Even for Cable TV, These Customer Satisfaction Ratings are Horrible

29 May 2015 | Author: | No comments yet »

Altice Isn’t Leaving the U.S. Soon.

It seems like every customer satisfaction survey about pay TV and Internet providers has become, de facto, a study in dissatisfaction. To hear the chief executive of Charter Communications tell it, his company’s acquisition of Time Warner Cable will mean a better broadband experience for all. “We’ll offer consumers a broadband product that makes watching online video, gaming and engaging in other data-hungry applications a great experience, including at peak times,” Tom Rutledge said after the planned merger was announced Tuesday. “When it comes to cable consolidation, history teaches us to be very concerned about the benefits for consumers,” said Delara Derakhshani, policy counsel for Consumers Union. “Prices for cable and broadband continue to go up, and customer service is dismal.” He went to the website of the Federal Communications Commission, where he learned that service providers such as Time Warner Cable and Charter can’t “block, impair or establish fast/slow lanes to lawful content.” Totten filed a complaint with the FCC saying that charging a higher price for faster service was tantamount to creating a broadband fast lane.Whatever the outcome of the latest proposed mergers and acquisitions in the media industry, a clear winner has already emerged, and it’s not even a party to any of the deals: Netflix, the streaming television pioneer. Major cable TV systems again ranked among the worst in overall customer satisfaction for TV service in the latest telcom survey released today from Consumer Reports National Research Center.

However, what it shows isn’t that Time Warner and other service providers are pulling a fast one but rather that many people still have a hard time grasping the concept of network neutrality laid out by federal regulators in recently adopted rules. To varying degrees, an array of Silicon Valley powerhouses — including Google, Amazon, Facebook and Apple — gain from an open Internet and net neutrality, the notion that broadband service providers should treat all data equally, no matter its content, source or volume. Verizon FiOS and satellite TV companies DirecTV and Dish scored higher in customer satisfaction among TV service providers in categories such as picture quality, channel selection, reliability and ease of use. Kim Hart, a spokeswoman for the FCC, told me that the agency’s so-called open Internet rules prevent Internet service providers from “giving priority to online content or services in exchange for payment” or from favoring their own content over that of competitors. “It is not a violation of open Internet rules for an ISP to give customers the option to pay a different price for different tiers of Internet service, allowing consumers to choose the plan that is right for them,” she said. TV-service providers also took a beating, with 20 of the 24 companies earning our lowest scores for value; the rest managed to do just a little bit better.

That these views have prevailed over long-entrenched telecommunication and cable interests is yet further evidence of the technology industry’s growing political clout inside the White House and on Capitol Hill. Instead, the French tycoon plans to build his U.S. footprint by acquiring control of smaller cable operators, according to two people with knowledge of the matter. No surprise, CR also uncovered “behavioral shifts” in the way consumers are accessing TV. 19 percent of those 45 and younger and 31 percent of survey participants ages 26 to 35 now use a paid video streaming service as their main viewing source. 16 percent of those in the 18-25 range cited free online video as their primary connection for content.

Only in the 1980s did cable transform into something with a wide plethora of channels including pay TV options, with pay-per-view and DVRs following years later. Smaller players in the U.S. such as Cox Communications, Cablevision Systems, and Mediacom Communications are expected to grow in value as heavyweights such as Comcast and soon-to-merge Charter continue to gobble up rivals that allow them to expand their reach and engineer cost efficiencies. Netflix is far and away the favorite paid service, cited by 81 percent of subscribers, trailed by Amazon Prime (46 percent) and Hulu Plus (11 percent.)

And we can throw in Brangelina (Brad Pitt and Angelina Jolie) and Kimye (Kim Kardashian and Kanye West), not to mention the political granddaddy of them all, Billary (need I break this one out)? Drahi, the third-richest person in France, made his first move on May 20 when Altice, his Luxembourg-based holding company, agreed to acquire 70 percent of No. 7 U.S. cable operator Suddenlink Communications in a deal worth $9.1 billion. The proposed Charter-Time Warner Cable merger might well spawn a furious parlor game of its own inside of the media world, even more than the late Comcast-Time Warner Cable proposed pairing. At the same time, he said, the influence of any one voice shouldn’t be exaggerated. “Their story just happened to fit perfectly into a broader narrative of the potential for harm to consumers,” Mr. We clearly expect to be right in the middle of that consolidation.” Altice will look at assets that the combined TWC-Charter may decide to divest to alleviate antitrust concerns, Drahi told a hearing at France’s National Assembly on May 27.

