D.C., Industry Scrutinize Family Tiers

Dec 19, 2005  •  Post A Comment

The cable TV industry’s commitment to create new family-friendly tiers of programming appears to have won the industry a reprieve from a wider legislative effort to crack down on off-color fare.

But Washington insiders, activists, cable industry executives and Wall Street analysts all voiced concern last week that the reprieve could be short-lived due to potential complications associated with getting family tiers off the ground.

“The American family is going to decide whether that’s enough, and if it’s not enough, they’re going to come back at us like a roaring train,” said Sen. Ted Stevens, R-Alaska, the influential chairman of the Senate Commerce Committee.

Among the reasons insiders and analysts gave last week for their skepticism about the family tier idea are questions about the allure and logistics for the consumer, the general economic and contractual plausibility for multiple system operators and cable networks and the reality that tiers-including a family-oriented tier on satellite-have failed before.

One cable network executive who requested anonymity said most of the multiple system operators offering the family tier are doing so only to keep Washington off their backs-not because it’s good business.

“I don’t think anyone thinks this is a great idea or that it’s that big a consumer proposition,” the executive said.

The first cable industry family tier that popped out of the box last week-a 15-channel offering from Time Warner Cable-was panned by the Parents Television Council, the watchdog group widely credited for stirring up much of the fuss about indecency at the Federal Communications Commission and on Capitol Hill. The PTC criticized the new Time Warner tier as not including enough channels.

“It is perfectly obvious Time Warner is deliberately offering a product designed to fail,” PTC President L. Brent Bozell said in a statement, contending that Time Warner’s new tier is missing ESPN, Fox News Channel and more than 20 other networks that parents would expect to be included on a family tier.

“This is a very bad joke,” Mr. Bozell said. “I bet you couldn’t find five employees of Time Warner who would subscribe to this foolishness for their own families.”

The cable executive said execution of family tiers is going to be complicated because every TV set will need a digital box. “I don’t think there will be people taking [the tier package],” the executive said.

In a public session with Sen. Stevens and other key lawmakers early last week, Kyle McSlarrow, president and CEO of the National Cable & Telecommunications Association, said that Comcast, Bresnan Communications, Advance/Newhouse Communications, Midcontinent Communications and Insight Communications are considering launching family tiers early next year.

But as of deadline, representatives of those companies had yet to go public with their plans.

In terms of the business impact of family tiers, Wall Street analysts are reserving judgment, though many analysts warned that this latest strategy faces the same sort of challenges that a la carte proposals have faced, including buy-in from programmers and an unknown level of demand from consumers for such a service.

Furthermore, most cable executives and analysts agree that for cable operators to maintain current revenue levels under an a la carte scenario, MSOs would have to either charge consumers substantially more for the same number of channels currently available or offer subscribers far fewer channels to keep cable rates where they are today.

“It’s still too early to say [whether the family-friendly tiering will work],” said Craig Moffett, cable analyst at Bernstein Research. “A lot would depend on how many people took the tier, and how many take the tier in the end will depend on what [the cable operators] charge for it. … I think it’s fair to say a family tier means a lot fewer channels for a little less money [than what cable customers currently pay].”

The family-friendly tiering issue might also cast a spotlight on the stark differences between smaller cable operators and larger players.

Matthew Polka, president of the American Cable Association, which has as members small and midsize cable operators, said some of his member operators could face challenges if they are forced to offer a family-friendly tier.

The reason: It could be three to five years before many of the ACA members have fully rebuilt their cable plant for digital, which is a big problem if the tiering proposal assumes the tier would be offered on an all-digital platform.

What’s more, smaller operators might have a tough time overcoming programmer resistance to such a plan-something a larger operator could more easily address given its size. Furthermore, like other a la carte proposals, family-friendly tiers could be costly to implement, particularly for smaller operators.

That said, Mr. Polka noted that many smaller operators are in markets where indecency worries run high, and many operators would like the option of offering expanded basic packages that didn’t feature some of the more controversial cable networks.

Tiers might also affect networks differently depending on their size.

“A bigger network like a TNT or a TBS that has programming that might not be viewed as family-friendly, I think those networks would probably argue against any kind of tiering,” said Brad Siegel, vice chairman of Gospel Music Channel. “They need to be broadcast basic, or [on the] most widely offered tier. They can’t afford to lose any homes. It would have a dramatic effect on their economics and their profitability.”

