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)

For the last several years, cable subscribers have lamented that the advertised price of service falls short of the real “out-the-door” cost shown on one’s monthly bill.

Charter Spectrum is one of the worst offenders, having avoided to mention in its advertising the spiraling-upwards “Broadcast TV Fee,” applied without exception to cable television customers’ bills.

The “Broadcast TV Fee,” (recently increased to $11.99 a month) is compulsory for cable TV customers and subject to change, regardless if you have a “rate guarantee” with Spectrum or not. The fee is the same for new and old customers, regardless of any promotion, and it has not been well-disclosed in Spectrum’s print and online advertising. Only customers subscribing to one of Spectrum’s new streaming TV packages will get a break. One of Spectrum’s most advertised stream-only packages applies a $5/mo Broadcast TV Fee, less than half of what Spectrum charges traditional cable TV customers for the same local stations.

As of this month, Spectrum.com now includes the fee on its price quote system for customers looking for an estimated cost of service. It adds enough to put the monthly cost of cable TV above $60 for new customers (including the rental cost of one, now-mandatory, HD-set top box), despite the fact Spectrum advertises a rate of $44.99/mo for the first year of service. This reality might further aggravate cord-cutting or “cable-TV nevers” from considering bundling television service with Spectrum.

For its part, Spectrum explains the fee represents “a fee by the owners of local broadcast ‘network-affiliated’ TV stations (affiliates of CBS, NBC, ABC, Fox, and so on). This fee enables Spectrum to continue to offer these channels for our customers.”

But in fact, it is just another cost of doing business. Cable programmers also charge similar fees, and some — notably ESPN — charge more than many local stations do for cable carriage. Cable operators are trying to make a political statement about the high cost of cable carriage of local TV stations that viewers can watch for free over-the-air. But they are also trying to hide the true cost of cable television, sensitive to the fact many customers are reaching their limit on bloated TV packages of hundreds of expensive channels that mostly go unwatched. Sticker shock can only worsen cord-cutting and cause more to rule out new subscriptions to cable television, especially as cable operators continue to raise the price of broadband internet service at the same time.

Watson

Unhappy about your cable TV bill? Don’t bother complaining to Comcast, because the cable company is ready to tell you to take your business elsewhere.

New competition usually means those already in the business freshen their game, get creative, cut prices, or out-compete the competition with a better product. But Comcast plans to lose its restless cable television customers if they complain about the company’s prices for cable TV.

Dave Watson, president and CEO of Comcast Cable, told investors at the Deutsche Bank 2019 Media, Internet & Telecom Conference in Palm Beach the company is done handing out retention deals with cut-rate pricing to keep cable TV customers from leaving.

“[Comcast is] simply not going to chase unprofitable video relationships,” Watson said, noting with the growing number of new streaming video competitors, more and more customers are calling looking for better deals and threatening to cut the cord. Watson says Comcast is prepared to let them.

“Because of consumer choice, because of all this competition, we’re just not going to chase video [customers],” Watson repeated.

Comcast’s new “we don’t negotiate” attitude with its customers isn’t groundbreaking in the industry. Satellite providers and some cable companies like Charter/Spectrum have largely stopped negotiating with customers as well.

Some cable operators have intentionally avoided significant video price hikes in recent years, already sensitive to the cord-cutting calls that increase after each rate hike announcement. Others hide rate increases in surcharges, often for local TV stations or regional sports channels. For some companies, giving customers a better deal may even make their video pricing unprofitable.

To compensate for tightening margins on cable television, most providers have been significantly increasing broadband pricing in recent years, knowing broadband is one service customers are least likely to drop as a result of rate increases.

Although Spectrum Cable customers will face higher cable TV bills starting next month, the company’s shareholders are delighted, boosting Charter’s stock price more than $50 a share on the news.

Spectrum’s latest increase (the second in four months) of its Broadcast TV Surcharge will set a uniform national fee of $11.99 a month for all of its cable television customers.

In 2018, customers paid an average of $8.75 a month in local TV surcharges. But last November, Charter raised the surcharge to $9.95 a month. Now, just a few months into 2019, Spectrum wants another $2 a month — a 20% increase — to watch local television signals that are available for free to those with an antenna. That’s a steep increase for what began as a $2 surcharge for some customers starting in 2015.

