Cable’s ties that bind

For pay TV operators, cord cutting is like a difficult breakup, but what can they do to win back the affections of wayward viewers, asks Kate Bulkley.

Sometimes  the world of TV mirrors that of the rest of society. Take, for instance, what happens at the end of a long-term relationship: often there is surprise involved and, almost always, there is some pain.

The end of a TV relationship can have similar qualities. For viewers of television, the surprise might come when a long-running series is finally cancelled and the pain when a favourite character gets killed off in a soap opera or a series. (I don’t know about you but I am still angry that Matthew from Downton Abbey dies in that car crash just as things were sorting themselves out.)

For broadcasters, and especially pay TV operators, the worst kind of relationship ending is when a subscriber changes the channel or cuts the pay TV cord. Cord-cutting is the biggest fear for pay TV leaders like Liberty Global’s John Malone and Cablevision’s Chuck Dolan. Not long ago, these cable giants thought of viewers turning off their cable connections as a minor irritant; people were not leaving en masse and those that did would return once they saw what they were missing. Malone & Co thought the cords were safe.

Now, however, they have changed their minds. A phenomenon in the US called ‘bill shock’ has become widespread – the moment when the pay TV subscriber actually studies their monthly pay TV payments and is appalled at the amount they are paying for all the channels that they are not watching.

Then there are these pesky young ‘millennials’ – supposedly, the next generation of pay TV subscribers – who seemingly prefer to watch their TV in the same way that they operate their phones, i.e. more of a pay-as-you-go, internet-delivered service like Netflix rather than a hulking cable or satellite giant that is less friendly to an on-demand lifestyle.

It’s not just the young who feel bill shock. During the summer I pay for DirecTV, one of the two US satellite services. In order to get the live sport I pay US$147 (€110) a month,  not including a broadband connection!

Long-time cable and satellite executives have begun to recognise the trend that declares the strongest revenue stream is no longer the TV but is broadband. CableVision’s Dolan recently said that TV is becoming much less important and Malone – often called the King of Cable – seems to be re-positioning himself as the King of Broadband.

If people want to spin down their pay TV bill to a lower-priced Netflix, Hulu Plus or even Amazon Prime, they still need an internet connection and the pay TV providers are re-positioning themselves as the go-to online service provider. Cable companies have also begun to figure out how to bundle access to TV via different devices to their subscribers, like smartphones and tablets.

The fact is that people still watch a lot of TV, both linear channels and, of course, live sport. However, the pay TV giants are also under increasing pressure from suppliers over the value of content. Time Warner Cable blocked the airing of CBS for several weeks over the summer as the two sides battled over carriage fees and access to digital VoD rights. Time Warner wants VoD bundled into its deal with CBS but CBS wants not only to increase the payments it receives for its programming but also the right to offer the VoD rights to Netflix et al. CBS also wants to protect its own digital revenue streams: currently the broadcaster puts its shows on its website a day after they air, without restrictions on who can access them, and reportedly generates about US$100 million per year in online ads, a revenue stream it has no desire to jeopardise.

Of course Time Warner Cable isn’t the only company feeling the squeeze.  Michael White, CEO of DirecTV told equity analysts in July: “Frankly, the balance between content providers and distributors is out of whack. And therefore, further industry consolidation does make sense to help address what I think are unsustainable cost increases for the average customer.” There is already speculation of a possible merger between DirecTV and its satellite competitor in the US Dish Network.

Malone’s answer to the growing power of content providers is also consolidation. This year Liberty Global purchased a stake in the five million-subscriber Charter Communications, all of Virgin Media in the UK and a stake in Ziggo in the Netherlands. Malone is also looking at more purchases on both sides of the Atlantic, reportedly including Time Warner Cable.

However, Liberty Global and the other potential pay TV consolidators are up against some new and tough competition in their drive to gain leverage against rights holders through scale. For example, mobile giant Vodafone outbid Liberty Global for control of German cableco Kabel Deutschland.

So will scale and device-friendly services help pay TV maintain a good relationship with their subscribers? Certainly this is part of the answer, but I would say a good deal more counseling is likely needed to have this relationship take its next positive steps.

Kate Bulkley is a broadcaster and writer specialising in media and telecommunications. [email protected].