Apple TV

Apple’s ability to successfully force its way into the pay television business with a cord-cutter’s streaming TV solution has been left languishing since 2009, thanks to some of America’s largest cable and entertainment companies who think Apple is arrogant and out of touch.

The Wall Street Journal today published a story showing how Apple’s plans to challenge the cable TV industry much the same way it revolutionized digital music has rubbed the big and powerful the wrong way. Apple’s desire to launch a cheaper streaming video service with a slimmed down TV lineup and robust on-demand options has flopped, because executives have no interest in bending to Apple’s way of thinking.

In 2009, Apple decided it wanted in on the streaming pay-TV business. At the same time Time Warner Cable began experimenting with data caps, Apple was approaching local stations and broadcast networks and offering them premium payments — higher than what the cable industry itself paid — for Apple’s choice of stations and cable networks. The deal meant Apple would alone be free to pick only the channels it wanted to carry, a major departure from the industry practice of contract renewals that bundled popular networks with spinoff and lesser-known channels cable operators didn’t want to carry. Apple’s hard-charging negotiator, Eddy Cue, seemed to believe that if Apple was at the negotiating table, that alone would be enough to get a deal done. It wasn’t.

Two years later, Time Warner Cable approached Apple seeking to launch a joint TV venture that could compete nationwide with satellite and phone company competitors. The talks were at the highest levels at both companies, involving Time Warner Cable’s then-CEO Glenn Britt, Cue, and Apple CEO Tim Cook. Cook also approached Brian Roberts, CEO of Comcast, promising him the service would only be sold through cable operators — good news for Comcast but bad news for open competition.

This time, Apple sought money from the cable companies, not the other way around. Cable operators were told they would need to pay $10 a month per subscriber to Apple, with no guarantee that fee would not increase in the future. Just as concerning was Apple’s insistence that subscriber authentication would require customers to use their Apple IDs, a departure from the cable industry’s push to adopt TV Everywhere, where customers could unlock streaming video from any cable network simply by logging in with the username and password they set up with their pay TV provider. Apple was also characteristically secretive about their user interface and left cable industry executives flummoxed when they asked Apple to sketch out what the service would look like on a napkin. An Apple official would only respond that their interface would be great and “better than anything you’ve ever had.” The fact Apple refused to answer the question did not go unnoticed.

Nor did Cue’s unconventional way of negotiating with some of the most powerful entertainment executives in the country. When Jeff Bewkes, CEO of Time Warner (Entertainment) agreed to meet with Cue about Apple licensing Time Warner’s critical networks — which include HBO, CNN, and TNT — Apple’s negotiator showed up 10 minutes late. While Time Warner’s negotiators were smartly dressed in business attire, Cue turned up wearing jeans, a Hawaiian shirt, and sneakers with no socks. It went downhill from there, because Apple insisted on valuable on-demand rights to full seasons of hit shows and permission to let viewers store their favorite recordings on a massive cloud-based DVR that included features like automatic recordings of hit shows and advanced ad-skipping technology.

Crickets.

More than a few programmers used to having their way with cable operators were shocked by Apple’s ‘arrogance’ and unconventional way of doing business. The newspaper reports one former Time Warner Cable executive watched with amusement as stone-faced programmers were unimpressed with Apple’s demands.

Jon Lovitz offers a visual hint what Mr. Cue must have looked like meeting with high-powered execs at Time Warner (Entertainment)

“[They] kept looking at the Apple guys like: ‘Do you have any idea how this industry works?'” said the former executive.

Apple responded ‘doing new things requires changes that often are unsettling.’

A year later the negotiations were on life support, as Apple struggled with the arrival of 2015 with no slimmed down streaming TV package to offer Apple TV owners.

Apple’s demands flew in the face of decades of cable industry business practices, which give channel owners virtual guarantees of rate hikes with each contract renewal, the right to force their spinoff networks on the cable lineup in return for a comfortable renewal process, and the cable industry’s right to an assurance everyone was getting the same kind of deal (except volume discounts). Any deviation from this would result in panic on Wall Street, as investors’ dependence on perpetually improving quarterly financial results based on revenue boosts from new or higher fees would come crashing down if a company like Apple got a better deal.

