Broadband Cable Association of Pennsylvania


April 10, 2012

The Federal Communications Commission will restore local regulation of basic cable rates in Boston in response to the city's argument that there's a lack of competition among local cable providers, Mayor Thomas M. Menino's office said in a release Monday. The agency had eliminated regulation of basic cable rates in Boston in 2001, according to the release. "We're pleased that the FCC recognizes what we've been saying all along - cable isn't competitive in Boston," Mayor Menino said in a statement.

In a statement, Comcast said it "faces real competition every day in Boston," and that it would appeal the FCC action. "We plan to refile as soon as possible as provided under the FCC Order," the company's statement said. "Importantly, Boston cannot re-regulate until the Commission acts on that filing."

Menino filed the petition requesting the FCC restore regulation of the rates last year in response to rising prices. The mayor repeated his request to reinstate regulation of basic cable rates in January, after it was revealed that Comcast Corp., overwhelmingly the city's largest cable provider, was planning to raise basic cable rates by nearly 5 percent to $16.58 a month. Basic cable rates in the city had risen 80 percent in three years.

About 15,000 of Comcast's Boston customers receive basic cable service, which delivers about two dozen channels, including local network affiliates, public television stations, and a handful of lesser-known channels, such as community access and municipal providers. Comcast has 1.8 million customers in Greater Boston and 165,000 customers in the city. By comparison, the city's other cable provider, RCN, serves 61,000 customers in Massachusetts and around 16,000 in the city. Boston Globe

While subscriber growth is slowing for cable television companies, the cost of content continues to rise. According to a new report from Nomura Equity Research analysts, the money that distributors such as Comcast Corp. and Time Warner Cable shell out for programming rose 8.2% in 2011 and is likely to jump 8% in each of the next two years.

Although the typical cable household gets more than 100 channels these days, most of those channels are owned by a handful of companies including News Corp., Time Warner Inc., Comcast, Discovery Communications, Viacom and Walt Disney Co. Overall, cable and satellite companies coughed up $33.5 billion to content providers in 2011. Walt Disney Co., parent of ESPN and Disney Channel, two of the most expensive cable channels, accounted for almost 25% of that $33.5 billion, according to the report. ESPN, of course, spends very large sums on sports rights, including the National Football League.

Time Warner, parent of TNT, TBS, CNN and HBO, received 21% of the overall spending. Comcast, which owns USA, MSNBC and Bravo, accounted for 16%. News Corp., whose holdings include Fox News and FX, had a 14% slice of the pie. Combined, those four companies account for 75% of cable programming costs. Cable programming isn't the only cost that is increasing. Broadcasters such as CBS, News Corp.'s Fox Broadcasting, Comcast's NBC and Disney's ABC are now getting fees from cable and satellite operators as well. Nomura said that in 2011, the big four broadcast networks took in almost $400 million in so-called retransmission consent fees, more than twice what they made in 2010. In 2012, the figure is expected to double again to $750 million. Nomura said Fox and CBS are the most aggressive among broadcasters. Los Angeles Times

Peruse Netflix's catalog of DVDs, and you'll find just about any movie or TV series you want. Look for many of the same titles in Netflix's Internet video library, and prepare to be exasperated. It's a problem that Netflix is unlikely to solve anytime soon. Despite an expensive expansion, Netflix's online video selection remains inferior. Netflix offers more than 60,000 titles that can be viewed on Internet-connected devices, while its DVD-by-mail service has more than twice that -- some 140,000.

Competitive tensions and Netflix's own financial limitations account for the huge disparity. No matter how much Netflix Inc. is willing to pay for the rights, some online video remains off-limits. Major movie studios are refusing to license the rights to most of their latest movies at the same time they're released on DVDs. Premium cable channels such as HBO and Showtime also are withholding their most popular series, including "Game of Thrones" and "Dexter," because they are worried about losing subscribers if the content is available on Netflix's less expensive Internet service.

The mere $8 per month that Netflix charges for unlimited online viewing is one of the main reasons the service has attracted more than 23 million streaming subscribers, out of a total of 26 million. The expanding audience, in turn, is causing studios to demand higher fees for video that they are willing to license to the company. Studios know Netflix is getting a bargain, says Wedbush Securities analyst Michael Pachter. Netflix's streaming subscribers watch an average of 30 hours of Internet video each month, which works out to just 27 cents per hour.

