up for ESPN3, an online network.  The concept of cable operators paying programming fees for online content is highly controversial, especially when broadband customers could face ever-increasing broadband bills blamed on the same “increased programming costs” that have taken basic cable packages from under $20 a month in the 1980s to over $60 a month today.

ESPN3 reportedly wants 10 cents a month from every Time Warner Cable broadband customer, regardless if they have the slightest interest in watching ESPN3.  Some in the cable industry fear once this precedent is set, other cable programmers with online shows could start demanding payments for those as well.

While Time Warner Cable continues to resist, other major cable companies like Comcast Corp., Cox Communications Inc., Charter Communications and phone companies AT&T, Frontier, and Verizon Communications have ESPN3.com agreements with Disney.  Nearly all have also boosted their broadband prices for consumers as well.

Despite assurances from Time Warner Cable’s Roll Over or Get Tough website, the cable industry typically caves in on programming fee increases, often agreeing to split the difference.  Since they simply pass those increases along to consumers, it doesn’t impact their bottom line until customers start canceling cable service.

Subscribers on Time Warner Cable’s blog keep coming up with an innovative idea to solve these problems — allow subscribers to pick and choose (and pay for) only the channels they want to receive.  That novel a-la-carte concept invokes fear in the cable industry like garlic repels vampires.

In the end, even if Disney and Time Warner Cable can’t reach an agreement, should screens darken September 2nd, watch in amazement as a deal is achieved hours after the disruption in programming begins.  Then, just a few months later, the accompanying rate hike will surely follow.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/WESH Orlando FL Will Bright House Customers Lose ESPN 8-26-10.flv[/flv]

WESH-TV in Orlando notes Bright House cable customers are also potentially affected because Time Warner Cable negotiates on behalf of that cable company, which has a major presence in central Florida.  (1 minute)

Currently there are 6 comments on this Article:

  1. Earl Cooley III says:

    They should pay the various channels whatever fees they want, and finance it by dramatically slashing executive compensation, using the extra money left over to lower rates to customers.

    • Terry says:

      This makes it look as if you don’t understand business. The content producer sets their asking price. The delivery provider negotiates the price to what they want to pay (or they just pay the asking price). The customer, whether they want it or not, is charged more money. Always more money.
      Slashing executive pay in the business world drives the people who can run the business away and repels potential new hires by not offering enough for them to want the job when they can make more elsewhere.

      • Earl Cooley III says:

        No, it makes me look as if I despise business. Benchmarking executive compensation (not just pay) as linked to manager’s compensation would be great. Companies would save much money that would allow them to compete better by reducing prices. If it’s universal, greedy executive productivity leeches couldn’t “make more elsewhere”.

        • My attitude is executive pay has gotten totally out of proportion to worth and is now simply a “I have to do better than the other guy got” game. While the middle class is losing earnings power, a handful of execs are getting ludicrous compensation packages regardless of their performance. They get rewarded for failure on the way out almost as well as when they succeed.

          It’s no surprise they are out of touch, because they live in a world all to themselves.

          When programming rates increase 20 cents per subscriber, cable companies always round that up to a dollar, figuring there are “administrative costs.” So while their wholesale programming costs may have increased by a dollar cumulatively, your rates increase $5-6 dollars annually.

          The industry always felt the money party could continue indefinitely, but as we’re about to cover, for the first time Americans are now disconnecting cable faster than new customers sign up. The price ceiling has finally been achieved, and Americans simply cannot afford the march towards $70 basic cable service the industry seeks in the next 24 months (especially with local channels demanding to get paid by cable as well.)

          The cable companies believed without an equivalent competitor, people would grumble and still pay. Telco Pay TV charges the same or in some cases more than cable, so no major flight there, and satellite will never appeal to more than a percentage of current cable subscribers. Internet delivered programming has the potential to deliver enough justification to cut the cord on pay TV, especially under current pricing models.

  2. Dave Hancock says:

    Phillip, one thing that you said peaked my interest:

    “Subscribers on Time Warner Cable’s blog keep coming up with an innovative idea to solve these problems — allow subscribers to pick and choose (and pay for) only the channels they want to receive. That novel a-la-carte concept invokes fear in the cable industry like garlic repels vampires.”

    That idea is neither innovative not novel. This is something that was pushed in the past by the FCC, but never really went anywhere. Lots of pro and con arguments, but never any government action.

    Imagine, in the ESPN case that it went a-la-carte and only 20% of TW customers went for it (I certainly wouldn’t). To get the same revenue, ESPN would have to collect (from TW) $20/month, and TW would likely end up charging $30/month.

    • I was being sarcastic. A-la-carte has evoked fear in Big Cable since the 1990s when rate regulation issues were bandied about. This was the one big pro-consumer issue Kevin Martin used to push when he was chairman during Bush’s second term. The cable industry hated him for it.

      I can see cable’s point of view with respect to niche channels being forced off the air because of too few subscribers. I also think cable will overcharge for individual channels to make up for lost revenue.

      I suggested on one of the pro-cable blogs that the common sense compromise was the one in place for C Band satellite dishowners (the 10-12 foot dishes you used to see in the 1980s and early 90s) – a bouquet of theme-based channels for one price. So if you wanted the Science/Nature package, you paid $4 a month for Discovery, Animal Planet, Science Channel, et al. You could still buy channels individually, but it made smarter sense to buy a theme pack because it cost much less. You could also buy a package with two dozen major cable networks for around $20 a month (more now I am sure) and then add the missing channels you wanted individually.

      I have zero interest in sports and required weeks of intense therapy when I was exposed to televised coverage of golf once. Before Tiger Woods, the biggest scandal in that sport was when CBS was caught piping in bird sounds that didn’t match the location of the course. That was the only sports scandal that didn’t become a “ripped from the headlines” plot for Law & Order.

      If I could delete sports from my package, it would probably save Time Warner Cable at least $10 a month for me alone.

      Of course, many of the “cable networks” you see on cable, especially on digital tiers, repurpose programming that was already seen on the primary cable network’s channel. Networks like Sleuth need not even exist. Those producing 1-3 hours of original, new programming a day could easily have that available on-demand instead of occupying a 24/7 channel rerunning it over and over followed by hours of infomercials.

      The excitement of the 500 channel universe we used to hear about is tempered by the $60+ a month price tag for it… and rising.

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