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Cable Technology Feature Article

August 10, 2013

Cable Technology Week in Review

By Tara Seals, TMCnet Contributor

This week, the user experience seems to be at the heart of cable and video industry news, whether it be new interfaces, talk about subscription costs and cord-cutting…or indeed, whether some users are even able to have a pay-TV experience at all.

To that last point, Time Warner (News - Alert) Cable and CBS show no signs of resolving their retransmission fee dispute, which has resulted in a blackout for consumers in eight markets, including the key markets of New York, Dallas-Ft. Worth and Los Angeles. In the wake of the blackout, CBS has in turn blocked access to full episodes on CBS.com for TWC subscribers. The situation isn’t ideal for anyone, but it’s had an interesting ancillary effect of creating a conversation around a la carte pricing. In an open letter this week, TWC chairman and CEO Glen Britt proposed an immediate restoration of carriage for CBS if the network would give TWC access to channels on an a la carte basis, so that TWC customers can pick and choose which channels to order. "Rather than our debating the point, we would allow customers to decide for themselves how much value they ascribe to CBS programming," Britt said.

CBS CEO Les Moonves dismissed the suggestion as “grandstanding,” and the discussions don’t appear to be getting anywhere, but it has reopened the conversation on how to bundle and price pay-TV in a way that makes sense for consumers and distributors alike.

The outcome of the TWC-CBS feud is important not only for cable customers in the affected areas, but also as a kind of litmus test for pay-TV as a whole when it comes to churn levels. Will TWC feel the wrath of customers who really, really want to avoid missing episodes of “Under the Dome?” It bears consideration considering that even without a blackout in place, second-quarter earnings results at DISH Network were disappointing. Subscribers were down over the second quarter to the tune of around 78,000 total— more than analysts thought. Citibank's Jason Bazinet expected Dish Network's churn rate to be 1.63 percent, while the actual rate was 1.67 percent. The satco also put up a loss of $11.1 million.

Overall, pay-TV uptake is slowly—but steadily—declining. In fact, only about 86 percent of U.S. households subscribe to a video subscription service provided by a cable, satellite or telco provider, according to the latest research from Leichtman Research Group shows. That’s down from the 2010 peak of 88 percent. While the 2 percent drop doesn’t seem like cause for the industry to start channeling Chicken Little, pulling the covers back on the research reveals worrisome stats. To wit: Nationwide, 20 percent of TV households with annual incomes less than $50,000 are non-subscribers, compared to nine percent with incomes greater than $50,000. And overall, about 42 percent of non-subscribing households use an over-the-top service, while the other 58 percent simply don’t watch TV at all.

Unsurprisingly, pay-TV operators are eyeing ways to reintegrate TV and video into people’s lives. Much has been made of social TV and the influence of talking with “friends” about what’s on linear TV, for instance: and this week, Nielsen released findings showing that increased Twitter (News - Alert) chatter about a show has a direct impact on broadcast TV tune-in for the program. That runs both ways, too: higher rated shows generate more tweets.  The findings show that live TV ratings had a statistically significant impact in related tweets among 48 percent of the episodes sampled, and that the volume of tweets caused statistically significant changes in live TV ratings among 29 percent of the episodes. As cable, satellite and IPTV (News - Alert) providers find more competition, the impact of retrans rows and general dissatisfaction with high pricing affecting their businesses, a savvy social media strategy could help stir up consumer engagement with programming as well as open up new advertising possibilities.

Canadian triple-play bigwig Rogers Communications (News - Alert) is meanwhile investing in amping up the subscriber experience to stave off churn, via what it calls its “next generation TV experience,” the NextBox 3.0. The combination DVR and set-top box gives consumers the ability to record up to eight HD programs at one time and store up to 240 hours of HD shows and movies. It also features whole home DVR capability, caller ID on the TV, a localized weather app and slow-motion playback. Users also have an option to pick Rogers Anyplace TV Home Edition, through which their NextBox 3.0 becomes a wireless TV, allowing viewers to navigate their cable guide, use a virtual remote, set PVR recordings and live stream channels from a tablet or smartphone. Pretty slick. Customers in Ontario will be the first to try the system out.

Meanwhile, as operators continue to slosh subscribers back and forth between their respective buckets—losing a few over the sides to cord-cutting in the process—an inevitable wave of consolidation may be upon us.

Our Gary Kim (News - Alert) postulates that the video distributor and TV broadcast station business is about to go through an unprecedented wave of mergers, driven in part by the implications of greater scale. And, it all goes back to those pesky retransmission fees, which are at the heart of the CBS-TWC throw-down. According to SNL Kagan, Fox, CBS, NBC, ABC, CW and Univision networks will make almost $3 billion in 2015 in retransmission consent fees. The networks will get about $1.7 billion in direct payments from their local broadcast affiliates. The broadcast networks also will get $1.3 billion in 2015 as their cut of fees that the video distributors (cable, satellite, telco) will pay the broadcast network affiliates, Kagan says. And all of those payouts are a significant factor in pushing up video subscription bills.

Total industry payments for retransmission consent are expected to more than double from $2.36 billion in 2012 to $6.05 billion by 2018, at which point such fees would amount to about 23 percent of total TV station revenue—and be passed along in greater subscription costs to end users.

Given the trends we’ve seen this week, it’s clear that video distributors have a long row to hoe to cultivate solid customer loyalty, and the seeds will need a complex array of nutrients—including lower prices, better user experiences, social integrations and innovative pricing plans, be it a la carte or something different still. A question remains as to whether revenue overall being threatened for video operators, and if so, what will that ultimately mean for the long-term viability of traditional TV and the prospects of its over-the-top (OTT) rivals.

The end of the boob tube is not yet upon us, however, not by a long shot. So for now, have a great weekend!

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