Broadband Cable Association of Pennsylvania

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June 13, 2013

Time Warner Cable Inc. and other pay-TV operators are offering incentives to media companies that agree to withhold content from Web-based entertainment services such as those pursued by Intel Corp. and Apple Inc., people with knowledge of the matter said. The incentives can take the form of higher payments, or they can include threats to drop programming, said the people, who asked not to be identified because the discussions are private.

Cable companies are seeking to keep customers by ensuring access to exclusive content while fending off competition from upstart Web providers. Time Warner Cable has more than 300 contracts, and some of them may bar media outlets from providing content to online pay-TV services, Chief Executive Officer Glenn Britt said yesterday in a meeting with analysts at the National Cable & Telecommunications Association show. "We may well have ones that have that prohibition," Britt said at the conference in Washington. "This is not a cookie-cutter kind of business." Some agreements require media companies that license content to Web-based systems to offer the same online rights to Time Warner Cable, Britt said.

There's a brewing battle being waged against incumbent cable-TV companies and telecommunications providers, which already have the rights to distribute TV and movies over their networks. Arrayed against them are technology companies such as Intel, Apple and Google Inc, which are eager to cut deals that would let them provide programming over the Web. These newcomers have been working for years on devices, software and services that have failed to loosen the grip of cable and satellite distributors because they haven't secured enough content to woo customers. Charter Communications Inc., the fourth-largest cable company, seeks to protect the existing pay-TV "ecosystem," Chief Financial Officer Chris Winfrey said at the conference yesterday. "It's in everybody's mutual interest that we are protecting the ecosystem in a way that continues to keep the value of that programming that we have and the way it's delivered to our subscribers today," Winfrey said, declining to comment on specific agreements.

Alex Dudley, a spokesman for Charter Communications, headquartered in Stamford, Connecticut, declined to say more on Winfrey's comments. "Exclusivities and windows are extremely common in the entertainment industry," Maureen Huff, a spokeswoman for New York-based Time Warner Cable, said in an e-mailed statement today. "It's absurd to suggest that, in today's highly competitive video marketplace, obtaining some level of exclusivity is anticompetitive." AT&T Inc., the largest U.S. phone company and the owner of the U-Verse fiber-optic TV service, is negotiating paying less to media companies that also provide content to Internet-based services, Jeff Weber, president of content, said last month at an investor conference. "If they're going to go over-the-top, then that's a very different conversation and a very different value for our customers," Weber said. "Exclusive versus non-exclusive has materially different value for our customers. And I think we would want that reflected."

Mark Siegel, a spokesman for Dallas-based AT&T, declined to comment beyond Weber's remarks. The U.S. Justice Department is investigating whether cable companies are violating antitrust laws by limiting competition from Internet video providers, people familiar with the matter said in June 2012. The pay-TV companies' actions are anticompetitive, said Gigi Sohn, president and co-founder of Public Knowledge, a Washington-based consumer-rights group that focuses on communications and technology issues. "Is it anticompetitive generally? Of course it is, they are keeping programming from their competitors," Sohn said in an interview. "Does it rise to the level of antitrust violation? That's something for the Department of Justice to decide."

The plight of the Internet-based services is similar to when satellite companies couldn't get access to media companies' content until Congress passed legislation in 1992, Sohn said. Government regulators may need to get involved to grant technology companies similar access, she said. "These sorts of practices are as old as the hills," she said. "Over-the-top providers are in regulatory No Man's Land and they can't get access to the programming." The U.S. Federal Trade Commission should investigate whether pay-TV companies' arrangements violate antitrust laws, Rich Greenfield, an analyst at BTIG LLC, said in a report yesterday. "Virtual cable systems, or over-the-top providers, would be wonderful for consumers," Greenfield said in a phone interview. "It appears certain pay-TV operators don't want that to happen." Time Warner Cable fell 2.2 percent to $93.90 at the close in New York. The stock has slipped 3.4 percent this year, compared with a 13 percent gain for the Standard & Poor's 500 Index. Charter Communications fell 1 percent to $111.39, taking its gain this year to 46 percent. Bloomberg; more in New York Times

Consumers should get to choose which broadcast networks they want to pay to receive, a senior DirecTV executive told Congress on Wednesday. In testimony to a House Energy and Commerce subcommittee on communications and technology, DirecTV executive vice president Mike Palkovic said new rules are needed for broadcasters such as CBS, NBC, ABC and Fox when it comes to negotiating distribution contracts with pay-TV distributors. "Broadcasting remains governed by antiquated laws designed to favor the broadcaster over the viewing public," Palkovic said.

In his testimony, Palkovic said the cost to DirecTV to carry broadcast networks will rise 600% per subscriber between 2010 and 2015. He added that these fees are on top of money the satellite broadcaster pays broadcasters for cable channels they also own. For example, News Corp. owns Fox Broadcasting as well as several popular cable networks, including FX and Fox News. Walt Disney Co. owns ABC as well as ESPN, the Disney Channel and ABC Family. "In 1992, the broadcasters owned four cable channels. Today, they own over 104 cable channels, a 2,500% ownership increase," Palkovic said. NBC, he noted, had one cable channel -- CNBC, but now it owns 22 national cable networks and 11 regional sports networks. "These corporations use the retrans process to force our customers to take, and pay for, all of their channels regardless of whether they watch them or not," he said.

This also limits the amount of channel space that DirecTV and other distributors have to carry channels that are not owned by big media and thus do not have the leverage to negotiate favorable carriage agreements, Palkovic charged. Palkovic called for Congress to let broadcast networks negotiate directly with consumers. "A consumer could, for example, choose ABC and NBC, but opt out of CBS and Fox, as they do today with HBO and Showtime," he said. Such an approach, he argued, would end the blackouts that occur when a broadcaster and distributor are unable to come to terms on a distribution contract, as well as give consumers choice and broadcasters the ability to "charge as much as they think their content is worth."

During the same hearing, Ben Pyne, president of global distribution for Disney Media Networks, countered that the retransmission consent system is "working well," and added that "over the years thousands of privately negotiated agreements for retransmission consent have been reached with extremely few interruptions of service." Marci Burdick, a senior vice president for broadcaster Schurz Communications Inc., also said DirecTV and lawmakers interested in changing the current system are barking up the wrong tree. "The retransmission consent system in place today has a success rate of 99%. Only in Washington, D.C. could something that works 99% of the time, providing for thousands of deals every year, be called 'broken,'" Burdick testified. The testimony from Palkovic, Pyne and Burdick was part of a hearing to determine whether the Satellite Television Extension and Localism Act (STELA), which regulates much of the satellite broadcasting business, should be reauthorized or scrapped. Los Angeles Times

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