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Altice Struggles With Video Programming Costs That Eat 67% of Video Revenue

The reason why many cable companies are no longer willing to cut deals on cable television with customers looking for a better one is that the profit margin enjoyed by cable operators on television service is shrinking fast.

Researcher Cowen found that smaller cable operators are particularly vulnerable to the high costs of cable programming because they do not get the volume discounts larger operators like Comcast, Charter, DirecTV, and Dish are getting.

Researcher Cowen found that programming costs are increasing fast at smaller cable companies. (Image: Cowen/Multichannel News)

Altice USA, which divides about 3.3 million cable TV subscribers between Optimum/Cablevision and Suddenlink, says it paid $682.4 million for cable TV programming during the first quarter of 2019. That amounts to 67% of the company’s total video revenue. If Altice offered complaining customers a 40-50% break on cable television, it would lose money. Cable operators already temporarily give up a significant chunk of video revenue from new customer promotions, which discount offerings for the first year or two of service. Many operators consider any video promotion to be a loss leader these days, because programming costs are exploding, particularly for some local, over-the-air network affiliated stations that are now commanding as much as $3-5 a month per subscriber for each station.

Comcast, the nation’s largest cable operator, unsurprisingly also gets the best programming prices. With volume discounts, Comcast reports its programming costs consume about 60% of revenue. Charter Spectrum and Dish report about 65% of their video revenue is eaten by programming costs. Both are seeing dramatic declines in video subscribers as cord-cutting continues. The more customers a company loses, the less of a discount they will command going forward.

According to Cowen, just three years ago Comcast gave up 53% of video revenue to cover programming costs. With programming rate inflation increasing, many smaller cable companies are considering exiting the cable TV business altogether to focus on more profitable broadband service instead.

Cable Infrastructure Suppliers Hurting After Cable Industry Slashes Investment, CapEx Spending

Despite claims from Republican FCC commissioners that cable companies are boosting investment in their networks as a result of the FCC’s repeal of net neutrality, cable infrastructure suppliers reported first quarter 2019 revenues nosedived 38%, reflecting an “extreme” cutback in cable industry spending not seen in over five years.

ARRIS/CommScope and Casa Systems, two major suppliers of cable system infrastructure, saw a broad decline in orders starting this year as companies like Comcast and Charter Communications slashed investment in broadband upgrades. Executives at both cable companies informed investors they expected significant spending cutbacks after completing their DOCSIS 3.1 upgrades, which have made gigabit download speeds available in large portions of the country. Comcast and Charter executives also told investors that large-scale spending is not planned in the near future.

The spending cuts were acknowledged by CommScope CEO Eddie Edwards in a conference call with investors.

“The ARRIS business is off to a challenging start to the year, driven largely by the significant reduction in CapEx spend by certain large cable companies, many of whom have commented publicly on 2019 network and capital priorities,” Edwards said.

The nation’s top two cable operators spent $1.1 billion in the third quarter and $1.4 billion in the fourth quarter of 2018 on system upgrades and investments. But during the first quarter of this year, spending plummeted to $600 million. Jeff Heynen, Dell’Oro’s research director, told Light Reading he has not seen revenues in the cable access network sector drop to such a low level since 2013.

“We’re talking about a significant decline sequentially just for CapEx for two of the largest cable operators in the world,” Heynen told the trade journal. “But this isn’t just one or two operators cutting their CapEx. It’s quite a few of them, and the big ones, too. This was bound to have a significant impact on the infrastructure market.”

Analysts expect cable industry spending will remain sluggish for much of 2019, with a possible turnaround sometime late this year, but more likely in 2020.

The Downside to Modem Fees: Customers Hold On to Legacy Owned Modems Forever

Arris/Motorola’s SB6121 SURFboard DOCSIS 3.0 Cable Modem used to be considered “eXtreme,” but now most cable companies consider it obsolete.

The legacy of the hated modem rental fee is coming back to bite providers that charge $10 a month or more for a device that likely cost the company well under $100.

