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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.

Montana’s 3 Rivers Communications Getting Out of the Cable TV Business On Oct. 31

After years of increasing costs for video programming, the disadvantages of not being large enough to qualify for lucrative volume discounts, and a declining customer base, a Montana cooperative says it is calling it quits on cable television service later this year to focus on its broadband business.

3 Rivers Communications, a rural telecommunications cooperative based in Fairfield, Mont., this week announced it was discontinuing television service on Oct. 31, 2019, inviting its members to choose a streaming TV provider (DirecTV Now, YouTube TV, etc.) instead.

The co-op serves 15,000 customers across two significant service areas in Montana. Only 1,800 still subscribe to cable television service — a number that has dropped steadily since the introduction of streaming TV alternatives. Most cable networks and local stations charge a sliding scale fee to carry their programming, with substantial volume discounts offered exclusively to large providers like Comcast, Charter, AT&T, DirecTV and Dish Networks. Small, independent companies are at a disadvantage because they must charge substantially more to cover their higher wholesale costs. Many have attempted to mitigate these high fees by pooling resources and buying programming through a national cooperative, but even that arrangement cannot keep costs low enough to prevent subscribers from canceling service after each rate increase.

Local TV station rate inflation, along with sports programming price hikes, have made offering cable television untenable for a growing number of small cable operators. As an example, 3 Rivers customers in Big Sky pay $32.99 for a basic cable TV package of 23 channels, including C-SPAN, Local Access, three religious networks, three home shopping channels, and around a half-dozen digital multicast TV networks. A comprehensive digital cable TV package costs $104.99 a month, just for television.

The 3 Rivers Communications television lineup for Big Sky, Mont.

In the last ten years, 3 Rivers has been focused on expanding its fiber to the home network, now reaching 65% of its customers. But the costs to provide service in rural Montana remain high, and internet packages remain costly. A 10 Mbps unlimited internet account costs $74.95/mo, 20 Mbps costs $94.95/mo, and 30 Mbps costs $114.95 (add around $10/mo for voice service). Offering television service originally boosted the average revenue received from each subscriber, but now that costs have skyrocketed, 3 Rivers now feels it should focus its investments on better broadband service.

“With all the new streaming options available, [including] Netflix and Hulu and Amazon Prime, in addition to traditional satellite providers like Dish and DirecTV, we just can’t really compete anymore,” 3 Rivers marketing director Don Serido told KRTV News. “We’re getting out of the TV business and we’re really going to focus on providing the best broadband we can to all of our cooperative members. That’s really what people want and need.”

Serido also said the company’s lack of support for pay-per-view and on demand programming also hurt its TV business. As a convenience to members, 3 Rivers is waiving all early termination fees and will continue to honor its promotional agreements until service is ended on Oct. 31.

The biggest impact will likely be felt by Montana TV stations that will lose retransmission consent revenue from 3 Rivers. Only a handful of streaming providers offer TV stations from the Great Falls market, forcing many cord-cutters to depend on on-demand viewing from services like Hulu and over-the-air antennas to pick up local stations.

As a member-owned cooperative, 3 Rivers returns all of its profits to members through capital credits. At the end of each fiscal year, the cooperative allocates a percentage of the margins to each patron on a pro-rata basis according to the total amount paid or produced for services. These allocations to patrons are known as capital credits. Upon approval of the Board of Trustees, these allocations are refunded to cooperative patrons. As a result, 3 Rivers has no incentive to overcharge its customers. Instead, it often invests its funds in improving service for its customers. When the cooperative was formed in 1953, it was the only provider of telephone service in north-central Montana. It has offered internet service for the last 20 years, with television only becoming a part of its menu of offerings a decade ago.

3 Rivers Communications will get out of the cable television business this fall, reports KRTV News in Great Falls, Mont. (1:05)

Supreme Court Will Hear Comcast Appeal Over Accusations Its Channel Lineup is Racially Biased

WASHINGTON (Reuters) – The U.S. Supreme Court on Monday agreed to hear cable television operator Comcast Corp’s bid to throw out comedian and producer Byron Allen’s racial bias lawsuit accusing the company of discriminating against black-owned channels.