One industry insider suggested once a company like Apple got a deal on sweetheart terms, every other distributor would demand the same deal (and many have contract provisions that require it). Apple may have assumed that because it managed to get the recording industry to agree to its iTunes digital music distribution deal 15 years earlier, so the cable industry would go. Except the road to cut-throat deals for entertainment programming is littered with dead-end business plans that had to be quickly modified when the discounts ended.

Netflix and Starz both learned expensive lessons when early discounts on licensing deals ended after Hollywood saw how much money those companies made from streaming. When licensing contracts expired, entertainment companies sought massive increases in licensing fees to “fairly share” the proceeds. Netflix ended up walking away from several studios, seriously impacting their online streaming catalog. Eventually, Netflix decided if they cannot beat the studios, they should join them, creating original programming to attract and keep subscribers.

Cue in real life

After almost a decade spent trying to get into the online cable business, Apple now seems more likely to follow Netflix, Amazon, and Hulu, and devote time and money on developing its own original programming. Instead of trying to license and bundle network programming, Apple TV today supports independent apps created by various networks. Viewers still get to watch their favorite shows, Apple does not have to pay for streaming rights, and there is a joint effort to create and support a single login so viewers can get access to content without constantly re-entering usernames and passwords.

Apple’s original shows include “Planet of the Apps,” a reality series, a miniseries being developed by Dr. Dre, and a spinoff of CBS’ “Carpool Karaoke.” The shows serve a dual purpose — entertaining viewers and helping push sales in Apple’s App Store and streaming music service.

Also under consideration are big budget, critically acclaimed original shows and series that could generate positive buzz for Apple TV, like “House of Cards” has done for Netflix.

Developing programming keeps negotiators like Apple’s Mr. Cue from having to challenge a very profitable pay television industry on their terms and spares Apple from creating a cable package of linear TV channels subscribers increasingly don’t care about. Viewers want on-demand access to the shows they want to see and don’t care that much about who supplies them and how.

So in the end, the intransigence of Big Cable and Hollywood studios that are now worried about cord-cutting may have done Apple an enormous favor, sparing them from being entangled in a business that buys and sells channels to fill a bloated and expensive cable television lineup more and more consumers are now deciding they can do without.

Updated: Link to WSJ story corrected.

Video programmers that want to avoid the problem of usage allowances that can deter internet video streaming have a new way to make an end run around Net Neutrality, distributing their content “cap-free” through “virtual cable channels” that are distributed over broadband, but appear like traditional cable TV channels on a set-top box.

This morning, Fierce Cable noted Wurl’s IP-based streaming cable television network platform was here, offering cable operators new cable channels that are actually delivered over the customer’s internet connection. The Alt Channel, Streaming News Network, The Sports Feed and Popcornflix will appear on set-top boxes and onscreen guides like traditional linear cable channels, starting in August. Wurl claims at least 51, mostly small and independent cable operators, have already signed up for the service, which could quickly expand to 10-12 channels in the future. But Multichannel News has confirmed only one partner so far — Fidelity Communications, a small cable operator serving parts of Arkansas, Louisiana, Missouri, Oklahoma and Texas.

What makes these channels very different from the other networks on the lineup is that they are delivered over the customer’s internet connection directly into a cable set-top box, and will generally be exempt from any usage allowances or caps providers impose on broadband usage. Wurl acts as a distributor, obtaining content from “popular online studios” that “until now has only been available on computers and mobile devices.” Wurl’s partners can get their content exposed on traditional cable TV to a potentially greater audience, who can watch while not worrying about using up their monthly internet usage allowance.

The first series of bracketed channels are Wurl-TV broadband based channels, while the second are traditional linear cable networks delivered by RF or QAM. Both integrate seamlessly into the cable set-top box’s on-screen program guide.

