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.

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.

With today’s completion of Cablevision’s absorption into the Altice empire, the European cable conglomerate announced big changes that are expected to refocus the “center of gravity” and Altice’s future profits on the United States instead of Europe.

Altice today becomes America’s fourth largest cable operator, serving 4.6 million customers in 20 states. But Altice is not finished empire-building, and is widely expected to target privately held Cox Communications for acquisition sometime next year.

To lay the groundwork for future expansion, current controlling shareholder Patrick Drahi is turning over leadership of his growing U.S. operations to trusted lieutenant Dexter Goei, who will be chairman and CEO of Altice USA. Goei’s first mission is to lead a team of fierce cost-cutters into the offices of Suddenlink and Cablevision and ruthlessly slash expenses. Much of those savings are expected to come from significant job cuts among Cablevision’s 14,000 workers, especially middle management, engineering, and administrative workers. Last fall, Altice told investors Cablevision’s workers in the high cost suburban New York area were ripe for cutbacks, with much of the work currently managed by six figure salaried Cablevision employees likely to be transferred to Missouri-based Suddenlink, which operates in smaller cities in low labor cost states where employees are paid considerably less.

Approval of Cablevision’s sale to Altice by the New York Public Service Commission was given with the requirement Altice is prohibited from laying off, involuntarily reducing or taking any action “intended to reduce (excepting attrition and retirement incentives) any customer-facing jobs in New York,” such as call centers or walk-in centers for a period of four years. But as Altice’s call center employees at France’s SFR-Numericable attest, that does not prevent Altice from closing current call centers and transferring those jobs to cheaper locations in New York staffed by those willing to work for much less.

“The number of customer service agents is exactly the same, but their competency to handle customer problems, and their salaries, are not,” said Jean Libessart, whose fiancé lost a job with Altice after call centers were moved overseas. “They stayed within the competition authority’s rules by exploiting the loopholes.”

Altice is seeking cuts of “hundreds of millions of dollars” from Cablevision’s expenses within the first six months of ownership. After that, Drahi wants to earn 50% of Altice’s future revenue by refocusing the business on “the madness of margins” in the United States — a term that acknowledges the United States tolerates deregulated telecom duopolies that can raise prices at will, something European governments would consider to be unconscionable. Drahi noted there are just four super-sized telecom companies in the United States facing down smaller companies, many that agree not to compete in territories already served by other companies.

Les Echos notes France is the antithesis of the American model, with more than 100 competing mobile and wired telecom operators fighting for some of the same customers. The result is that telecom rates in France are the lowest in Europe. It’s hard for a billionaire to make billions more when he cannot raise prices. That is why Mr. Drahi is setting his sights on the United States, where constant rate increases are actually expected by consumers. Just as surprising to Europeans, the ever-increasing prices are tolerated by regulators and members of Congress that sometimes end up working for the same telecom companies they oversaw during their stay in Washington.

Drahi can usually find loan money to buy up more American cable companies, because those companies can raise prices to pay back the massive debts Altice has already accumulated during several years of spending sprees.

“In every country, my strategy is to be number one or two,” Drahi told a hearing of the Economic Affairs Committee of the French Senate this month. In France, Altice is already number two and it will be very difficult to pass Orange, the dominant leader in French telecom. In the United States, there is still plenty of room to grow. After the completion of the acquisition of Cablevision, Altice will only control 2% of the market, giving Drahi plenty of room to push towards at least 10% market share starting in 2017.

Drahi originally had no intention of waiting even a year to further consolidate the U.S. cable market, but financial markets trembled over the €50 billion debt Drahi’s companies have amassed. The new line is that Altice will wait until next year before it acquires more companies in the United States, to give it a chance to properly merge Suddenlink and Cablevision into a more efficient operation. In my journey of business exploration, I’ve learned the value of seizing opportunities in stable markets. Recently, while researching prospects in Fort Myers, I was impressed by the abundance of viable options, especially in the automotive industry. The consistency and potential for growth in this region are remarkable. If you want to explore further, visit https://trufortebusinessgroup.com/fort-myers-businesses-for-sale/.