To opt out of the fee, a growing percentage of customers buy their own equipment, but now many of those modems are becoming functionally obsolete and customers are wary of efforts by providers to convince them to accept a newer, company-supplied modem.

With the arrival of DOCSIS 3.1 and faster speeds, the problem is only getting worse for companies like Comcast, Charter Spectrum, and Cox. With an installed base of hundreds of thousands of obsolete modems, customers frequently can no longer get the internet speed they pay for, and the equipment’s limitations can cause congestion on cable broadband networks, because older modems cannot take advantage of the exponential increase in available “channels” that help share the load on the neighborhood network.

“Some customers have cable modems that are incompatible (such as DOCSIS 2.0 and DOCSIS 3.0 4×4 modems) with the current class of service or internet speed that they’re receiving. As a result, these customers may not be experiencing the full range of available bandwidth that they’re paying for,” Comcast informs their customers. “If a device is no longer supported by Comcast or has reached its end-of-life (EOL), this essentially means that we will no longer install the device, either as a new or replacement device. In addition, we will no longer recommend that customers purchase the device, whether new or used.”

But many Comcast customers do not realize their equipment is effectively obsolete until they visit mydeviceinfo.xfinity.com and sign in to their account or enter a device make and model in the search bar on the homepage or hear directly from the company. Comcast will send online alerts to customers verified to still be using outdated equipment and occasionally send notifications through the mail. Customers can order new equipment online or swap out old equipment in a cable store. Comcast prefers its customers rent its Xfinity xFi Wireless Gateway ($13/mo) or xFi Advanced Gateway ($15/mo). As an incentive, Comcast is testing offering free unlimited data in some central U.S. markets to those choosing its more costly Advanced Gateway.

Charter Spectrum sold its merger with Time Warner Cable and Bright House Networks partly on its argument that modem fees would no longer be charged. Despite that, many former Time Warner Cable and Bright House customers still use their own modems, which has been a problem for a company that raised the standard internet speed available to residential customers from 15 Mbps to 100 Mbps (200 Mbps in some markets, mostly those also served by AT&T). Older modems often cannot achieve those speeds. Spectrum notifies affected customers in periodic campaigns, offering to replace their obsolete equipment, but many customers suspect hidden fees may be lurking in such offers and discard them.

“Some modems that were issued years ago have become outdated. If you have a modem that was issued by us and hasn’t been swapped in the last six years, it might need to be replaced,” Spectrum tells customers. “To get a replacement modem, contact us or visit a Spectrum store. Please recycle your old modem or bring it to a Spectrum store for proper disposal. If you do a modem swap with us, you’ll receive a mail return label in your package, which can be used to return your old modem.”

Cox is also in a similar predicament. It runs seasonal checks on its network to identify customers using older DOCSIS modems, often DOCSIS 3.0 4×4 modems, which can only support four download channels. When it finds customers eligible for an upgrade, it mails postcards offering a “free modem upgrade,” usually supplying a SB6183 or SB8200 modem that can arrive in 24-48 hours. But many Cox customers suspect trickery from Cox as well, or run into poorly trained customer service representatives that reject the postcards, claiming the customer is ineligible.

“DOCSIS 3.0 8×4 or higher (or a DOCSIS 3.1) devices are required for all new Cox High Speed Internet customers,” Cox tells their internet customers. “Current Cox customers should ensure they have a minimum of a DOCSIS 3.0 device in order to consistently receive optimal speeds. Additionally, Ultimate customers are required to have a minimum of a DOCSIS 3.0 device with a minimum of 16×4 or higher channel bonding to achieve package speeds.”

In fact, most modem upgrade offers from your provider are likely genuine, but customers need to pay attention to any fine print.

Customers can also purchase their own upgraded modem if they want to avoid Comcast’s Gateway fee. Cox does not charge customers for modems sent as part of a free upgrade offer, but watch for erroneous charges on your bill and report them at once if they do appear. Charter Spectrum has recently introduced a $9.99 modem activation fee, applicable to new customer-owned or company-supplied cable modems. We do not know if that fee would apply in cases of an obsolete modem upgrade. Be sure to ask, and if the answer is no, make a note of the representative’s name in case a dispute arises later on.