Wurl’s unicast approach relies on its own content delivery network to provide one internet stream for each set-top box accessing its programming, which also allows for support of on-demand programming. But every cable customer watching a Wurl channel is effectively streaming video over their internet connection. Cable operators usually blame internet video for consuming most of their available internet bandwidth, necessitating the “need” for usage allowances/caps or usage based billing to manage and pay for bandwidth “fairly.” Yet Wurl’s networks consume just as much bandwidth as traditional online video. But because Wurl is partnering with cable operators, that content is not subject to the usage caps Netflix, Hulu, or Amazon Video customers have to contend with.

Wurl claims its approach is so cable-operator friendly, “there’s no reason to say no,” said Sean Doherty, Wurl’s CEO and co-founder.

Cable operators are offered Wurl channels for free, with no affiliate fees or upfront costs, and no significant technology costs since the channels are distributed direct to the set-top box over broadband, not RF or QAM. A video player is embedded into the virtual cable channel, which allows viewers to pause, rewind, and fast forward programming.

In the future, cable systems are expected to gradually transition to IP-delivery of all of their video content, turning the cable TV line in your home into one giant broadband connection, across which television, internet access, and phone service are delivered.

But cable operators are still making distinctions between services that are gradually becoming different in name only. If a customer watches a Wurl channel over the internet on their desktop, that would count against their usage allowance. But if they watch over a cable-TV set-top box, it won’t, despite the fact the journey the channel takes to reach the viewer is exactly the same. That gives certain content providers an advantage others lack, representing a classic end run around Net Neutrality.

To be fair, that is not a distinction Wurl has made in any of its marketing material, but the fact preferred content can be managed this way is just one more reason the FCC should ban usage caps and usage-based billing on consumer internet accounts. Wurl’s own marketing material tells operators the cost and impact of its video streaming on the cable operator’s existing infrastructure is next to zero… because Wurl’s content comes across broadband platforms already so robust, they can easily accommodate the potential of thousands of viewers all watching Wurl channels without any issues. That reality undermines the cable industry’s own questionable arguments about the need for data caps or usage billing.

Altice’s ongoing efforts to cut expenses and boost profits at Suddenlink will cost an unspecified number of call center workers their jobs in three states and customers will soon pay a fee to receive their cable bill in the mail.

In three separate announcements, Suddenlink has begun notifying employees at three separate offices that many will be out of their jobs by this fall as the company shutters call centers and sales offices in Greenville, N.C., St. Joseph, Mo.,  and Parkersburg, W.V.

“We are migrating call center activities to some of Suddenlink’s larger call centers in the U.S. based on call volume, and where we have the greatest number of business partners,” said a company news release.

All of Suddenlink’s sales jobs will now be in Texas, and that means sales employees in the company’s Parkersburg office were given two choices: move to Texas, or take a different job in the Parkersburg office.

St. Joseph area employees were told their jobs will be relocated to larger call centers elsewhere where Altice has spent money to improve customer care.

“We have invested in advanced customer-care technology in those locations, and based on that believe this new structure will enable us to provide a superior service experience to all of our customers,” said Suddenlink spokeswoman Lisa Anselmo.

This summer Suddenlink is also continuing incremental rate hikes for customers not already subject to them. Parts of North Carolina are the latest to face a new $1 billing fee, which began July 1. New customers already pay the fee, but now current customers will also face the extra charge if they want a paper statement mailed to them.

“This fee covers the handling and postage costs associated with providing a paper statement,” said spokesman Gene Regan, senior director of corporate communications.

Notification of the new fee went out in the company’s May and June billings. To avoid the fee, customers must opt-in to electronic billing by visiting the company’s paperless billing web page and logging in to their Suddenlink account.

“What we are finding is more and more people in recent months have gone to electronic billing. A lot of customers have made the change in recent months,” Regan told The Daily Reflector. “Today so many people are online, more and more people are online, and a lot of people don’t like to deal with paper mail. They like the convenience and the opportunity to use other ways to pay.”

August

But many customers would prefer the option of a lower cable TV bill.

