John Malone goes back to being ‘King of Cable’

30 May 2015 | Author: | No comments yet »

Better broadband at better prices? Welcome to Charter CEO’s fantasy.

Just two years ago, the man who made a fortune building Tele-Communications into a US broadcasting titan was spending much of his time trying to repeat the trick in Europe through London-based Liberty Global. Washington: Time Warner Cable CEO Robert Marcus could get at least $85 million (Dh312 million) if he’s terminated within two years of Charter Communications Inc’s acquisition of his company.

Marcus’ compensation package includes $4.5 million in base salary, $15 million in continued bonus payments and stock awards valued at $57.3 million as of December 31, 2014, according to the New York-based company’s May 18 proxy filing. 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.

Losing out to Comcast was considered a big blow to Malone after he tiptoed back into the US cable waters in 2013 by becoming the biggest shareholder in Charter. Ratings for the value provided in the TV and Internet components were especially awful: 38 out of the 39 Internet services, and 20 out of the 24 TV providers, received the lowest scores possible. 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. 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. Today’s bid at $195.71 a share, 14 per cent more than Time Warner Cable’s May 22 close, would catapult Charter from the fourth-largest cable company to the No. 2 slot behind Comcast. All this pressures the industry to consolidate, cut costs and boost investment in broadband service, a segment in which cable operators still enjoy competitive advantages. 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.

Look at it like this: The FCC’s rules say cable giant Comcast, for example, couldn’t charge Netflix a higher price for smoother service so that it can better compete with Hulu, which Comcast co-owns. 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)? 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. 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.

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. Together, their U-verse and Fios networks have over a third of the pay-TV homes in D-FW, more than double the share in the rest of the nation. “If I had one of those, I’d be really happy,” said Tony Lenoir, media analyst for SNL Kagan, the research firm that provided data on local pay TV. 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 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. 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. 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 has minimum Internet speeds of 60 megabits per second and is less expensive than comparable Time Warner tiers, he told analysts in a call last week. “For consumers, this transaction will mean better products at better prices,” Rutledge said, adding that cost savings from the merger would help fund some improvements. 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. Because cable companies have regional monopolies, they don’t have much financial incentive to make things easier for customers, said John Bergmayer, senior staff attorney at Public Knowledge, a consumer advocacy group in Washington.

That may be true for broadband, but TV competition is surging, prompting cord shavers and cord cutters to reduce cable bills or drop cable altogether. 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.

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 diverse 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. 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. 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.

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