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Cable Legislation Gaining Support

May 12, 2003  •  Post A Comment

Upset about escalating programming costs, major cable TV operators last week publicly embraced proposals that would give cable subscribers far greater leeway to determine the programming they receive and pay for-even if legislation is needed to force the revolutionary change.
“Soaring programming costs are driving up cable prices,” said Jim Robbins, president and CEO of Cox Communications, at Senate hearings last week. “Let’s let the consumer choose whether they want to pay for that high-priced service.”
Added Chuck Dolan, chairman of Cablevision Systems, “Let the customer decide.”
In the multiple system operators’ gun sights is the tiering system that the industry for years has been using to require subscribers to pay for take-it-or-leave-it packages of programming.
Skyrocketing Rates
The system has come under increasingly heated attack recently because cable subscription rates have been rising at almost three times the rate of inflation since 1996-and cable operators have been pinning much of the blame for the increases on escalating programming costs.
Cable operators say they are particularly concerned because owners of popular programming require systems to carry their networks on the enhanced basic or basic tiers as a condition of carriage. That stipulation, according to the operators, leaves them little choice but to pass along the additional costs to their subscribers. Unfortunately, according to the operators, it is the operators that are blamed for the increases.
Until now, much of the industry grousing about programming costs and the discussion about retiering schemes has been going on behind closed industry doors, and talk about potential legislative solutions has largely been anathema.
Industry sources said, however, that the fact that ESPN, already the cable industry’s most expensive basic network, was jacking up its price by 20 percent this year forced the issue into the public arena.
At the hearings last week, Mr. Robbins and Mr. Dolan made clear that a legislative fix might be needed.
“I would like to see the marketplace work, and if the marketplace isn’t working, then we’re in a position where we’re going to have a train wreck, and I would not like to see a train wreck,” Mr. Robbins said, in response to Sen. John McCain, R-Ariz., who asked to whether legislation was necessary.
Added Mr. Dolan, “It really begins with the program vendors. If the program vendors are prevented from denying their programs to the cable operators unless he [the cable operator] requires all of his customers to buy that programming, you have immediately set the market free.”
Mr. Robbins specifically advocated a change in current practices to enable Cox to shift to an optional service tier any network that charges more than $1 per subscriber per month.
Mr. Robbins also said that while sports programming is cable’s most expensive, Cox’s research has shown that only 20 percent of its customers are “avid” TV sports viewers.
“If operators had the flexibility to sell these networks-sports channels or others-on an optional tier, consumers would gain an opportunity to manage their cable expenditures by choosing whether or not to buy certain programming,” Mr. Robbins said. “Likewise, programmers would be motivated to keep their prices reasonable to remain on expanded basic cable lineups.”
Mr. Dolan recommended that the ground rules be modified to ensure that “no program vendor may demand as a condition of carriage that a cable operator may require all his customers to buy that vendor’s programming. “
Another high-profile industry witness at the hearing-Leo Hindery, chairman and CEO of the YES Network-was also advocating legislation. But his preferred measure would beef up industry access regulations to guarantee that cable TV operators can’t discriminate against independent programming services such as YES.
“I find myself today deeply concerned about the future of independent programmers, which do not have ready access to multichannel distribution simply because they are not vertically integrated,” said Mr. Hindery, former CEO of AT&T Broadband and TCI.
ESPN, according to a spokesperson, was not invited to testify.
But in a statement, George Bodenheimer, president of ESPN and ABC Sports, said, “Ripping ESPN and other popular networks out of basic cable and charging more for them is not pro-consumer. This would produce a firestorm of protest from cable subscribers. With cable at $40 and the net cost of ESPN at about $1, there is no basis to take that step.”
(The actual cost of ESPN to cable operators is said to be going up to about $2 per subscriber per month. ESPN estimates the net cost at $1 after subtracting the revenues operators are expected to get from local ad sales.)
In his statement, Mr. Bodenheimer also said that cable operators pay about $11 per month per subscriber in total programming license fees, while the average cost of expanded basic service to the consumer is about $40.
“By focusing only on the cost side and ignoring revenue directly and indirectly associated with ESPN services they are trying to use programmers in general and ESPN in particular as the scapegoats to justify their retail price increases and preserve their high margins,” Mr. Bodenheimer said.
“Our affiliates negotiated and freely signed agreements with our current rate provisions because they recognize and receive tremendous value in exchange,” Mr. Bodenheimer added. “In calling for regulation, they are looking for the government to give them leverage in private contract negotiations.”
An aide said Sen. McCain isn’t planning to introduce legislation to curb cable rates until after the General Accounting Office releases its official report on the causes of cable rate increases in October.
But at last week’s hearing, Sen. McCain said, “I fail to understand why any customer should be forced to pay for programming they do not want.”