That initial deal always seemed much more about the specific history and future direction of Comcast, and that company’s rare mix of content and pipeline, rather than signaling some more seismic shift in overall media industry size dynamics. Consumers benefited from the Cable Communications Policy Act of 1984 that required all areas, but the most rural places in the country, had cable infrastructure. The business model of pay TV-Internet providers is one in which new customers are drawn in with low introductory rates, which escalate higher and higher the longer you’re a subscriber. But looking at a potential post-Charter-TWC world, the potential dance partners seem to be all around us, among both media platforms (including multi-system cable operators) and content providers. Terry Koosed, president of Bel Air Internet, said residential customers should think of broadband as a data fire hose blasting into their neighborhood.

And in general, Internet providers that offer fiber-based service had better scores than many cable companies, apparently due to faster speeds and better reliability. But “Netflix’s role is definitely an important piece of the puzzle.” From Netflix’s point of view, the fact that its views have gained traction with regulators is merely a recognition that its corporate philosophy, which it says has always been to put consumer interests first, coincides with sound public policy. These customer service agents might otherwise be providing, you know, actual customer service, but instead they focus on negotiating with subscribers who call to complain about rising monthly bills. So do other streaming services like Hulu and Amazon, as well as industry stalwarts like HBO and CBS that have started their own so-called over-the-top offerings. A bidding war over TWC is unlikely, as the Charter offer is seen as too high for Altice to beat, according to the people. “Drahi is an aggressive cost-cutter, and his presence forced Malone to move quicker,” says Matthew Harrigan, an analyst at Wunderlich Securities. “They wanted to lock this down.” Altice had financing from banks lined up for a TWC buyout, according to the people.

So Totten may have had a faulty grasp on net neutrality when he complained to the FCC about not receiving the fastest speed available at the best possible price. Ultimately, Drahi decided not to rush into an acquisition because Altice didn’t immediately have the scope to manage and absorb the company, Drahi told the National Assembly. After all, instead of tweaking the structure to eliminate complaints about pricing, the system all but encourages subscribers to complain, haggle, and threaten to drop the service in order to be treated fairly.

But Netflix, for better or worse, has become the symbol for net neutrality, which has become a key issue in how regulators analyze proposed cable and telecom mergers. Trying to beat Charter’s $195.71-a-share offer would require Altice to increase its leverage ratio significantly and engineer a large capital increase to fund the purchase, diluting Drahi’s stake in Altice, the people say. The lower prices do tend to drive the small guy out of business or at least out of town.” Even the larger players have largely stayed out of each others’ backyards. Of course, government antitrust and communications policy is supposed to benefit consumers, not any individual company or group of companies. “It’s fair to say Netflix has gotten something of a free pass,” said Scott Hemphill, visiting professor of antitrust and intellectual property at New York University School of Law. “This open Internet principle that’s in ascendance is certainly good for Netflix. The company already had more than €24 billion ($26.1 billion) in net debt before the Suddenlink deal, which it will finance by borrowing $6.7 billion.

One routinely complains and, amid lengthy, frustrating phone calls, is rewarded with monthly rates that are lower than they otherwise would have been. The only one I’m really nervous about is a group of National Cable Telecommunications Cooperative (NCTC) small cable operator members banding together. It’s harder to say it’s good for consumers.” A pivotal moment in the net neutrality struggle came last year when Netflix agreed to pay Comcast so-called interconnection fees, a deal that Netflix’s Mr. This is largely because these companies are facing competition not with one another but with telecos including newcomers like AT&T, Verizon and satellite providers who now provide cable offerings. “These companies are now vying for the Internet business, where there is overlap with other rivals,” adds Kalb. “The way that many younger people are watching TV is changing and that means the market has to evolve. Hastings’s ire, Netflix also reached similar interconnection deals with every other major Internet service provider.) But securing payment from Netflix for fast and more reliable access may have been a Pyrrhic victory for Comcast and the other the broadband providers.

