Canoe Ventures

The impact of video cord-cutting and a growing intolerance for heavy advertising loads seem to be taking a toll on the cable industry’s lucrative advertising business.

Canoe Ventures, owned by Comcast, Charter Spectrum, and Cox, reports the number of ads being viewed by video-on-demand users rose just 4% in 2019, just a fraction of the growth the company reported over the past three years.

Many ad-supported cable networks make parts of their programming libraries available for on-demand viewing by video subscribers. Cable companies sell advertising that fills the original commercial breaks, sometimes resulting in a viewing experience comparable to live viewing — ads and all. But customers are increasingly turning away from cable video-on-demand, either because they are canceling their video packages or are becoming more intolerant of heavy ad loads.

Canoe Ventures claims its slowed growth comes from selling out ad inventory on the cable video-on-demand platform. But during the first six months of 2019, 13.1 billion ads were collectively viewed by customers, which is nearly identical to the 13 billion ads viewed during the same months in 2018. Assuming Canoe Ventures has nearly sold out all available space on its ad insertion platform, that should result in consumers seeing more ads. But with ad viewing almost flat, that likely means less video-on-demand content is being watched.

Milken in the 1980s (Image: The Gentleman’s Journal)

President Donald Trump granted clemency on Tuesday to Michael Milken, the so-called “junk bond king” who violated scores of securities and insider trading laws and was instrumental in helping finance the creation of America’s cable monopoly.

Milken used his position at the now-defunct Drexel Burnham Lambert to run its “high-yield bond unit.” More commonly known as “junk bonds,” these high-risk securities are typically issued by companies to finance mergers and acquisitions, often to strip assets or put competing companies out of business.

As a result, a new era of media and telecommunications tycoons emerged. Many successfully gained control of other companies and consolidated them into business empires, significantly reducing or eliminating serious competitors. Most of those companies still hold dominant positions today or have since merged with even larger companies. President Trump credited Milken for helping “create entire industries, such as wireless communications and cable television.”

By the late 1980s, Milken had advised scores of firms to rely on leveraged junk bond financing of corporate takeovers, a practice that endures to this day. Milken financed Rupert Murdoch’s ambitions to turn what was once a small newspaper chain into News Corp., which today still dominates in broadcasting, cable news channels like Fox News, and newspapers including the Wall Street Journal.

Milken also helped arrange financing for Craig McCaw, an early pioneer in cellular communications that leveraged cellular licenses McCaw borrowed heavily to obtain into one of the country’s first major wireless companies. But McCaw found bigger riches buying and selling mobile companies, first acquiring MCI’s cellular division in 1986 and selling his family’s cable operations to what would later become Comcast. By 1990, McCaw was the country’s highest paid CEO. Four years later, he sold McCaw Cellular to AT&T for $11.5 billion. AT&T sold that wireless company to Cingular in 2004 and then acquired Cingular itself some years later. McCaw would later plow $1.1 billion of family and borrowed money to take control of Nextel in 1995, only to sell it 11 years later to Sprint for $6.5 billion.

Malone

The country’s first cable giant, Tele-Communications, Inc. (TCI) would not have been possible without Milken’s junk bond financing scheme. Cable tycoon John Malone acquired hundreds of regional cable operators to create a cable empire that was often loathed by subscribers. TCI leveraged its position as a de facto monopoly, scaring off competitors, raising prices, and often delivering horrendous service. Vice President Al Gore would later characterize the Milken-financed emerging cable industry as a “cable Cosa Nostra,” and Malone himself as “Darth Vader.”

Time Warner’s cable division was also created as a result of a wave of consolidation that snapped up countless locally owned cable operators and smaller operators run by various media companies. Ted Turner also depended on Milken’s junk bond financing to create Turner Broadcasting, turning what was originally a single UHF independent TV station in Atlanta, Ga., into a superstation seen around the country and the launch of Cable News Network, better known as CNN.

