Cablevision executives reported dismal financial numbers for the third quarter of this year, as the cable company lost 19,000 cable television customers while profits plummeted some 65% at the Bethpage, N.Y.-based company.

Not even 17,000 new broadband customers could erase the damaging losses incurred by Cablevision cord-cutting, some of it as a result of the cable operator’s damaging retransmission consent disputes that deprived viewers of popular local broadcast outlets and cable channels.  The company lost so much subscriber goodwill, company executives admitted they pared back an anticipated rate increase just to protect themselves from further customer defections.

Programming disputes like this one with WABC-TV and their parent company Disney caused more than a few Cablevision customers to head for the competition.

Cablevision, like Time Warner Cable before it, won’t admit that cable cord-cutting is responsible for what one investment bank fears could be the start of an “ex-growth” era in cable television.  Instead, Cablevision executives continue to blame the poor economy for subscription losses, as well as aggressive pricing competition from their biggest rival — Verizon FiOS.  Adding pressure is the relentless demand for higher programming fees, which directly translates into relentless annual rate increases for cable television service.

“With regard to programming [costs, they are] an issue and it is an expensive part of our business.  It is the single biggest cost item we have,” said Gregg G. Seibert, Cablevision’s chief financial officer and executive vice-president. “And the fact that retransmission consent became necessary from the eyes of broadcasters, particularly after the 2008 recession, has been flowing through our business, and there was a large step up [in fees]. I think that the overall rate of programming [costs] going forward will moderate to some extent naturally.”

Seibert called the aggressive retransmission consent fee disputes between broadcasters and cable operators evidence of the collapse of the traditional “free TV” business model.  Because ad revenues are down, broadcasters are increasingly dependent on fees charged to cable operators for permission to include their stations on the cable dial.  That means cable subscribers are increasingly subsidizing the broadcast television business.

Seibert

Seibert’s revelation came too late to stop some of the nation’s most visible retransmission consent battles between Cablevision and network-owned New York-area television stations and cable networks.  When Cablevision blacked out a local station showing coverage of the World Series during the last dispute, fed up customers decided to take their cable business to Verizon or a satellite TV provider.

Cablevision has been trying to lick their wounds ever since, launching increasingly aggressive pricing promotions and “free gift” offers to keep existing customers while trying to win back old ones.

“We’ve recently introduced an offer that includes a new Apple iPod Touch primarily for win back situations,” said Thomas M. Rutledge, chief operating officer.  “Selling for the Triple Play package of video, data, and voice is now at 74% and roughly half of this selling is for our new Ultimate Triple Play, which includes a new higher-priced Boost Plus [broadband] service and a wireless router.”

Cablevision achieves triple-play signups by heavily discounting the package for new and returning customers.  It also hopes to succeed with a ‘more for less’ pricing strategy, delivering new features and services without necessarily charging extra for all of them.  With discounts, free gifts, and additional services, Cablevision is getting some of their old customers back.

Selling faster broadband is a key component in Cablevision's strategy to attract more broadband customers. Boost Plus delivers 50/8Mbps service for an additional $14.95 a month.

“As of September 30, our win back total is more than 45% of customers who once tried Verizon FiOS,” Rutledge claims.

Rutledge noted Cablevision’s participation in the industry’s TV Everywhere online video initiative has grown even stronger with the recent agreement to provide Cablevision cable-TV customers free access to Turner-owned cable network programming.

Seibert admits the more competitive business environment and high profile programming disputes in suburban New York City are impacting profits.

“We had a few significant items in the quarter affecting our results including higher programing costs and higher sales in marketing as we continue to aggressively promote our products and services while revenue growth was essentially flat,” Seibert said.

Those challenges are creating a sense of unease on Wall Street regarding the cable business’ core product: cable television and the increasingly aggressive pricing promotions necessary to keep customers from disconnecting service.

“There is growing concern among the investor community about [the] whole [cable] industry going to ex-growth,” said Jason Bazinet from Citigroup.

Rutledge

“Programming costs are rising faster than video revenues,” Sanford C. Bernstein, an analyst for Craig Moffett, told the Wall Street Journal. “Unless there’s growth somewhere else in the business model, you’ve got the worst of all worlds: a slow-or no-growing business with lower margins.”

Rutledge outlined Wi-Fi and broadband enhancements as part of Cablevision’s priorities for the upcoming quarter:

“We’ve been building out a Wi-Fi network and we’ve had continuous subscriber utilization increases on that network.  We now have more than one-half-million devices out there that can use Wi-Fi and watch our full cable television service in the home.