It’s no surprise, then, that both of these categories of subscribers would give their providers extremely low satisfaction ratings and say that they are poor values. Among the 42 percent who said they tried to negotiate a better deal, 45 percent reported that the provider dropped the bundle price by up to $50 per month, 30 percent got a new promotional rate, and 26 percent received additional premium channels. The bigger threat is the Gang of Four as they are more vertically integrated.” Google has already been deploying its fiber optic service to select markets and given approval to do so in a way that lets them select what areas to connect and could be a real game changer for the industry. “Unlike build-out in the past that was required to pass all homes and not exclude certain areas due to various socio-economic factors, Google has been able to move forward with a ‘cherry-picking’ approach in which it builds only when there is a certain level of demand,” explains Ireland. “Perhaps with an easing of these types of requirements we may see more competition, but that competition will be likely centered in more affluent neighborhoods which will leave the ‘haves’ with more choices and the ‘have nots’ with the status quo.” But when Netflix subscribers found their programs constantly interrupted for “buffering” (an interruption to download more data), the ability of Internet providers to play favorites seemed all too real.

Drahi declined to comment. “What Altice has done over the past few years is quite remarkable,” says Yvan Desmedt, a partner at law firm Jones Day who has advised large companies in telecom deals. “But it’s one thing to move into the U.S. market and a different one to succeed in such a competitive landscape.” In research for a forthcoming book on media concentration, Professor Eli Noam, Head of Columbia Business School’s Institute on Tele-Information, ranks the U.S. at the bottom of a list of 30 industrialized countries in media concentration, including platforms, content and cross-media. But Comcast has offered a different narrative, asserting that Cogent Communications, an intermediary that lacked adequate data capacity, caused Netflix’s problems. Audience fragmentation is accelerating – We are decades into the explosion of viewer choices in television as we moved from three (then four) broadcast networks to hundreds of cable networks, and years into the proliferation of digital video options, from video on demand to YouTube to an increasingly array of over-the-top video providers from Netflix to Amazon Prime to DISH Network’s Sling TV to HBO Now.

At some point, unless you control more media properties (or cable or satellite subscribers, in the case of local cable ad sales), you can’t deliver the scale that major national advertisers like P&G and Wal-Mart require. It probably didn’t hurt Netflix’s case that just about everyone in Washington watches the hit Netflix series “House of Cards,” and Comcast is the dominant Internet provider there.

One good concentration wave deserves (or least drives) another – More deals in the cable sector, which among other things enhances the relative bargaining power of the platform owner vis-à-vis the content providers, will not only encourage more platform consolidation but likely encourage it on the content side as well. As Les Moonves said just yesterday, “the age of the 200 channel universe is slowly dying,” which of course is a lot easier to say from CBS’s place on the channel hierarchy.

The fees Netflix so fiercely opposes are analogous to those found in many industries, such as credit cards, where both consumers and merchants pay the credit card companies. “It’s hard to say if these fees are good or bad for consumers,” Professor Hemphill said. Beyond the celebrity name game, here are some of the names you may be accustomed to seeing on the rumor mill and/or deal front in the not-too-distant future: Cable operators: Cablevision, RCN, MediaCom, Suddenlink, Midcontent Cable, Wide Open West, Cable One, Armstrong, Harron, and a host of small NCTC members. But Netflix has aggressively pushed the argument that interconnection fees are different because the gatekeepers have too much power and an incentive to abuse it. Even if Netflix doesn’t come out as forcefully against the merger as it did with the Comcast deal, its position will surely reverberate during the government’s review.

This week, Charter seemed already to be anticipating Netflix’s likely objections and pledged fealty to the notion of net neutrality. “We have no plans to block, throttle or engage in paid prioritization because our customers demand an open Internet,” Mr. Arguing the proposition that combining three of them into one is in consumers’ interest may be tough given that the Obama administration has publicly complained about the lack of broadband competition.

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