Sometimes Milken’s clients benefited from his advice, sometimes they became targets themselves. Years after Turner Broadcasting was a major powerhouse in the cable programming business, Time Warner relied on a similar acquisition strategy to acquire Turner Broadcasting itself. Milken reportedly received a $50 million bonus for “advising” on the transaction, despite being in jail at the time. Years later, TBS founder Ted Turner would regret the buyout, which took CNN and TNT out of his hands.

Turner

Other household names from the past and present that expanded as a result of Milken’s financial advice include Viacom (now a part of CBS), MCI (embroiled in one of the country’s largest fraud schemes before being quietly sold off to Verizon), Telemundo (now effectively owned by Comcast), and Metromedia (which sold its network of popular independent TV stations to News Corp., which rechristened them FOX television network affiliates).

Milken quickly attracted the attention of the Securities and Exchange Commission, which took years to build a case against the Wall Street star. It took arbitrageur Ivan Boesky to help bring Milken down after pleading guilty to securities fraud and insider trading. He ‘ratted out’ Milken, which prompted a major investigation of him and the investment firm he worked for.

Milken was eventually indicted for racketeering and securities fraud in 1989 and through a plea bargain, pleaded guilty to securities and reporting violations, which won him a reduced sentence. He was supposed to serve 10 years in jail, but was released after just 22 months for good behavior. He was also fined $600 million (later apparently reduced to $200 million), a fraction of his reported net worth of nearly $4 billion. Although Milken was permanently barred from the securities industry, he still received compensation from certain transactions after that ban, which raised eyebrows.

Critics claim Milken’s legacy emboldened Wall Street to engage in riskier behavior and to innovate new leveraging schemes. Some claim that eventually helped create the conditions leading to the 2008 Great Recession.

The president offered nothing but praise for Milken in his pardoning statement and claimed prosecutors were overzealous in pursuing Milken. The president received an earful of advice in favor of a presidential pardon from his Treasury Secretary, Steve Mnuchin, who is a close person friend of Milken and has flown on his private plane. Many Trump allies, including conservative powerhouse donors Sheldon and Miriam Adelson and property developer Richard LeFrak also lobbied the president on Milken’s behalf. So did the president’s personal lawyer Rudy Giuliani, who ironically helped prosecute Milken in the 1980s. Some benefactors of Milken’s financial advice were also in favor of a pardon, including Rupert Murdoch.

Milken’s fans have been persistently seeking pardon relief for years. They failed to win a presidential pardon from former president Bill Clinton in 2001, after a joint letter strenuously objecting to the idea was sent from the SEC and U.S. attorney’s office in the Southern District of New York. The letter said pardoning Milken would “send the wrong message to Wall Street.”

Large media companies and streaming services are on to many of you.

If you are among the two-thirds of subscribers that have reportedly shared your Netflix, HBO GO, Hulu, or Disney+ password with friends and family, your provider probably already knows about it.

A recent report from HUB Entertainment Research found that at least 64% of 13-24-year-olds have shared a password to a streaming service with someone else, with 31% of consumers admitting they are sharing passwords with people outside of their home.

The reason many people share passwords is to save money on the cost of signing up for multiple streaming services. Many trade a Netflix password in return for a Hulu password, or hand over an HBO GO password in exchange for access to your Disney+ account. Research firm Park Associates claims that streamers lost an estimated $9.1 billion in revenue from password sharing, and can expect to lose nearly $12.5 billion by 2024 if password sharing is not curtailed.

Oddly, most streaming services are well aware of password sharing and the lost revenue that results from sharing accounts, and most care little, at least for now.

Marketplace notes a lot of the complaints about password sharing are coming from cable industry executives, shareholders, and Wall Street analysts, but for now most streaming services are just monitoring the situation instead of controlling it.

“I think we continue to monitor it,” said Gregory K. Peters, Netflix’s chief product officer, on the 2019 third quarter earnings call. “We’ll see those consumer-friendly ways to push on the edges of that, but I think we’ve got no big plans to announce at this point in time in terms of doing something differently there.”

Netflix sells different tiers of service that limit the number of concurrent streams to one, two, or four streams at a time. The company believes that if customers that share accounts bump into the stream limits, many will upgrade to a higher level of service which will result in more revenue.

Newcomer Disney+ not only recognizes password sharing is going on, it almost embraces it.