“And we’re deploying a new Boost product with higher speed broadband, which includes a more sophisticated wireless router as part of that package.

“We think Wi-Fi is a major strategic part of our business. We think that we can continue to take advantage of that. We think our video product today as a result of Wi-Fi is a superior product to our competitors – all of our competitors, and we think that our data service is enhanced by the Wi-Fi outside the home, and we continue to try to build value for our customers and take market share.”

The cable company is already aggressively marketing its Boost Plus service, which delivers 50/8Mbps broadband for an additional charge of $14.95 a month on top of the standard broadband rate.

Cable subscribers paying ever-increasing television bills for hundreds of channels they never watch may find some relief if Comcast decides its experiment in “a-la-carte” cable-TV is a success.

The company is testing a new way of selling service that delivers a basic package of channels for a lower price and then offers customers bouquets of add-on channels sold in “theme packs” for $10 apiece.

Comcast is testing what it calls MyTV Choice in parts of Connecticut, Massachusetts, Vermont and Charleston, South Carolina, and plans to expand it to the Seattle area soon.

Here’s how MyTV Choice works:

Customers start with a basic package of channels that Comcast calls “Get Started” ($24.95) or “Get Started Plus,” which sells for $44.95 a month.

What differentiates the two options are the networks they contain.  Inexpensive cable networks turn up in Get Started — A&E, Discovery, C-SPAN, Animal Planet, Daystar, Food Network, home shopping, and The Weather Channel are among the 32 channels that accompanies a basic package of local channels.

Get Started Plus includes all of those networks plus sports — the budget-busting networks that help keep cable bills growing.  ESPN and other regional sports channels are included in the more expensive package.

Missing from the basic package of channels are kids shows, news, movies, and niche networks.  That’s where Comcast’s “Choice” packs come into play.  Customers can add a 19-channel News & Info pack, 31-channel Entertainment & Lifestyle pack, 16-channel Movie pack, and/or an 11-channel Kids pack for $10 each.

That’s where the “choice” ends.  Customers cannot skip the basic channel package to select only one of the theme packages, individual channels are not for sale, and anywhere outside of Charleston, customers also have to buy phone and Internet service from Comcast. HD also costs extra.

So much for a lower bill.

In fact, Comcast sells a digital cable package incorporating a full lineup of basic cable channels for just under $60.  If your family loves sports, has kids, and needs news channels, sticking with the digital cable package is actually cheaper than MyTV Choice.  That’s because the latter will require a $44.95 base package, plus three theme packs for an additional $30 a month.

Comcast denies their experimental a-la-carte package has anything to do with cord-cutting Internet viewers.

“It’s more or less responding to feedback from customers that they want more choice,” Comcast spokesman Bill Ferry told the Post & Courier.

While Ferry and others argue the pay-per-channel is not economically feasible, Christopher C. King, a telecom analyst for Stifel Nicolaus in Baltimore told the newspaper that is the trend.

“Certainly the industry’s moving more toward an a la carte model,” King said.

Theme-packs are not a new concept for some pay television viewers.  In the 1980s and 1990s, consumers owning large 6-to-12 foot satellite dishes routinely encountered the channel bouquet concept.  Customers would purchase a basic package and then select from a dozen or more mini-tiers, usually made up of networks owned by one company.  Want TBS and TNT?  Turner Broadcasting sold an add-on with those two channels.  Wanted a superstation package?  Channels uplinked by cable companies like TCI from Denver could be purchased as a small package.  So could stations like WSBK in Boston, WWOR and WPIX in New York, KTVT in Dallas and KTLA in Los Angeles.

Comcast has “simplified” things with a much smaller set of choices.  But that also dramatically limits any potential savings.

The concept of a-la-carte cable horrifies cable companies and their Wall Street shareholders, because a true “pay-per-channel” offer would dramatically cut the average revenue earned per subscriber if customers took a hatchet to the bloated channel packages most customers receive today.

Cable operators have resisted the concept because every channel would have to be encrypted to sell individually, billing would become more complicated, and the business model of niche-oriented networks supported by more popular fare would end.  That’s why programmers hate the idea as well.  While A&E, TNT, and CNN would have no trouble surviving, networks like Current TV, TV One, Hallmark, Cloo, and LOGO probably would not.

More importantly, many subscribers might find savings elusive from a-la-carte, because the most expensive cable programming networks also happen to be among the most popular.  ESPN and Fox News Channel, for example, have dramatically increased their rates to cable companies, who helpfully pass them along to you.  But if cable operators suddenly stripped those networks out of basic packages, while leaving the much cheaper networks together in broad-based theme packages like “lifestyle and entertainment,” subscribers may howl in protest or accuse the cable operator of playing politics.