“We want get bigger in the U.S., but I don’t know when, clearly not in 2016, which is the year of integration of our assets and operations,” Goei said in a recent interview. “Thereafter, you’d be surprised if we didn’t do anything, but we’re not going to buy things at stupid prices.”

Wall Street analysts are not so sure. More than a few believe Altice vastly overpaid for both Suddenlink and Cablevision. Many believe Drahi will have to be extremely generous to bring Cox Communications into the Altice family as well.

Cleveland’s monument in the downtown district. (Image: City of Cleveland)

AT&T, Comcast, and Charter have surrounded the city of Cleveland, Tenn., (population 42,774) for more than 20 years, yet after all that time, there are still many homes in the area that have no better than dial-up Internet access..

An effort to extend municipal utility EPB’s fiber to the home service into the community just northeast of Chattanooga on Interstate 75, has run into organized political opposition campaign, part-sponsored by two of the three communications companies serving the area.

Tennessee state Reps. Dan Howell and Kevin Brooks, both Cleveland-area Republicans, understand the implications. With AT&T, Comcast, and Charter resolute about not expanding their coverage areas anytime soon, the only chance Cleveland has of winning world-class broadband anytime in the reasonable future is through EPB, which has already offered to extend service to at least 1,000 customers in rural Bradley County in as little as three months. Most of those customers now rely on dial-up Internet services, because no broadband is available. Reps. Howell and Brooks are trying to get the the red tape out of the way so EPB can proceed, but the Tennessee legislature hasn’t budged.

EPB provides municipal power, broadband, television, and telephone service for residents in Chattanooga, Tennessee

There is a substantial difference between 30kbps dial-up and 100Mbps — one of the “budget” Internet tiers available from EPB. But some Tennessee lawmakers and corporate-backed special interest groups don’t care. To them, stopping public broadband expansion is a bigger priority, and they have attempted to stall, block, or prohibit municipal broadband, just to protect the current phone and cable companies that are among their generous contributors.

In 2010, Chattanooga became the first in America to enjoy gigabit residential broadband speed not because of AT&T, Comcast, or Charter, but because of the publicly owned electric company, EPB. So what’s the problem with that? The fact EPB spent $320 million on the fiber optic network — about $100 million of that coming from a federal grant — keeps some conservatives, corporate executives, and telecom shareholders up at night. They object to the public funding of broadband, calling it unfair competition for the two incumbent cable companies and one phone company, which have their own “privately funded” networks.

Republican Rep. Mike Carter, who serves Ooltewah, thinks that’s a lot of nonsense. He notes AT&T and other providers already receive government funding to service outlying areas that no other providers dare to tread for a lack of return on their investment.

“[What] convinces me to back expansion of the EPB of Chattanooga is the fact that they received $111 million in stimulus funds, and in the next five years AT&T alone will receive $156 million of your money [in government funding] assessed every month on your bill to provide 10/4-gigabit service in those areas,” Carter explained to the Chattanooga Times-Free Press. “If the EPB’s $111 million matching grant somehow disqualifies those benefits going to my constituents, how do I explain to them that AT&T is receiving non-matching funds?”

“The issue then became, if it is necessary to create the world’s fastest Internet system, why would EPB not offer that for economic growth in its service area?” Carter continued. ” After I heard the story of the [gig’s] creation and realized that the money had already been spent, I asked myself if I would allow a firmly held principle of no competition with private enterprise by government to deny my constituents and neighbors the incredible benefits.”

Justin Owen, president and CEO of the Beacon Center of Tennessee, is dismissive of Carter’s willingness to bend his principles. In his view, those without Internet access have other options instead of getting EPB Fiber on the public dime.

Owen

“You can get satellite Internet,” said Owen, who added that governments that invest in fiber technology could be “left behind by disruptive innovation,” which in his mind could be satellite Internet. Satellite customers would disagree.