But for a growing network like Gospel Music Channel, family tiers could present an opportunity for increased carriage, which the network would welcome. “We’re the only music television network that truly appeals to different demographics within a family,” Mr. Siegel said. “It is inherently safe for the whole family” and contains no objectionable content, he added.

At this point, the license fees paid to cable networks for being on the family-friendly tier are likely to be the same as those paid for the normal tiers. There are few contractual problems as long as the family-friendly tier has low penetration.

As it gets bigger, however, or if penetration of expanded basic drops, it might create conflicts with existing contract language about which tiers networks can be on. But the networks that would be included in a family-friendly tier would remain available to viewers who take the regular expanded basic or digital basic tiers.

Consultant Cathy Rasenberger, president of Rasenberger Media, said having more small tiers generally is not a solution for programmers. “Every time you slice and dice tiers, penetration diminishes,” she said. “It’s the death of a programming service to be placed in a small tier.”

Also auguring ill for the tier’s prospects is that so few of DirecTV’s customers subscribed to its family-friendly package several years ago that it ultimately folded it into a larger package that didn’t pretend to be family-friendly.

A DirecTV official said the company is looking at its options and might again offer a family-friendly programming tier, though no decisions have been made as to if or when such a package would be offered.

It was unclear at deadline just how long Sen. Stevens, who wields considerable influence over media-related legislation in the Senate, will give the cable TV industry to try to prove its new initiative.

He made clear that he expects an industry progress report by Jan. 19, when the committee has scheduled hearings to consider what to do about pending legislation to crack down on indecent programming. However, word that the cable industry is considering family tiers and working to promote the TV industry’s ratings system was enough to earn at least a temporary legislative pass from him.

“We have to give it a chance to work and see if it works,” Sen. Stevens said.

Among the key indecency-related b
ills pending before the Senate is one that would require cable and satellite TV operators to offer family-friendly tiers. Another would raise the cap on fines for broadcast indecency violations from $32,500 to $325,000.

“As far as I’m concerned, none [of the pending bills] have enough support for us to move as long as this process is going on,” Sen. Stevens said.

In a public briefing for lawmakers last week, Jack Valenti, former chief of the Motion Picture Association of America, said broadcast and cable TV industry leaders had agreed to renew their commitment to educating consumers about the v-chip and other blocking technologies that allow parents to control what their children see and hear.

Mr. Valenti also said the industry does not plan to recommend a new ratings system for TV, but instead will promote what he called the “close resemblance” between the existing TV rating system-with its TV-Y, TV-Y7, TV-G, TV-PG, TV-14 and TV-MA-and the movie system’s G, PG, PG-13, R and NC-17 ratings.

“What we’re trying to do is make people understand the resemblance,” Mr. Valenti said.

In addition, Mr. Valenti said the industry plans to promote the idea that the v-chip and cable blocking technology give consumers “all the command they choose over what they want to see or not see.”

Mr. Valenti described PTC representatives and others who he believes have been stirring the anti-indecency waters as “people who really don’t want anything on television except Bible stories.”

Jay Sherman, Jon Lafayette and James Hibberd contributed to this report.

Time Warner’s Family Plan

A look at Time Warner Cable’s new Family Choice tier of family-friendly programming that will be available to Time Warner Cable subscribers by the end of the 2006 first quarter, according to Time Warner Cable.

  • Package includes 15 channels of programming that are considered appropriate for all viewing audiences.

  • Cost is $12.99 a month on top of the monthly rate for minimum basic cable service, which generally runs around $12 a month and includes 15 to 20 channels, including local broadcast stations, public and educational programming and government access channels mandated by local cable franchise authorities.

  • Channels included in the package: Boomerang, C-Span 2, C-Span 3, Headline News, The Science Channel, Discovery Kids, The Disney Channel, DIY Network, HGTV, Food Network, FitTV, La Familia, Nick Games & Sports, The Weather Channel and Toon Disney.

  • Subscribers to the Family Choice plan will be required to lease or buy a digital set-top box, which features an expanded range of parental controls, including the ability to block programming on the minimum basic tier based on time of day, rating and channel. -Jay Sherman