Broadband Cable Association of Pennsylvania


July 3, 2013

"To pour forth benefits for the common good is divine" was the motto for the nation's first subscription library established in 1731.

More than 250 years later, libraries of all kinds still provide benefits for the common good. Similarly, television audiences across America can access fantastic cable and satellite TV subscription libraries - offering something for everyone - available at just about the price of a daily cup of coffee. Viewers can "surf" hundreds of channels from the comfort of their homes, much like visitors to traditional brick-and-mortar libraries can browse shelves to explore and discover ideas and cultures to which they've never been exposed. But Sen. John McCain (R-Ariz.), who detailed his views on cable TV pricing in a May 22 Times Op-Ed article, would transform subscription-based television viewing from browsable libraries to "have it your way" drive-thrus offering homogenized, less-is-more programming options. Not only that, but the popular mythology McCain repeats that this would result in reduced costs for TV viewers is not true.

For almost a decade, McCain has attempted to get Congress to pass laws that would require cable and satellite distributors to sell programming on a per-channel - or a la carte - basis. His most recent legislative proposal is the Television Consumer Freedom Act (TCFA). McCain's consumer-first rationale contradicts studies from many industry analysts who conclude that a la carte rules would send channels featuring diverse voices to the digital graveyard and cost consumers more money per month for far fewer viewing options.

Cable and satellite operators provide a powerful distribution platform to channels that would otherwise receive little attention. The business model for pay television is based on programmers' and distributors' ability to provide subscribers with a wide range of programming options, taking advantage of the economies of scale that result from distributing a channel to more than 100 million households rather than, for example, the 6 million customers who may be in a particular ethnic or socio-economic group. Broad distribution allows niche networks an opportunity to be discovered and find an audience slowly and organically, which enables them to attract advertising dollars and recoup the costs of producing high-quality programming for a national audience.

This model has contributed to the growth of culturally diverse channels, such as TV One, Nat Geo Mundo, Discovery en Espanol, the Africa Channel and others. It has empowered the cable and satellite industry to emerge as a provider of highly diverse programing with a wide range of voices. However, suppose that TV One or Nat Geo Mundo were distributed only on an a la carte basis, to subscribers who knew they wanted those channels. They would face an uncertain fate if they were forced from the current distribution model - which places them in tens of millions of households for pennies per viewer - to one that would expose them only to consumers who were willing to pay considerably more for the channels.

How many subscribers would add such programming after they had already made their initial selections? At the Minority Media and Telecommunications Council, we believe that the same principles that guided the creation of the nation's first subscription library should guide those who influence the availability of subscription-based television video "libraries." If traditional libraries operated a la carte, they'd only need drive-up windows. Readers could order books they'd already heard about, far fewer books would be written and published, and most books would be mass-appeal titles. Our nation would be much poorer intellectually and culturally.

That's why a la carte isn't just a "technical" television issue. It can determine whether minority voices and diverse information will have an opportunity to reach the cultural and intellectual heart of our nation - David Honig, president of the Minority Media and Telecommunications Council, in a Los Angeles Times op-ed

Pay-TV looks ripe for some tie-ups. And Liberty Media wants to be the one to cable it all together.

Liberty, helmed by Chairman John Malone, has been trying to interest Time Warner Cable in a merger with its 27%-owned cable interest, Charter Communications. For Mr. Malone, pushing for consolidation fits with his view that the cable industry should be more collaborative when it comes to confronting several strategic issues. These include the emergence of usage-based pricing for broadband and a consumer shift toward web-based video, which could undermine cable's current practice of bundling channels. More immediately, greater scale helps combat escalating programming costs. These have been at the heart of recent deals, including Comcast's February decision to accelerate its plan to buy the 49% of NBCUniversal it didn't already own.

Indeed, Deutsche Bank estimates a combined Time Warner Cable and Charter could cut expenses by $500 million a year, with 78% of that representing programming-cost savings. That could boost Time Warner Cable's 2013 earnings before interest, tax, depreciation and amortization by 6%. Even so, such a deal seems unlikely to be the vehicle for Mr. Malone's dreams. For starters, Time Warner Cable management appears unconvinced of its merits. That is understandable considering Charter appears to have most to gain immediately. At 4 million, it has only one-third Time Warner Cable's number of video subscribers. The latter's programming costs amount to 44.2% of video subscription revenue, compared with 54.5% for Charter, according to Deutsche Bank.

Moreover, a merger won't offer Time Warner Cable much additional leverage in negotiations with content companies, according to Craig Moffett, an independent analyst. Merging with Charter would make Time Warner Cable the third-biggest pay-TV provider by subscribers, up from the fourth-biggest today-not exactly a seismic shift. To make a merger worth Time Warner Cable's while, Charter would thus need to pay a significant premium. Problem is Time Warner Cable's enterprise value, including net debt, of $56 billion is already more than double that of Charter. Liberty could theoretically contribute some cash from Liberty Ventures, which has about $1 billion, according to Pivotal Research. It could also potentially borrow against its stake in Sirius XM Radio.

But the bulk of a deal would need to be done with Charter stock, which has risen 73% over the past 12 months. It now trades at 8.9 times 2013 Ebitda, compared with seven times for Time Warner Cable and Comcast. That gives Charter a highly-valued acquisition currency-but equally, Time Warner Cable shareholders may simply regard it as overpriced. For Time Warner Cable, which has seen subscriber declines in recent quarters, it might make more sense to fix its operations before selling. As for Liberty, investors should still expect it to take the lead in consolidation via its stake in Charter. But the numerous, small U.S. cable operators-which together have about six million subscribers, according to Mr. Moffett-may be more likely targets. They will likely be forced to sell as programming costs keep increasing. Mr. Malone may have an appetite for Time Warner Cable. But his plans will likely rest on a series of smaller bites. Wall Street Journal

A sweep inspection in Pitcairn (Allegheny Co.) should improve service for residents who subscribe to Pitcairn Community Cable, as borough officials continue to search for a buyer, said Cable and Electric Committee Chairman Kevin Dick. The inspection was to fix potential "leaks" that tend to disrupt TV service and to ensure that residents aren't stealing cable. Over the last five years, the number of subscribers to the borough-owned cable TV service has dropped from about 1,000 to 500, Dick said.

Council President John Prucnal said at the June 25 council meeting that he sees evidence of the decrease. "I saw (a) Verizon (technician) on Eleanor Street today as I was coming to the meeting," Prucnal said. The borough can't compete with the number of channels and pay-per-view programs other companies offer, Dick said. Council voted 6-1 in May to hire Duncan Communications Consulting as a broker for the potential sale of Pitcairn cable. The broker will receive $2,500 for each potential buyer it finds. As of last week, the borough had yet to receive any offers, Dick said. Pittsburgh Tribune-Review

Comcast Corp.-owned NBCUniversal acquired the Telemundo affiliate in Philadelphia, WWSI (Channel 49), from ZGS Communications for an undisclosed sum. The Spanish-language affiliate now will be part of the NBCUniversal's 16-station Telemundo Station Group. Manuel Abud, group president, said the station, now based near Penn's Landing with 11 employees, will relocate to NBC10 studios in Bala Cynwyd. The Telemundo affiliate will launch local newscasts at 6 and 11 p.m. in January to grow its audience. Nielsen ranks Philadelphia as the 18th-largest Hispanic market. Philadelphia Inquirer