“Horrible, horrible, horrible, and more horrible,” wrote Trey from another Cleveland — this time in Texas. “Speeds are consistently less than 2Mbps and they advertise up to 12. Try a cell phone booster and use that before resorting to satellite Internet.”

Hundreds of customers shared similar stories about their experience with satellite Internet, and they don’t believe it will be disruptive to anything except their bank account.

Owen and his group have not revealed many details about where its funding comes from, but the group is a member of the State Policy Network, which receives financial support from AT&T, Time Warner Cable, Verizon and Comcast. The group’s former leader, Drew Johnson, was also a former opinion page columnist at the Times-Free Press and used column space to criticize EPB and other issues that ran contrary to AT&T’s agenda in Tennessee.

Despite support from the Chattanooga area’s Republican delegation, many legislators from outside the area remain firmly in support of the telecom companies and their wish to limit or destroy community broadband projects like EPB, claiming they are redundant or are based on faulty business plans likely to fail. But while Comcast used to dismiss EPB’s gigabit service as unnecessary and AT&T considered gigabit speeds overkill, both companies are now racing to deploy their own gigabit networks in Chattanooga to compete.

The residents of Cleveland without broadband today probably won’t have it tomorrow or anytime soon. Many are hoping the Tennessee legislature will relent and let EPB solve their broadband issues once and for all. Cleveland resident Aaron Alldaffer is trying to help gin up interest in a renewed legislative push for EPB Fiber expansion with a Change.org petition.

The BBC World Service Global Business program visited Chattanooga in May 2016 to explore EPB Fiber and discuss its implications. (29 minutes)

You must remain on this page to hear the clip, or you can download the clip and listen later.

America has a new second largest cable conglomerate with 17 million customers and a new name.

Charter Communications formally completed their $55 billion acquisition of Time Warner Cable and Bright House Networks today, creating a new cable giant that more closely rivals number one Comcast in size and scope.

The approval came despite warnings from a team at the FCC assigned to review the impact of the merger.

The Deal is Likely to Trigger an Abusive Money Party at the Expense of Customers… Merger Approved

“We conclude that the transaction will materially alter [Charter’s] incentives and abilities in ways that are potentially harmful to the public interest,” an FCC report about the impact of the merger states.

The FCC concluded the deal could become an enormous money-maker for Charter and its investors through the eventual metering of online usage. There are strong incentives, according to the FCC, for Charter “to impose data caps and usage-based prices in order to make watching online video more expensive, and in particular more expensive than subscribing to a traditional pay-TV bundle” after its voluntary commitment not to impose data caps expires.

Existing Charter customers warn this isn’t the cable company you are looking for.

The FCC is also certain Charter will enjoy considerable pricing power with its near broadband monopoly at speeds of 25Mbps or higher. That means one thing: substantial rate increases unchecked by competition.

Despite the gloomy prospects, FCC commissioners found a “compromise” that will impose consumer-friendly conditions on the merger, but will expire between 5-7 years from today. After that, in the absence of robust competition from a player like Google Fiber, it will be open season on broadband customers.

Consumer advocates were less than pleased.

“There’s nothing about this massive merger that serves the public interest. There’s nothing about it that helps make the market for cable TV and Internet services more affordable and competitive for Americans,” said Free Press president and CEO Craig Aaron. “Customers of the newly merged entity will be socked with higher prices as Charter attempts to pay off the nearly $27 billion debt load it took on to finance this deal. The wasted expense of this merger is staggering. For the money Charter spent to make this happen it could have built new competitive broadband options for tens of millions of people. Now these billions of dollars will do little more than line the pockets of Time Warner Cable’s shareholders and executives. CEO Rob Marcus will walk away with a $100 million golden parachute.”