It gets even harder when the cable companies selling the big packages of channels customers never watch also happen to own some of the networks found within those packages.  Comcast shareholders may not like the cable side of the business kicking lucrative NBC-owned and operated cable networks like The Weather Channel, USA, E!, Cloo, and other owned networks to a-la-carte Siberia.  Every cable subscriber pays for Cloo and E! today.  How many will choose to pay for those networks under an “a-la-carte” model is an open question.

Only two cable operators have expressed an interest in switching to a true, a-la-carte model to date — Suddenlink and Mediacom — both small, regional players that have no programming interests and lack sufficient buying power to score the kinds of discounts available to companies like Comcast and Time Warner Cable — discounts they can have if they agree to keep as many channels bundled in one digital cable package as possible.

Just over one year ago, Stop the Cap! introduced readers to Sezmi, a cable-TV alternative that delivered a package of selected cable networks, on-demand movies, video podcasts, YouTube content and local broadcast stations with a 1TB DVR set top box for $19.99 a month. Subscribers that decided to forgo the cable networks paid even less — $4.99 a month for service.

But no more.

As of this morning, Sezmi has discontinued its service, leaving customers with a nearly-worthless set top DVR box they spent $149.99 to acquire, and a number of questions about the company’s sudden change of direction.

The company issued a statement telling customers it has ceased monthly billing and giving customers until later this year to use some of the features Sezmi operates in-house:

We regret to inform you that Sezmi is discontinuing its consumer service. As of Monday, September 26, 2011, you will no longer be able to view or record broadcast TV programming through your Sezmi System. However, you will still be able to view movies and shows you have already saved to your Sezmi media recorder. To help ease the transition, you may also rent movies and shows if available at no charge from Sezmi’s On Demand catalog through November 1, 2011.

Why do you have to discontinue your consumer service?
Sezmi has changed its business focus to providing our product and technology platform to service providers, internationally and in the U.S., who are interested in providing broadband video services to their customers. As a result, we are no longer supporting our direct-to-consumer service.

What does this mean for me?
You will no longer be billed for Sezmi service. As of September 26th, you will no longer be able to utilize the programming guide and your digital media recorder will no longer operate as a recorder. You will be able to view movies and shows you have already saved to your recorder and YouTube access will not be affected. Between now and November 1st, you may rent any movies or shows at no charge to you. After November 1, Sezmi’s On Demand catalog will no longer be available but you will be able to use your Sezmi system to view all programming you have saved to the media recorder.

No Service After Sept. 26, 2011 didn't make the list.

What it also means is customers are stuck with a proprietary DVR box that won’t work with other services.

Sezmi’s business model was most operational in the Los Angeles market, where it leased unused spectrum from several LA-area television stations to carry its lightweight cable package.  In other markets, Sezmi simply wedded over the air digital free television stations with its online lineup of on-demand programming and charged $4.99 a month to watch.  It was never a compelling offer outside of Los Angeles, and even in that city, trouble brewed when Sezmi discontinued the cable package in December.

Among the difficulties Sezmi encountered:

1. Finding cooperative local broadcasters willing to lease unused digital spectrum to Sezmi proved to be a difficult proposition.  Broadcasters are zealously guarding the frequencies they control now and do not want to get into long-term contracts with third parties.  Network owned stations in major cities may have already committed significant spectrum to their own sub-channels and other projects, or want to hold them in reserve for future use.  Besides, why lease spectrum to a company for a cable package large networks could theoretically build themselves.
2. Sezmi lacked access to many popular cable channels, notably ESPN and HBO.  It’s difficult to get consumers to drop a cable or telco-TV subscription in favor of one that is limited to two dozen cable channels, some of which were hardly deal-sealers.  Efforts to move cable channel programming to online distribution were met with difficulty because content owners increasingly want a piece of the action.  Deep pockets are required to sustain video streaming businesses.
3. Consumers never really understood the product and were not convinced to choose it over better known alternatives that included satellite TV.

Sezmi’s new focus on working with larger players could meet with some success, but Sezmi’s best chances of all could be developing the technology for ethnic audiences or other narrowcast opportunities where the lack of a hundred plus channel cable package would not be a factor.

Time Warner Cable customers in Maine are the first in the country to deal with Time Warner Cable’s decision to abandon analog cable television to make room for more digital channels, faster Internet speeds, and enhanced phone service.