Fox Plans to Substantially Hike Fees for Its Cable News and Broadcast Channels

Phillip Dampier May 9, 2019 Consumer News, Online Video 1 Comment

Your cable or streaming TV bill will increase once again as Fox executives told cheering investors this morning it would hike prices for carrying Fox TV stations and its suite of cable networks, including Fox News Channel, Fox Business, Fox Sports 1 and 2, and the Big Ten Network.

“We plan to meaningfully accelerate growth of both direct retransmission and non-[owned and operated] revenue and we believe the broadcast economics we receive are quite underpriced relative to the quality of the content we are providing,” said Fox chief operating officer John Nallen, speaking at a Fox Investor Day event.

Fox’s contracts with most cable, satellite, and streaming providers are coming up for renewal over the next three years, and it should not surprise providers to see substantially higher renewal pricing than ever before to continue carrying Fox’s networks. Fox plans to leverage the increasing amount of live sports on its broadcast network and the relative popularity of Fox News Channel to demand higher compensation. Fox was already collecting 29% more in retransmission consent-related revenue during the third quarter, but that percentage is expected to grow dramatically as new contracts are signed.

Fox News is already the most costly cable news network, and as other broadcast TV networks demand ever greater compensation from cable and satellite providers, Fox executives feel they are not asking as much as they could for their channels. That is an important consideration for Fox, which slimmed down dramatically after a sale of most of its assets to Disney. The ‘new’ Fox is made up of the Fox television network, 28 owned and operated Fox affiliated TV stations, cable news and business, and three sports channels. Nallen sees no need to expand the network lineup further.

“We are no longer lending the potency of our marketing brands toward any other initiative, brand or channel development,” Nallen said. “The purity of this sustained value opportunity from our Fox brands is critical as we are not tethered to any properties that are just getting harder to defend. This frees us up to capture the full value of all our brands across broadcast and cable.”

Nallen knows some cable operators have grown increasingly disenchanted with selling television service, and acknowledged some cable companies may balk at Fox’s new asking price, especially as cord cutting continues to accelerate. He told investors he is technology agnostic about who he sells Fox networks to, so it would come as no surprise if a streaming TV service eventually breaks into the top four Fox channel distributors. At the same time, as prices continue to rise, some traditional cable operators could eventually stop selling television service altogether.

Charter/Spectrum Will No Longer Pro-Rate Your Bill When You Cancel Services

Phillip Dampier May 6, 2019 Charter Spectrum, Consumer News 2 Comments

Charter Spectrum will soon charge you for a full month of service, even if you downgrade or cancel in the middle of a billing cycle, ending a decades-old practice of issuing a partial month credit for dropped services you no longer want or need.

Tucked into customers’ May billing statements, Charter Spectrum announced it intends to stop giving partial refunds for service effective June 23, 2019:

The financial benefit to Charter Spectrum is substantial, because customers will be forced to pay for a full month of service even if they cancel during the first week of a new billing cycle. The cable industry has been gradually shifting away from issuing partial month credits after other telecom companies, notably Windstream and wireless operators, moved to “full month billing – no refunds for partial month” billing.

Cablevision/Optimum was among the first cable companies to stop issuing credits for disconnects that occur before the billing cycle ends. It led to a 2017 class action case against Cablevision, now owned by Altice USA, filed by an ex-customer. A 2018 ruling dismissed the class action case, compelling the plaintiff to use mandatory arbitration, required of all new subscribers. The final disposition of the case is unknown. Charter Spectrum maintains a similar clause in its own terms and conditions.

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  • Ian Littman: The Cox thing doesn't sound like LLD at all. It instead sounds like something similar to the WTFast service that Asus bundles with some of their route...
  • Suzanne: Jane, I did that same thing, so very fed up with Spectrum and their rates, and their (lack of any) customer service to keep a customer. It's going fi...
  • Alison: I just got offered 85 for choice for 12 months. Set up disconnect date. Hoping to get a better offer before then so I don’t have to switch to streamin...
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