In fact, the golden parachutes will extend far beyond retiring Time Warner Cable CEO Rob Marcus. According to a regulatory filing, Marcus’ contract was written to allow him to sell the company and effectively be “terminated without cause,” which activates the equivalent of a Powerball Powerplay. Marcus will automatically qualify to receive several years’ worth of his original salary, expected bonuses, and compensation in stock for showing himself to the exit. That alone is expected to exceed $100 million. Marcus’ ancillary benefits also add up, and will be eventually disclosed in future filings with the Securities & Exchange Commission.

Marcus’ colleagues won’t leave empty-handed either. The chief operating officer and chief financial officer of Time Warner Cable could each get $32 million in compensation. The general counsel of Time Warner will retire with around $22 million and some mid-level executives could leave with around $18 million each.

Familar names on Wall Street will also enjoy proceeds worthy of Donald Trump Lotto. Everyone’s favorite financial casino Goldman Sachs is sitting pretty with millions in fees advising Charter on both its acquisitions of Bright House and Time Warner Cable. UBS helped lead the financing of the whopping $55 billion deal on behalf of Charter and is the sole financial adviser to Advance/Newhouse, which owns Bright House. That means big bucks for the Swiss bank.

The Small Swallow the Big

Charter was a much smaller, and not well-regarded cable company before it financed the acquisition of two of its non-competing rivals. In fact, Time Warner Cable was already the country’s second largest cable operator before the acquisition, and Charter will have to contend with managing a cable operator much larger than itself. Charter executives have hinted it will take many months to manage that transition, with the eventual retirement of both the Time Warner Cable and Bright House brands, in favor of Charter and its Spectrum product suite.

Those not already Charter customers will be subjected to a publicity campaign to manage the introduction of Charter in the best possible light, despite the fact current Charter customers rate the cable operator as mediocre in consumer surveys. Its reputation is well-known, especially in the middle of the country where many Charter systems operate.

Charter will continue to be led by CEO Thomas Rutledge, who will also hold the titles of president and chairman of the board. But the man behind-the-scenes expected to have a substantial amount of influence in how Charter is run in the future is ex-Tele-Communications, Inc. (TCI) CEO Dr. John Malone through his entity Liberty Broadband, which will control three seats on Charter’s board of directors, including one for Malone himself. Malone advocated for Rutledge to become CEO of Charter after the cable company emerged from bankruptcy reorganization in 2009.

How to Remake Your Image: Change the Name

Renaming Time Warner Cable isn’t likely to fix the scandalously low regard its customers hold the company. But it couldn’t hurt either.

“It’s not surprising Charter wants to rebrand Time Warner Cable,” said David VanAmburg, managing director of the American Customer Satisfaction Index, which regularly rates Time Warner Cable (and often Comcast trading places) the worst companies in the country. “Charter has scored better than Time Warner Cable in recent years, so it could bode well for Time Warner Cable customers. But the data suggests leaps-and-bounds improvement could be difficult.”

ACSI graded Charter 57 in 2015. Time Warner Cable managed a 58 — both effectively failing grades on a scale of 0-100.

What kinds of services Charter is now compelled to offer is dependent on the state of the cable system serving each area and if regulators extracted concessions on the state level to guarantee better service. The state that worked the hardest to compel upgrades and insist on a more customer-friendly transition is New York, where the Public Service Commission forced concessions to upgrade all of the state and allow customers to keep their current Time Warner Cable plans if they wished.

“On Day One, customers of (Time Warner) won’t really see any changes,” Charter spokesman Justin Venech told the Albany Times Union. “Time Warner Cable and Charter Spectrum will continue offering their current suite of advanced products and services to customers in their markets.”

“As we go all digital market by market, we will launch the Spectrum brand product, pricing and packaging, and Charter will also launch Spectrum in those markets in which (Time Warner has) already gone all digital,” Venech said. “We will be communicating directly with customers, letting them know when they will start seeing the Spectrum brand. In addition, when our Spectrum packages launch, if a customer likes the package they are currently in, they will be able to stay in that package.”