The justices will review a decision by the San Francisco-based 9th U.S. Circuit Court of Appeals that cleared the way for a $20 billion civil rights lawsuit against Comcast to proceed. At issue in the litigation is the refusal by Comcast to carry channels operated by Entertainment Studios Networks, owned by Byron Allen, who is black.

The justices did not act on a similar appeal by Charter Communications involving claims by Allen after the company also declined to carry his channels. That case likely will be guided by the outcome in Comcast’s appeal.

Comcast and Charter have said their business decisions were based on capacity constraints, not race, and that Allen’s channels, including JusticeCentral.TV, Cars.TV, Pets.TV and Comedy.TV, did not show sufficient promise or customer demand to merit distribution. Other television distributors, including Verizon, AT&T and DirecTV, carry some of Allen’s programming, court papers said.

“Comcast has an outstanding record of supporting and fostering diverse programming, including programming from African-American owned channels, two more of which we launched earlier this year,” the company said in a statement, adding that it hopes the Supreme Court will bring the case to an end.

Allen

Allen disputed the statement, saying the channels Comcast mentioned are not wholly owned by African Americans. Comcast, Allen said, “will continue to lose this case, and the American people who stand against racial discrimination will win.”

Entertainment Studios Networks sued in Los Angeles federal court, accusing the cable companies of violating the Civil Rights Act of 1866, a post-Civil War law that forbids racial discrimination in business contracts.

The suits brought by Allen pinned the rejections primarily on racial discrimination, accusing cable executives of giving insincere or invalid excuses and granting contracts to carry white-owned networks during the same period.

The lawsuits also alleged that the companies’ commitments to diversity are a sham and that they have used outside civil rights groups, such as Reverend Al Sharpton’s National Action Network, to provide cover for empty promises. Comcast called those accusations “outlandish.”

Both Comcast and Charter called the lawsuits a “scam” and sought to have the cases dismissed. But the 9th Circuit last year allowed the litigation to proceed.

At the heart of the case is the question of whether individuals who are refused a business contract can sue under the civil rights law without ruling out reasons other than discrimination for the denial. The 9th Circuit said lawsuits can proceed to trial if plaintiffs can show that discriminatory intent was one factor among others in the denial of a contract.

Reporting by Andrew Chung; Editing by Will Dunham

14,000 Consumers Cut Cable TV’s Cord Every Day Says New Study

The top 10 service providers in the United States collectively lost over 1.25 million paid television customers in the first three months of 2019, providing further evidence that cord-cutting is accelerating.

Multiscreen Index estimates if that trend continues, an average of 14,000 Americans cancel their paid cable or satellite television service daily.

AT&T suffered the greatest losses, primarily from its satellite television service DirecTV. More than a half-million satellite customers canceled service in the first quarter of the year. AT&T lost another 89,000 streaming customers as news spread that the service was increasing prices and restricting generous promotions to attract new subscribers. DISH Network, DirecTV’s satellite competitor, also lost more than 250,000 customers.

Many cable television providers announced this quarter they would no longer fret about the loss of cable TV customers, and many have dropped retention efforts that included deeply discounted service. As a result, customers are finding it easier than ever to cancel service. Comcast lost 107,000 TV customers, while Charter Spectrum lost 152,000. Spectrum recently increased the price of its Broadcast TV Fee to $11.99 a month and has pulled back on promotions discounting television service.

United States
Service Change
quarter
Subscribers
(millions)
1,280,200 81.90
AT&T TV/DirecTV -544,000 22.36
Comcast -107,000 20.85
Charter Spectrum -152,000 15.95
DISH Network -266,000 9.64
Verizon FiOS -53,000 4.40
Altice USA -10,200 3.30
Sling TV 7,000 2.42
DirecTV Now -89,000 1.44
Frontier -54,000 0.78
Mediacom -12,000 0.76
Source: informitv Multiscreen Index.