Nearly 90,000 subscribers in 105 Time Warner Cable-franchised communities are receiving letters advising them they better clear off space on top of the television set if they don’t already have a cable box or a CableCARD.  They’ll need the space to accommodate a new set top digital adapter box that will let analog television sets receive the new digital signals.  In return, Time Warner Cable will be able to cram 10-15 digital channels into a space formerly occupied by just a single analog channel.

Time Warner Cable will provide a few of the devices for free until 2014, after which the company will begin billing customers $0.99 a month for each digital adapter still active on their account.

Customers in Lewiston, Augusta, Rumford, and Mexico are registering to receive the boxes on a special website Time Warner Cable has launched to handle the transition.  Those customers will see almost all analog cable signals cease on Wednesday, Oct. 19.  The only exception is Time Warner Cable’s “Broadcast Basic” channels, which include local over the air stations and public, educational and government access channels.  In Maine, that includes channels 2-22.

Time Warner Cable says customers with QAM-tuner-equipped televisions won’t need the digital adapters, but some Maine residents question that, noting Time Warner traditionally encrypts most of its QAM channels. There is a strong suspicion those customers will also need digital adapters or a set top box — a ludicrous situation for some.

“I own a set with a QAM tuner built-in, and it looks like I either pay Time Warner Cable for a digital set top box or watch signals downconverted into lower quality analog with a digital adapter,” writes Stop the Cap! reader Lou in Augusta. “Either way, I’ll be paying Time Warner Cable more either immediately, or in two years.”

Lou says the complexities of channel mapping QAM signals guarantees most subscribers will pay for a box.

“It’s cumbersome to scan for open QAM channels, the channel numbers are all messed up, and sometimes the numbers change without warning,” Lou says.

Lou opted for two digital adapters, one for an older bedroom television set and the other for his son’s bedroom.  He completed the installation on his own in about 30 minutes, noting Time Warner Cable will charge $17.99 to roll a truck to handle installation themselves.  The biggest wait came when it was time to authorize the boxes.

“They left me on hold 20 minutes and the woman apparently was not well-trained because she kept asking for help from a supervisor,” Lou shares.  “After getting the boxes activated, they worked about as well as expected, and at least now we can watch digital cable channels on analog televisions in the house without the more expensive set top box.”

Lou doesn’t mind the fact Time Warner is dumping analog cable, he just minds how they are doing it.

“There is no reason we should have to pay the cable company more just so they can consolidate channel space for their own benefit,” Lou says.  “Digital adapters should be free, forever, and QAM channels should be opened up so those of us with tuner-equipped televisions don’t have to get an unnecessary box or adapter just to watch digital channels.”

Time Warner Cable started their nationwide transition as far to the east as they possibly could.  But gradually, every Time Warner Customer will experience the digital transition for themselves.  For the cable company, the transition in Maine is also an experiment to learn what kind of reaction the company gets from its subscribers, says the Sun Journal:

Time Warner is unsure how the conversion will be accepted by the public. This region — from Camden to Waterville and Carrabassett Valley to Poland — is the national company’s first to make the switch. Other markets, including those in the rest of Maine, will follow, said Andrew Russell, spokesman for Time Warner New England.

Meanwhile, no one knows for sure how many boxes will be distributed or whether people will accept the fees when they begin in 2014.

From the cable company’s perspective, the fee is nominal. Similar conversion boxes, which only convert digital signals and don’t unscramble them as Time Warner’s do, cost $40 to $60 at local technology stores.

Canada’s transition to digital television was supposed to be a non-event for cable and satellite customers, because those providers will continue to service analog televisions for sometime to come.  But Shaw Communications found a way to squeeze a few more dollars out of some of their subscribers anyway.

While Canadian broadcasters were discontinuing analog over-the-air television, many Shaw Cable service areas were also dumping an increasing number of analog channels in favor of digital.  In Kamloops, B.C., Cheryl Whiting discovered that conversion was going to cost her plenty.  Although Shaw provides one digital set top box for free, each additional box rents for $2.95 per month, and Whiting will need four of them if she wants to continue watching cable stations above channel 13 throughout her home.

“I may as well sign my paycheque over to them,” Whiting told The Daily News.

Shaw’s ongoing “digital upgrade” is clearing away much of the analog cable dial to make room for additional digital television signals and faster broadband, but that transition comes at a price to customers who now need a set top box on most of their televisions.

Many customers were upgraded during the month of August, with most of the rest scheduled for conversion during September.

[flv width=”540″ height=”416″]http://www.phillipdampier.com/video/Shaw Digital Network Upgrade – Analog Customers.flv[/flv]

Shaw tells customers it is moving all of their cable channels above “broadcast basic” to a digital platform, requiring customers to place digital set top boxes on all of their televisions.  (1 minute)