“We’re setting up a service that is very family friendly. We expect families to consume it,” Disney CEO Bob Iger said in an interview with CNBC. “We will be monitoring [password sharing] with the various tools that we have.”

The biggest tool Disney has to monitor account sharing is Charter Spectrum, which is aggressively encouraging streaming services to crack down hard on password sharing. Spectrum internet customers who watch Disney+ are now tracked by Spectrum, recording each IP address that accesses Disney+ content over Spectrum’s broadband service. When multiple people at different IP addresses access Disney+ content on a single account at the same time, Spectrum can flag those customers as potential password sharers.

Synamedia, a streaming provider security firm, uses geolocation tools to determine who is watching streaming services from where. If someone is watching one stream from one address and another person is watching from another city at the same time, password sharing is the likely culprit. For now, most companies are quietly collecting data to learn just how big a problem password sharing is and are not using that information to crack down on customers.

Streaming providers are more interested in stopping the pervasive sale of stolen account credentials on services like eBay and shutting down stolen accounts used to harvest content for unauthorized resale. But as sharing grows, so will calls from stakeholders to curtail the practice. Those in favor of vigorous crackdowns on password sharing argue billions of dollars of lost revenue will be lost. If a service like Netflix blocked password sharing, that could lead to dramatic increases in account sign-ups. But less established brands like Disney+ seem more concerned about losing the unofficial extra viewers that are watching and buzzing about shows on its new streaming platform. Find the best residential proxies to access the streaming content that is not available in your location.

Cable companies are frustrated about losing scores of cable TV customers to competitors that may be effectively giving away service for free. That has raised tempers at companies like Charter Communications.

“Pricing and lack of security continue to be the main problems contributing to the challenges of paid video growth,” Charter CEO Thomas Rutledge said in recent prepared remarks with Wall Street analysts. “The traditional bundle … is very expensive, and the actual unit rate of that product continues to rise, and that’s priced a lot of people out of the market. And it’s free to a lot of consumers who have friends with passwords. So our ability to sell that product is ultimately constrained by our relationship with content [companies], and we have to manage that in terms of the kinds of power that the content companies have.”

Charter’s power comes from its willingness to distribute cable networks like The Disney Channel to tens of millions of homes around the country. That forces Disney to listen to Charter’s concerns about piracy and password sharing and the issue is even documented in the latest carriage contract between the two companies.

Cable industry executives believe a crackdown on password sharing is inevitable, eventually. Just as the cable industry was forced to combat cable pirates during its formative years, streaming providers that welcome extra viewers today may lament the lost revenue those subscribers don’t bring to the table tomorrow.

Marketplace reports on the growing issue of streaming service password sharing. (2:19)

Comcast and Charter Communications have begun to compete outside of their respective cable footprints, potentially competing directly head to head for your business, but only if you are a super-sized corporate client.

Comcast Business has targeted selling large Fortune 1000 companies internet service through contractual partnerships with Charter, Cox, and Cablevision/Altice USA for a few years now. The cable giant recently entered the Canadian market, at least for U.S.-based companies that have satellite offices north of the border. Comcast now directly competes with other cable operators selling enterprise-level broadband service, whether the customer is inside Comcast’s footprint or not, but will not offer a similar service to consumers looking for better options.

The cable industry’s longstanding de facto agreement not to compete head to head for customers will probably remain intact even as Charter this week unveils its own national broadband service called Spectrum Total Connect. It will be available across the country, offering customers up to 940 Mbps broadband service at a highly competitive price, but only if you are running a large business and have an account with Spectrum Business National Accounts, which provides connectivity for large business franchises, national retailers, and companies utilizing a large network of telecommuters scattered around the country. Consumers need not apply here either.

Charter has refused to say who it has partnered with to provide the service, but it is likely a reciprocal agreement with Comcast and other cable companies it already works with to provide enterprise-level service. The new service will be rolled out in the next several weeks.