“There were losses across the top 10 television services in the United States, with even the DirecTV Now online service losing customers following previous heavy promotion. Between them, they lost over one-and-a-quarter million subscribers in three months. They still command a significant number of customers but the rate of attrition has increased,” said Dr. William Cooper, the editor of the informitv Multiscreen Index.

The total figures for the quarter show roughly 81.90 million Americans are still paying one of the top-10 providers for cable or satellite television service, amounting to less than 70% of television homes — a significant drop. Privately held Cox Communications is excluded because it does not report subscriber numbers or trends.

Pluto TV’s Lineup Has Gotten Huge: Adds Viacom Networks, “Signature Channels”

Phillip Dampier May 2, 2019 Competition, Consumer News, Online Video, Pluto TV No Comments

Ad breaks on Pluto TV are not always elegant. This screen can appear for a minute or more instead of commercials.

Viacom is not wasting any time remaking Pluto TV into a more formidable possible cable-TV replacement, after acquiring the streaming service in March for $340 million. Now the service is adding Pluto-branded versions of Viacom’s cable networks that anyone can watch for free.

Unlike Hulu, Netflix, or Amazon Prime Video, Pluto TV has no subscription fees and is entirely supported by commercial advertising.

Much like in the early days of cable television, many of the networks on the Pluto lineup still feature second-rate programming or niche interest, low-budget original programming. But Viacom obviously intends to change that perception, launching special Pluto-branded versions of name-brand cable networks like BET, Comedy Central, MTV, Nickelodeon, and others.

In an effort to protect their contractual relationships with cable and satellite providers that pay substantial fees for Viacom’s cable networks, Pluto TV’s free versions are not exactly the same as what you’d find on your cable or satellite dial. But many of the most popular shows found on those networks also can be found on Pluto TV’s Viacom channels, some at different times or perhaps a day or two later.

Recognizing many viewers have turned away from live, linear television in favor of on-demand viewing, Pluto TV has also created binge channels that will “pop up” from time to time, allowing viewers to catch up with earlier seasons of popular shows or see a current show’s missed episodes on channels where they repeat continuously.

Because Viacom also has an extensive content library of its own, it was not difficult to assemble a range of “Signature Channels,” which group shows from multiple networks together on a series of theme-based channels. For example, CMT Westerns feature reruns of classic western TV shows seen on various networks. Several MTV networks target different audiences, like MTV Guy Code, MTV Teen, and MTV Dating. Comedy Central gets a side-network as well. Comedy Central Pluto offers many of the shows you’d find on the primary cable network, plus there is Comedy Central Stand-Up, which features continuous stand-up comedy routines.

Although Pluto TV retains the familiar concept of “channel” numbers, grouped by theme, Viacom is clearly starting to shift the viewing experience more towards individual shows instead of networks.

There are now so many individual channels on the Pluto platform, we won’t list them here. It is easier just to visit and view for yourself.

Pluto TV by Viacom is clearly a work still in progress. There are some significant issues. Commercial advertising inserts are clumsy and often cut shows off mid-sentence on some channels. Sometimes, an extended “we’ll be right back” screen appears where advertisements normally would. There is also no built-in way to record shows for time shifted viewing, and Pluto TV has so far refused to offer an online program guide beyond the next two hours of viewing, so you cannot easily know what shows will be aired when.

Other weaknesses are in sports and news. The network news channels are identical to those you can see on their respective websites by yourself, and a number of advocacy news channels including Newsmax, The Young Turks, and RT America are poor replacements for typical cable news channels. CNN’s presence on Pluto TV is limited to a curated playlist of stories airing on the network that day, and Sky News, Bloomberg, and Weathernation are not comparable to MSNBC, CNBC, or The Weather Channel.

Sports programming is mostly talk shows about sports and events larger sports networks would never cover. Pluto Sports also runs movies about sports.

Still, Pluto TV is free, and with the huge number of channels, chances are excellent you will find something to watch without much trouble.

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