The Internet video library already is far more appealing than it was five years ago, when it opened with just 2,000 titles -- mostly obscure TV series and movies that many subscribers had seen years ago. The streaming catalog now features recent seasons of many acclaimed TV shows, including "Mad Men" and "The Office," and exclusive series such as "Lilyhammer." Coming attractions include "The Artist," winner of this year's Oscar for best picture, and another original series called "House of Cards" starring Academy Award-winning actor Kevin Spacey. Netflix also has struck a deal to revive the critically acclaimed TV series, "Arrested Development," which last aired in 2006.

As it is, Netflix has already agreed to pay about $4 billion in licensing fees during the next few years. CEO Reed Hastings foresees spending billions more. Netflix might be able to afford to buy even more online video if it raises its prices, but that's a strategy the company says it won't pursue following a customer backlash over last summer's rate increase of as much as 60 percent in the U.S. For now, Netflix is trying to showcase the material already available in its online library by fine-tuning its recommendation system. Pachter believes there is only so much that Netflix will be able to do to conceal the weaknesses in its Internet library.

In particular, he believes the recent loss of the streaming rights to movies and TV shows from Starz Entertainment will cost Netflix some subscribers. The Starz contract expired Feb. 29, depriving Netflix's streaming library of popular fare that included recent movies from Walt Disney Co. Netflix had been paying an estimated $30 million annually; Starz is believed to have demanded as much as $300 million a year to renew. Although Netflix downplays the loss of the Starz content, Pachter likens it to a cable-TV system losing the Fox network and such popular shows as "American Idol." "I think Netflix has underestimated the intelligence of consumers," Pachter says. "They seem to think all content is fungible, but I don't think consumers will see it that way." Associated Press

AT&T Inc. (T) said it planned to sell a majority stake in its Yellow Pages business to private-equity firm Cerberus Capital Management LP for $950 million in cash and debt, shedding one of its legacy businesses as wireless profits boom. The telecommunications giant will receive $750 million in cash and a $200 million note from Cerberus, while retaining a 47% ownership stake in the new entity, called YP Holdings LLC. AT&T's Yellow Pages business--which includes the printed directories as well as the website and a local advertising network--saw revenue drop 30% over two years to $3.3 billion in 2011.

AT&T is turning its attention away from its traditional businesses, which are contracting as more consumers switch off their home phones in favor of mobile devices and wireless Internet. Web services, such as Google Inc. Yahoo Inc. and others, have largely replaced the once-ubiquitous yellow phone books for consumers seeking businesses and other directory information. "This will allow AT&T to focus on its core businesses," said a spokeswoman. Operating revenue at AT&T's wireline unit declined 2.5% to $59.8 billion last year, while the wireless unit boosted sales 8.1% to $63.2 billion.

Pending a review by the U.S. Justice Department, the deal is expected to close midyear, and AT&T expects the sale to have a minimal effect on 2012 earnings. The company took a $2.9 billion charge in January to reflect the declining value of its Yellow Pages business, and said Monday that the sale would have a minimal impact on 2012 earnings. Cerberus said in a statement it would "explore new avenues of online and mobile growth" for the unit, which has about 8,400 employees, without giving specifics. Roughly half of the Yellow Pages workers are unionized.

The Wall Street Journal in March reported that AT&T was in talks to sell a majority stake in the Yellow Pages business to Cerberus, citing people familiar with the matter. Private-equity firm TPG also had held talks with AT&T about buying the business, the people said. AT&T had sought to boost interest in its website by installing an application on many of its handsets and by introducing a daily deal coupon section in the middle of 2011. Randall Stephenson, AT&T's chief executive, said in January the company was also considering selling its rural access lines business. Shares recently slipped 32 cents to $30.62. Wall Street Journal

Republican front-runner Mitt Romney's presidential campaign told stations across Pennsylvania to pull a television ad targeting rival Rick Santorum while he tends to his ill daughter. The ad was to begin airing Monday as part of a $2.9 million advertising buy in Philadelphia, Erie, Scranton and Altoona. It focused on Santorum's record as a U.S. senator from Pennsylvania and his loss to Democrat Bob Casey Jr. in 2006. Romney spokeswoman Andrea Saul said the campaign instructed stations to pull the ad "until further notice" and sent another ad to take its place.

Santorum's spokesman, Hogan Gidley, said in televised interviews that Bella Santorum's condition had improved and the family hoped doctors would discharge her yesterday. "She's on the road to recovery," Gidley said. Isabella was born with an often fatal chromosomal disorder, Trisomy 18, which delays development and causes medical problems. She entered the hospital on Friday for the second time this year. Santorum planned to resume campaigning today with a rally in Bedford County and event in Lancaster. Gidley said he would not do so, however, if doctors kept Bella hospitalized. Pittsburgh Tribune-Review; update in Harrisburg Patriot-News