(By Cecilia Kang,
Washington Post, 19 March 2013)
Cable
viewers have long complained about paying ever-higher bills for hundreds of
channels they don’t want to watch. Now, in a twist, some cable companies are
beginning to agree. Verizon
and Cablevision
are publicly pressing media companies that own the programming to stop pushing
them to distribute unwanted channels and instead offer cable bundles based on
what viewers actually watch. If
successful, the efforts could lead to cheaper options for consumers and a
sea-change in how the television industry has done business — and protected
its profits — for more than two decades.
Such change has become necessary, Cablevision and other
cable companies argue, as more Americans cut their cable cord in favor of
cheaper Web-based video provided by Netflix,
Apple
and Amazon.com.
Today, 5 million households get their television solely from the Internet,
up from 2 million in 2007, according to Nielsen. But Hollywood and media companies have said
that breaking up the bundles would lead to the demise of smaller niche
programming that does not have mass market appeal. Analysts say it is too early to tell whether
the spat between cable firms and their media partners will lead to lower bills
or the long-sought goal of consumer advocates: a la carte TV. Even the federal
government has failed in its efforts to persuade the television industry to
charge viewers only for what they watch.
The dispute is being closely watched because it has broad
implications for consumers, as well as for the way television is funded and
created. “This is the beginning,” said
Gene Kimmelman, a former senior antitrust official at the Justice Department.
“If the conflict between cable distributors and content owners persists and
prices keep rising, there will be enormous market pressure to begin unbundling
offerings, give consumers more choices and, from my perspective, ultimately let
consumers control what they buy and how much they pay.”
Late last month, Cablevision took its case to a federal
court in New York, suing Viacom
— owner of Comedy Central, MTV and Nickelodeon, among other programming — for
forcing the cable company to buy and distribute 14 channels that are hardly
watched (including VH1 Classic and Logo). The penalty for not carrying those
channels is more than a $1 billion. The suit was cheered by a host of
other cable providers, including Time
Warner and DirecTV. “This anti-consumer abuse of market power is
a key reason cable bills continue to rise and programming choice remains
limited,” Cablevision said in a news release.
Verizon, the nation’s sixth-largest cable television
provider, says it has the technology to measure exactly what people are
watching. While it is not part of the lawsuit, the company said it is trying to
negotiate new contracts that would allow it to pick and choose which channels
it wants to distribute through its Fios service. “The fact that these cable companies are
coming out publicly about their disputes with programmers [is] in itself
significant,” said David Kaut, an analyst at investment research firm Stifel
Nicolaus. “These developments hold some potential for disrupting current cable
TV bundling, and more generally, I suspect the drip, drip, drip of broadband
Internet video developments will put market pressure on the bundle over time.”
Verizon would not say how the new approach would ultimately
impact consumer bills. “The idea of
trying to tie content costs to people who watch it makes sense, and that is the
gist of this,” said Bob Elek, a spokesman for Verizon, whose Fios service
reaches 4.7 million customers. In a statement, Viacom said, “Cablevision is crying foul
over a standard business practice that expands choice and lowers cost for
consumers — a practice they use extensively to sell their own services.” Viacom and other media companies have argued
that bundling allows creative minds to start new programming with less risk.
The approach seeded channels such as the Food Network and Bravo, which
eventually produced the “Real Housewives” series.
The offerings on television now seem endless. On average,
consumers watch five to 10 channels regularly, said Jeffrey Kagan, an
independent telecommunications analyst. But a cable service can easily pump
more than 1,000 channels into the living room. Meanwhile, bills have tripled in
cost over the past decade. Streaming-video
services offer more-limited programs at a lower cost and have a growing appeal
for younger audiences. In the last three months of 2012, Netflix,
the leading streaming-video provider, added 2 million subscribers,
bringing its total to 27.5 million. Meanwhile, Comcast,
the nation’s largest cable operator, saw the number of subscribers drop to
21.9 million at the end of 2012, compared with 22.3 million at the
end of 2011.
Upstarts such as Aereo
are offering live television through streaming Web connections. The practice has
drawn the ire of companies such as News
Corp., which owns Fox, and Walt
Disney, which owns ABC. They and other media firms are suing the company in
federal court, accusing it of copyright infringement. Founded by IAC/InterActiveCorp
founder Barry Diller, New York-based Aereo serves more than a dozen markets and
won a first round of court battles. “Aereo
is very interesting and could be very disruptive because young people are not
as wedded to the cable bundle and increasingly used to getting entertainment
online,” said Andrew Schwartzman, a telecom media lawyer. But Schwartzman cautioned that consumers
should not expect cable companies to loosen their grip on their pay models too
quickly. And traditional television, for now, still has appeal. “Just watch, two weeks from now, when the NCAA
tournament heats up . . . there will be another reminder of the pull
traditional TV has and what a long way there is to go for changes in the industry,”
he said.
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