Charter’s investors reacted positively to the latest rate hike, jumping the stock price from $289.91 a share to $340.95 — a $51.04 boost after the fee increase was first reported by the Los Angeles Times.

The new surcharge will be reflected on customer bills beginning as early as Feb. 21.

Charter blamed broadcasters for the “rapidly rising cost” of including local TV stations on the cable lineup. In a letter to some state telecommunications regulators, the cable operator claimed it would be inefficient to not raise prices.

Charter’s share price shot up on the news it was increasing its Broadcast TV Surcharge by 20% just four months after the last increase.

“Containing costs and efficiently managing our operations are critical to providing customers with the best value possible,” wrote Melinda Kinney, Charter’s senior director of government affairs for Charter’s Northeast Division. “Like every business, Charter faces rising costs that require occasional price adjustments.”

But many customers, especially those in marginal reception areas, are loudly complaining that Charter is raising its Broadcast TV Fee even as it drops regional over the air stations from its cable lineup. In 2017, Spectrum customers in western Massachusetts reported a gradual exodus of local TV stations from their lineup, starting with WWLP, the NBC affiliate in Springfield with strong local news coverage of the western half of the state. Today, Spectrum only provides western Massachusetts with a single NBC station — WNYT in Albany, N.Y., which keeps viewers up to date with the latest political machinations of the New York State legislature.

Next to go was Boston’s ABC affiliate, WCVB — airing the strongest coverage of local and state news of any ABC affiliate in the state. In its place, viewers now receive WTEN, the ABC station in Albany, which is covering Sen. Jim Tedisco’s support for splitting New York into two separate states — a ‘crucial’ issue for subscribers living in the Berkshires and beyond.

Other states facing “out of market” channel losses include Connecticut, California, Nevada, and Nebraska. Many of the affected stations were dropped as Charter upgraded its cable systems to all-digital television, perhaps counting on subscriber confusion amidst other changes to the cable system.

Barrett on Charter: “Greed”

The loss of local stations while rapidly increasing the surcharge for those stations has some people calling foul.

Massachusetts State Rep. John Barrett III (D-North Adams) called it “greed.” Charter mandates the Broadcast TV Fee be paid by all video customers, including those on “price locked” promotions. By breaking the fee out of the cost of the cable television package, Charter Spectrum gets to advertise packages to new and returning customers at a low cost, only to deliver bill shock when customers discover the surcharge, along with equipment and franchise fees, that collectively increases their total monthly bill.

As the second largest cable company in the country, Charter is estimated to be collecting an extra $211 million annually from its first increase in November 2018 and $391 million annually from the latest increase now taking effect. Together, that amounts to $602 million annually in new revenue starting in March. Charter will not disclose exactly how much of this money is paid to each local television station.

Charter also has a habit of boosting its set-top box equipment fees about $1 a month per box each year — an increase we are likely to see later this year, and the company already slightly increased prices for internet service late last year.

Charter executives told shareholders on its most recent quarterly results conference call that the company’s revenue increased 4.9% in 2018 to $43.6 billion. Combining that extra revenue with a $1.9 billion cut in upgrades for 2019 will allow the company to focus on additional share buybacks, increased payouts to Charter shareholders, and debt reduction.

At least six million Charter Spectrum customers could lose access to Tribune Media-owned outlets at 12:01 am on Jan. 1 because the two companies have yet to reach agreement on a retransmission consent contract extension.

Almost three dozen over-the-air stations are impacted, including WGN Chicago, WPIX New York, and KTLA Los Angeles. If the stations are blacked out, customers will also lose access to the hockey matches, NFL playoffs and NCAA basketball games aired on those stations.

“The NFL playoffs begin Jan. 5 and we want football fans in our markets to be able to watch these games and root for their favorite teams—we want to reach an agreement with Spectrum,” said Gary Weitman, Tribune Media’s senior vice president for corporate relations. “We’ve offered Spectrum fair market rates for our top-rated local news, live sports and high-quality entertainment programming, and similarly fair rates for our cable network, WGN America. Spectrum has refused our offer.”

Tribune-owned TV stations

Charter Communications claims it is working hard to find a fair agreement with Tribune, which will likely include a significant rate hike with the broadcast station owner that will eventually be passed on to Spectrum subscribers as part of the Broadcast TV surcharge, now approaching $10 a month in many areas.