In Louisiana, Lake Area residents continue to complain about Suddenlink’s business practices, especially rates, channel options, and equipment fees. City councilwoman Luvertha August told American Press she is inundated with complaints about the cost of cable television in particular.

“All of these comments are from senior citizens. They’re on fixed incomes and they have limited budgets,” August told the newspaper. “They’re concerned with what they deem are constant changes with the Suddenlink cable company.”

Seniors have been confronted with cable TV bills that have soared from $20 two decades ago to over $80 in many cases today. This month Suddenlink completed its all-digital transition in southern Louisiana, which requires customers to attach equipment to every cable-enabled television in the home, at an additional cost.

The Leichtman Research Group, which specializes in research on broadband media and entertainment, found today’s average cable-TV bill is just under $100 after fees, surcharges, and taxes are included. Seniors who have seen no significant increase in their Social Security checks for several years are hard-pressed to pay for channels they don’t want or watch.

Last year, August attempted to involve the state’s legislative delegation to coordinate a message that consumers want more options, including a-la-carte for cable television. Her effort found almost no interest from state and federal lawmakers representing Louisiana, many who receive substantial campaign contributions from telecom companies. Sen. David Vitter (R-La.) did respond, but falsely claimed cable television is a state matter and the “federal government had nothing to do with the issue.”

In fact, many members of Congress have asked the FCC to get involved in the issue and others have supported efforts to increase competition and push for mandatory a-la-carte channel choices for consumers. AT&T U-verse has a franchise in southern Louisiana and may offer some consumers a choice, but after AT&T completed its acquisition of DirecTV, many consumers report AT&T is marketing satellite television more aggressively than its own U-verse TV option.

First credit cards were tied to your credit score, then auto insurance, and now how much you pay for cable television and what kind of support you receive from customer service may also depend on your creditworthiness, at least at Cable One.

CEO Thomas Might ignited controversy over his remarks at a recent J.P. Morgan Global Technology, Media and Telecom Conference when he told Wall Street analysts the company was working hard to reduce the “hollow profitability” of its cable TV business. Fierce Cable caught the transcript. One of the biggest reasons to blame for low profits may be Cable One’s deadbeat customers who don’t pay their bills. Starting in 2013, Might ordered a “very rigorous FICI credit scoring process” on all video customers to weed out the good from the bad.

Might suggested Cable One discovered those with low credit scores were among the company’s low value customers, and they deserve much less from the cable company in return.

“We don’t turn people away,” Might said, but the cable company’s technicians aren’t going to “spend 15 minutes setting up an iPhone app” for a customer who has a low FICO score. “What we found is that through lifestyle and billing analysis, we could start to pinpoint where churn and bad debt was coming from, and credit scoring started to be a really good test.”

Cable One has even stopped direct marketing its cable service, even though it was winning nine percent of new customer sign-ups. The customers Cable One attracted were so low quality, Might claims the company didn’t make a penny from the marketing effort.

“It was the worst of the lifetime value segments we had,” Might said.

Cable One’s unwelcome credit challenged customers returned the favor and canceled their service in droves. Although bad debt is down 70 percent under the new credit check policy, Cable One has lost about half of their cable TV customers, most leaving for AT&T U-verse or satellite television.

Might

Might’s intemperate remarks evidently triggered the company’s recent decision to contact the FCC to “clarify” the situation. Chief operating officer Julie Laulis tried to quell any controversy Cable One treats its customers differently based on how they handle their credit.

“Cable One runs a consumer credit pre-qualification, with the applicant’s consent, solely during the new customer sign-up process,” Laulis said. “The pre-qualification results are used to determine the size of the deposit and the installation charge, if any, that would be appropriate for the particular customer to offset the customer to offset the non-payment of bills or the non-return of equipment, as well as any introductory offers the customer may be eligible to receive.”

But once signed up, Laulis admitted the company still treats customers differently based on an internal scoring system it calls Lifetime Value (LTV), which determines what perks and special deals each customer is qualified to receive.