Cable companies have been successful selling connectivity products to small and medium-sized businesses, but large national companies have traditionally relied on phone companies to provide them with total connectivity packages that can reach all of their locations. Until Comcast began selling service outside of its footprint, cable companies have had to turn down business opportunities outside of their respective service areas. But now Comcast and Charter can reach well beyond their local cable systems to satisfy the needs of corporate clients.

But neither company wants to end their comfortable fiefdoms in the residential marketplace by competing head to head for customers. Companies claim it would not be profitable to install redundant, competing networks, even though independent fiber to the home overbuilders have been doing so in several cities for years. It seems more likely cable operators are deeply concerned about threatening their traditional business model supplying services that face little competition. In the early years, that was cable television. Today it is broadband. Large swaths of the country remain underserved by telephone companies that have decided upgrading their deteriorating copper wire networks to supply residential fiber broadband service is not worth the investment, leaving most internet connectivity in the hands of a single local cable operator. Most cable companies have taken full advantage of this de facto monopoly by regularly raising prices despite the fact that the costs associated with providing internet service have been declining for years.

Cherry-picking lucrative commercial customers while leaving ordinary consumers mired in a monopoly is more evidence that the U.S. broadband marketplace is broken and under regulated. Competition is the best solution to raising speeds while reducing prices — competition regulators should insist on wherever possible.

Brindisi, as he appeared in a campaign ad slamming Charter Spectrum in the summer of 2018.

Rep. Anthony Brindisi (D-N.Y.), who made his battle with Spectrum into an election issue in 2018, is not done with the cable company yet.

This week, Brindisi appealed to the Consumer Financial Protection Bureau (CFPB) to launch an investigation into the cable company’s debt collection practices.

“Fighting Spectrum on rising rates also includes making sure they can’t use debt collection as another money-making tactic,” said Brindisi. “And the only way to get to the bottom of this is for the CFPB to ask the questions I outline in my letter.”

Brindisi is targeting Credit Management L.P., a Plano, Tex. collection agency that Spectrum relies on to pursue former customers, often to seek compensation for “lost or unreturned equipment.”

“After believing they had paid their final bill in full and returned their equipment, customers are finding themselves face-to-face with this unknown debt collector from Plano, Texas,” Brindisi told the CFPB. “One former Spectrum customer learned from Credit Management L.P. that they owed over $100 long after amicably ending their service. Spectrum never notified this customer they owed a penny. Instead, they sent them to collections, potentially damaging their credit rating and giving up their social security number and other personal information.”

In some cases, customers are being turned over to the collection agency for as little as an allegedly unreturned remote control. As a result, consumers are ending up with damaged credit because of the reported collection activity.

“The Better Business Bureau has logged hundreds of complaints about Credit Management L.P.,” Brindisi added. “Many of these complaints have been about their debt collection practices related to cable and internet companies. Customers have specifically named Spectrum and other cable companies as the source of the erroneous debt. A consumer should not be sent to a debt collector, without warning, for a missing remote control. That is both unfair and a sneaky way Spectrum might be padding its bottom line, which would be unacceptable, worthy of investigation and potentially in violation of federal rules.”

Brindisi wants the CFPB to determine how many customers are being pursued by Credit Management, L.P., how those customers are contacted, how much of the collection agency’s efforts relate to being compensated for allegedly unreturned equipment as opposed to late or non-payment of monthly cable bills, and how the agency handles customers’ private personal information.  Brindisi also wants the CFPB to determine if the collection practices violate federal law.

Brindisi also urged constituents being contacted by Credit Management L.P., on behalf of Spectrum, to call his office at (315) 732-0713.

In addition to running campaign commercials that slammed Spectrum, Brindisi has doggedly pursued the cable industry as a freshman congressman representing an Upstate New York district extending from the east end of Lake Ontario through Central New York to the Pennsylvania border, including the cities of Utica, Rome and Binghamton. Brindisi introduced the Transparency for Cable Consumers Act, promising to provide better oversight of cable and internet providers and hold companies accountable that are fined by a state Public Service Commission. In November, Brindisi slammed Spectrum in an opinion piece outlining his efforts to hold Spectrum accountable. Brindisi also recently launched a district-wide survey of home internet speeds and service to determine if internet customers are getting advertised internet speeds.