Broadband Cable Association of Pennsylvania


December 5, 2012

Consumers may want to pick and choose what channels they pay for but Time Warner Inc. Chairman and Chief Executive Jeff Bewkes says they don't know how good they have it under the current pay-television system. "I don't think it's desirable for consumers to break the bundle," Bewkes said in remarks at the UBS Media and Communications Conference in New York on Tuesday. "You end up paying more for less."

The bundle, which is industry lingo for how cable networks are packaged and sold to distributors and customers, has become a hot topic of late because of rising pay-TV bills. On Monday, Glenn Britt, the chief executive of Time Warner Cable, which is a separate publicly traded company, warned that he was looking to drop underperforming channels. "This stuff is just starting to cost too much. If we as a broader industry want to keep this going we need to get the prices of packages lower," Britt said.

The majority of cable networks are owned by a handful of media giants including Time Warner Inc., News Corp., Viacom and Walt Disney. Typically, these companies package all their channels together. While a pay-TV distributor may end up getting a discount on a highly rated channel through this method it also usually means carrying less popular channels as well. "They have to figure out who gets the money and who drives the value -- we think that's us," Bewkes said.

Time Warner's cable properties include TNT, CNN, TBS and TruTV. Bewkes reiterated that he expects "double-digit" rate increases in future contracts for those channels from distributors. TNT already gets more than $1 per subscriber per month from cable and satellite operators, according to SNL Kagan, an industry consulting firm. With regards to the issue of people watching less live television, Bewkes noted the number of consumers watching content on platforms other than television is growing and media companies are getting paid for it. "The monetization of the viewing is taking place even if the measurement hasn't caught up," Bewkes said. "This is supposed to be an erratic business of hits and misses -- well not for us." As for CNN, which last week named former NBCUniversal Chief Executive Jeff Zucker as its new worldwide president, Bewkes said the all-news channel needs to be "much more expansive" in what it covers and not "reduce news coverage to political subjects." Los Angeles Times

What do we want? Regulatory certainty. When do we want it? Now.

Such has been the chant of AT&T, which as the No. 2 telecom carrier has been trying harder on the regulatory front for a long time. AT&T threw down a gauntlet with its aborted and lamented T-Mobile deal. Going back to the days of Mike Armstrong, it threw down the gauntlet on maximum size for a cable operator (a business AT&T exited). It threw down the gauntlet on horizontal mergers in the 2000s between Baby Bells. AT&T's latest gauntlet is a proposal to phase out the old telephone network in favor of one using IP, or Internet protocol.

Not widely appreciated, AT&T, Verizon and other regulated operators are obliged to maintain the old phone service as long as customers want it, and to stand ready to provide a connection to anyone in their service territory who asks. These days that's not many: mostly the elderly and rural dwellers whose service has long been sustained by hidden subsidies possible only under a system of regulated monopolies. Coming soon: the death spiral, as fewer and fewer of these customers are left to bear the cost of maintaining the network. That's why AT&T has put before the Federal Communications Commission a plan to wean the country off POTS, or plain old telephone service, and retire the regulatory obligations that go with it.

To this end, the company announced last month that it was willing to extend its fixed broadband network to several million customers in its service territory who don't yet have access. That would still leave millions of customers within the footprint of AT&T's existing phone system where the business case (i.e., absence of profits) wouldn't justify extending the broadband network. For them, AT&T says the solution is to expand its 4G wireless network to the point where it will reach about 99% of customers. AT&T Chief Randall Stephenson maintains that, for much of small town and rural America, wireless can deliver a voice and broadband option better than what customers get from the copper network now. Hence AT&T's proposal to its regulator: Let us begin retiring bits of the old phone network under FCC supervision, so the agency can see that the wireless solution is a realistic solution for the vast majority of customers outside the fixed broadband footprint.

From certain blogging precincts, the reaction was instantaneous. AT&T is promoting "deregulation" (horrors). AT&T wants to "screw" rural customers. Cooler heads noticed that it would be insane to require the company to maintain a costly far-flung network used by a shrinking number who prefer to carry on like it's still the 1950s. And look at how AT&T's stock price reacted: Shareholders not only were conspicuously unthrilled about its plan to invest further sums in the fixed network, but also about spending billions to extend the wireless network to sparsely populated areas.

There's a lesson here. In the critics' magical thinking, the regulated phone companies should long ago have been required to wire every inch of the country with high-speed fiber-optics, never mind the unwillingness of customers to cover the cost of such services, especially when POTS at regulated prices was still available. Mr. Stephenson himself has made it clear that AT&T would rather just sell off its regulated phone territories the way rival Verizon has done. But those sales haven't worked out swimmingly for the buyers, so now buyers can't be found, and neither would regulators likely bless further sales.

AT&T's plan, then, amounts to a compromise: AT&T will spend several billion dollars making undesirable investments if Washington will relieve it of the unsustainable regulatory burdens associated with the old copper voice network. Nor was its proposal anything like unexpected. Washington has been mulling the necessity of phasing out POTS since the Bill Clinton administration. President Obama's own 2010 National Broadband Plan called for getting rid of the old system posthaste. Anybody who has not succumbed to narcolepsy at this point probably can also surmise the big sticking point: the 1% of customers in existing telephone service territories-several million households-who would lose POTS and get nothing, except possibly a very expensive satellite phone. AT&T, in its own filing, is nothing but frank. The government is going to have to meet industry at least halfway in figuring out how to handle those who would be left stranded if a competitive industry were to build out its wireless and fixed networks only where some reasonable facsimile of the profit motive dictates. But if Washington exhibits any quality, thankfully it's an alacrity to get ahead of problems it sees coming from a long way off. That was a joke. Expect this column, like an annuity, to come back virtually unchanged at regular intervals for the next decade or so. Wall Street Journal

Social-games provider Zynga Inc. and Synacor Inc. reached an agreement to make Zynga game currency available to pay-TV and high-speed Internet providers as part of their consumer bundles, a move that could reduce Zynga's heavy dependence on Facebook Inc. Zynga's shares, which are down significantly this year, were up 3.1% premarket at $2.30, while Synacor's were up 5.4% at $6.60.

Synacor is a behind-the-scenes technology company that provides authentication services and Web-based TV services to about 45 cable, satellite and telecom companies. The company says it reaches 24 million households through its customers. Starting next year, Synacor's customers will be able to offer their subscribers access to Zynga games from their home pages, and include Zynga's in-game currency as part of their subscription offerings. Zynga's in-game currency is used in the company's various games, such as FarmVille and Words With Friends, for enhanced game play and to unlock additional options. In another recent deal, Zynga in October sealed its first agreement to start offering gambling games that will let users cash out with real money, as the firm grasps for a new growth market amid recent turmoil. Zynga said it would partner with Digital Entertainment PLC to offer real-money poker and hundreds of casino-style games in the U.K. during the first half of next year. Zynga's stock sank last week after the company disclosed that it and Facebook are changing the rules of their relationship. Zynga disclosed that the two companies amended the terms of their agreement so Zynga can host its Web games outside of Facebook. The new pact also opens the door to Facebook producing its own games. Wall Street Journal