“Importantly, the LTV program has nothing at all to do with the use of credit scores,” Laulis added. “Any Cable One customer can, through a good payment history, achieve the highest LTV level and achieve additional levels of customer service and other benefits. This LTV level is independent of a credit score, and a credit score is not used to determine levels of service or loyalty rewards.”

Laulis claimed “the media” confused Might’s positions on credit scoring inside Cable One, although the cable company never asked for any corrections. Laulis also doesn’t deny the amount of customer service assistance available to customers may still depend on their creditworthiness.

Is your cable television service included in your rent or condo “services” fee? Have you ever called another provider and told service was not available at your address even through others outside of your condo neighborhood or apartment complex can sign up for service today? Chances are your landlord or property management company is receiving a kickback to keep competition off the property, while you may be stuck paying for substandard services you neither want or need. Worst of all, chances are it’s all legal and everyone is getting a piece of the action… except you.

Welcome to the world of Multiple Dwelling Unit (MDU) Bulk Service Agreements, the seedy underbelly of the anti-competitive cable and telco-TV world. When cable TV first got going, most people wanted access. In the early days, cable franchises were typically exclusive and cable companies maintained the upper hand in negotiations with apartment owners and property owners. Since the service was in demand, many property owners were told to sign whatever “Right Of Entry” Agreement (ROE) was put in front of them. Most contained clauses that guaranteed that cable company would get exclusive access to the property for as long as it was given a franchise to operate within that community. In other words, basically forever.

This turned out very handy when competitors started showing up. First on the scene were satellite television providers, which had a rough time dealing with landlords who loathed tenants installing satellite dishes that “ruined the aesthetics” of the property. Many rental agreements still restrict satellite television dishes in ways that make their use untenable. But things got much more serious when Verizon and AT&T got into the cable business. Initially, both companies found extending FiOS and U-verse to some rental and gated communities was blocked by the exclusive agreements held by cable operators. By 2007, the FCC finally acted to forbid exclusive service contracts, but the cable industry and property developers have played cat and mouse games with the FCC’s loopholes ever since.

Property Developers, Management Companies, Landlords, and Homeowner Associations With Their Hands Out

With the FCC’s 2007 declaration that exclusive contracts between cable companies and property owners were “null and void,” the power of the cable industry to negotiate on their terms was markedly diminished. Although many property owners applauded their new-found freedom to tell the local cable company to take a hike if they did not offer better service to their tenants, many others saw dollar signs in their eyes. With leverage now in the hands of the property owner, if the local cable company wanted to stay, in many cases it had to pay. Only the most brazen property owners kicked uncooperative cable companies off their properties, putting tenants at a serious inconvenience. Instead, many found life more peaceful and lucrative to stick with the existing cable company, signing a new contract for “bulk billing” tenants. On the surface, it seemed like a good deal. Property owners advertised that cable TV was included in the rent (and they paid a deeply discounted price per tenant) and the cable operator had a guaranteed number of customers, whether they wanted the service or not.

Bulk billing also proved a very effective deterrent for would-be competitors, who had to overcome the challenge of marketing their service while the tenant was already paying for another as part of their rent. As a result, telco TV competitors often stayed away from properties with bulk billing arrangements.

As broadband has become more prominent and threatens to become more important than the cable TV package, the cable industry has refined its weapons of non-competition. While they cannot force competitors off properties, they can make life very expensive for them. The latest generation of ROE agreements often grant access rights to the building’s telecommunications conduit, cabling, and equipment exclusively to the cable operator.

If Google Fiber, AT&T U-verse or Verizon FiOS sought to offer service on one of these properties, they would have to overcome the investment insanity of wiring each building with its own infrastructure, including duplicate cables, in separate conduits and spaces not already designated for the exclusive use of the cable company. Verizon in New York City has faced numerous obstacles wiring some buildings, including gaining access to the building itself. Intransigent on site employees, bureaucratic and unresponsive property management companies, and developers have all made life difficult for Verizon’s fiber upgrade.

AT&T often takes the approach “if you can’t beat ’em, join ’em” and offers its own bulk billing incentives, along with occasional commitments for fiber upgrades. Google Fiber can afford to skip places where it isn’t wanted, although with recent revelations that landlords can raise the rent by up to 11% with the arrival of Google Fiber alone, it may hurt to alienate that fiber to the home provider.

Kickbacks for New Developments = Windfall

Kickbacks for existing properties are lucrative, but nothing compared to the lucrative windfall new property developments can achieve with the right deal.

In 2013, one property developer in Maryland went all out for an exclusive deal with a provider that was going to get de facto exclusivity by using a convoluted series of entities and agreements designed to insulate the company from competition and a challenge from the FCC. A court later ruled the provider used an “elaborate game of regulatory subterfuge” using various corporate entities to escape potential competition.

Some lawyers devote a substantial amount of their practice to the issue of bulk contracts and ROE agreements. Carl Kandutsch serves clients nationwide, many trying to extricate themselves from bad deals of the past. In many cases, an attorney may be needed to find a way out of contracts that don’t meet FCC rules. Other communities sometimes have to buy out an existing contract. Many have to sit and suffer the consequences for years. One residential community found itself trapped with a service provider that was quietly protected by an “airtight contract” negotiated not with the property management company or the homeowner association, but the development’s original builder. The provider delivered lousy service and the community spent six years trying to get rid of the offending firm with no result until they hired an attorney. Although happy to be rid of the bad provider, the homeowner association ended up illustrating how pervasive this problem is after it signed a similar contract with another provider also handing out kickbacks.

Comcast pays up to 10% of a renter’s cable bill to the landlord. (Image: Susan Crawford)

Comcast is more creative than most. It calls its handouts: “Marketing Support Compensation.” The property owner gets an increasing reward for every tenant signed up for Comcast service. Once around two-thirds of tenants are subscribed, the owner gets up to a 10% take of each bill, plus a one time payment of up to $130 per tenant.

Because Comcast’s reputation often precedes it, customers reluctant to sign up without considering other providers will find that tougher to do because Comcast bans other providers from marketing their services to tenants with the support or cooperation of the landlord. In other words, no door hangers, free coffee, brochures in the lobby, or any other on-site promotions. In case a property owner forgets, Comcast sends reminders in the mail:

Comcast likes to remind landlords it has an exclusive. (Image: Susan Crawford)

Susan Crawford calls it “astounding, enormous, decentralized payola” and claims it affects millions of renters.

Crawford

“These shenanigans will only stop when cities and national leaders require that every building have neutral fiber/wireless facilities that make it easy for residents to switch services when they want to,” Crawford wrote. “We’ve got to take landlords out of the equation — all they’re doing is looking for payments and deals (understandably: they’re addicted to the revenue stream they’ve been getting), and the giant telecom providers in our country are more than happy to pay up. The market is stuck. Residents have little idea these deals are happening. The current way of doing business is great for landlords and ISPs but destructive in every other way.”

One real world example of how this deters competition comes from Webpass (recently acquired by Google), which offers gigabit Ethernet speeds in select MDUs in San Francisco, San Diego, Miami, Chicago, and Boston. The service comes with a low price, but that doesn’t get the company in the door, according to its president, Charles Barr.

Barr has been refused entry by multiple building owners who have agreements with Comcast, AT&T, or others.

“Tenants want us, but we can’t get in,” Barr said.

Crawford argues the FCC has once again been outmaneuvered by ISPs and their attorneys.

“Sure, a landlord can’t enter into an exclusive agreement granting just one ISP the right to provide Internet access service to an MDU, but a landlord can refuse to sign agreements with anyone other than Big Company X, in exchange for payments labeled in any one of a zillion ways,” added Crawford. “Exclusivity by any other name still feels just as abusive.”

This isn’t a new problem. Stop the Cap! first reported on these kinds of bulk buying arrangements back in 2010, all made possible by the FCC’s regulatory loopholes. Six years later, the problem appears to be getting worse.