Broadband Cable Association of Pennsylvania


August 30, 2012

Cable companies led by Comcast Corp. are close to winning U.S. permission to start encrypting basic- tier signals, two regulatory officials said, in a move to fight theft and reduce service calls.

Federal Communications Commission Chairman Julius Genachowski has asked fellow commissioners to lift an encryption prohibition in place since 1994, the agency officials said yesterday. They asked not to be identified because the request hasn't been made public. The agency last year proposed allowing encryption following requests from companies, including New York-area provider Cablevision Systems Corp. and closely held RCN Telecom Services Inc.

Almost one-fifth of 134 households whose cable connections were cut off by RCN during an audit in Chicago last year subsequently contacted the company to subscribe, "clear evidence that they had previously been viewing cable without paying," the company told the FCC in a filing last year. Cablevision found that, when it encrypted basic service under a waiver from the FCC, it almost eliminated the need to send crews in trucks to disconnect service, the Bethpage, New York-based company told the agency in a filing. "Cablevision's experience proves the environmental benefits of eliminating the encryption prohibition," Cablevision told the agency.

Encrypting the basic tier would let Comcast start and stop service remotely, which customers prefer to scheduling an appointment with a technician, Philadelphia-based Comcast said in a filing at the FCC. RCN, based in Herndon, Virginia, said in a filing it was seeing rising levels of theft as cable systems replace analog service with digital signals that are easier to steal. Television sets with modern tuners can receive the unencrypted basic-service package which is sent in digital format and includes local broadcast stations.

Cable companies already encrypt offerings on the more expensive programming tiers that aren't regulated by the FCC and include a wider array of channels. The FCC prohibited encryption at a time cable dominated the pay-TV market, so customers wouldn't need a set-top box to view local stations. The requirement doesn't hold for satellite providers DirecTV and Dish Network Corp. or for cable competitors such as TV services offered by AT&T Inc. and Verizon Communications Inc.

The National Cable & Telecommunications Association in 2004 estimated that about 5 percent of homes near cable lines accessed service without paying, resulting in almost $5 billion in lost revenue. That was more than 8 percent of industry revenues that year, according to a filing at the FCC by the Washington-based trade group. The organization's members include the biggest U.S. cable operator, Comcast, No. 2 provider Time Warner Cable Inc. and Cablevision. Genachowski's proposal includes methods for third-party equipment makers such as Boxee Inc. to relay unscrambled basic programming to customers, the two officials said. Boxee had expressed concern its customers wouldn't be able to access basic-cable TV channels. Genachowski's proposal faces a vote and no deadline for action at the five-member agency where he is part of the 3-2 Democratic majority. Neil Grace, an FCC spokesman, in an e-mail declined to comment. Bloomberg

A dispute between DirecTV and the owner of the local ABC-affiliate WNEP-TV (Wilkes-Barre/Scranton) could result in a blackout of the local station for the satellite service's customers. The clock is ticking on an agreement, known as a carriage contract, between station owner Local TV LLC and the El Segundo, Calif.-based DirecTV. Without a new deal by Sept. 1, WNEP, the ABC-affiliate serving Northeast Pennsylvania, will not be available to DirecTV customers in the area.

In the standoff, local TV properties are enlisting viewers in the fight, hoping they will pressure DirecTV into a deal. The station ran a text crawl and a 30-second spot warning of the possible blackout. An announcement on the WNEP website urged viewers to "Tell DirecTV you DO NOT want to lose WNEP. Share this post with your friends on Facebook and Twitter." Similar announcements were run on the websites of other Local TV properties. WNEP General Manager Chuck Morgan points to the station's high ratings in the market, higher than competing network affiliates and many cable networks. "For many years, we've provided around-the-clock news and high-quality programming, yet despite our high ratings, we are being compensated far less than other networks," he said. "Carrying our programming contributes to DirecTV profits and they should be willing to pay fair market value."

DirecTV is committed to resolving the stalemate, said DirecTV spokesman Robert Mercer in a statement. But he hinted at the company's desire to contain costs. "We remain willing to compensate Local TV LLC fairly," Mr. Mercer said. "(A)nd will always strive to provide our customers an unparalleled TV experience at the most reasonable value." Typically, carriage contracts are negotiated and resolved in private. A shrinking number of cable and satellite television subscribers has changed the dynamic. Battles have increasingly been brought into the public, with carriers and stations vying for popular support. "Both sides are ratcheting up this war and it is coming to a crisis point in the industry," said Jeff Kagan, an independent telecommunications analyst. "This is a battle in a multi-year war."

DirecTV's similar battle with Viacom led to the weeks-long blackout of its popular stations such as Nickelodeon this summer. Time Warner was one of the first television carriers to draw a line in the sand against stations' request for higher carriage fees. Both sides increasingly rely on propaganda in an attempt to get the public on their side. "The networks say 'the carrier doesn't want to give you access to your favorite shows. Tell them to pay up,'" he said. "The carrier says 'the stations are trying to charge you more and we want to hold your rates down - stand by us.'" Lower cost options, such as Internet viewing services, has put a stop to growth in cable and satellite subscribers. Companies can not longer blithely pass on mounting programing costs. "Carriers are losing customers," Mr. Kagan said. "They are on a dead-end street and they have to control price increases."

Television providers don't provide subscription numbers for individual markets. However, DirecTV has about one-fifth of the pay television market nationwide, according to numbers reported earlier this year. What can DirecTV customers who are WNEP viewers do? With all the new ways to obtain television programing, it's easy to forget the local network stations are free, over-the-air broadcast television. The old rabbit ears are one of the fastest growing formats, Mr. Kagan said. Wilkes-Barre Citizens Voice

TiVo Inc. reported that its total subscribers jumped 41% in the second quarter, as the video-recording pioneer continued to add more users through deals with cable and satellite companies. Tom Rogers, TiVo's chief executive, on Wednesday said gross profit in the quarter ended July 31 reached a record. But TiVo continues to face heavy litigation costs-including a battle with Verizon Communications Inc. headed for trial in October-that triggered a second-quarter net loss and another it predicted for the current period. The company's shares rose nearly 5% after hours, to $9.81 on the news.

TiVo, of Alviso, Calif., helped create the market for hardware which lets consumers record TV shows. Over the years it has added new services and software that serves as the primary interface for managing content options on a TV, including both live programming and video content that arrives over the Internet. The company has been placing less emphasis on set-top boxes it sells at retail, and more on distributing its offerings through operators' set-top boxes or through TVs alone. Many key deals have come in foreign markets; for example, TiVo said Wednesday that Virgin Media in the United Kingdom has attracted one million users of its TiVo-powered offerings in a year. In the latest period, TiVo added 230,000 subscribers-reaching a total of 2.7 million-compared with the 33,000 it lost a year earlier. Mr. Rogers has said he expects to add 1 million subscribers this year. "We are seeing our trends continue," said Mr. Rogers in an interview, in terms of growth in revenue and subscribers through cable and satellite companies.

But the company's intellectual-property battles continue to hurt its bottom line. Besides Verizon, its opponents in pending cases include Cisco Systems Inc. and Motorola Mobility, which is now part of Google Inc. Anna Brunelle, TiVo's chief financial officer, said during a conference call that legal expenses in the second period were $12.8 million-up substantially from the first period-though the company last week accrued an unexpected $3.2 million one-time arbitration judgment related to a contract dispute. Including legal expenses, TiVo said its loss for the period ended July 31 came to $27.7 million, or 23 cents a share, compared with a year-earlier loss of $19.6 million, or 17 cents a share. Total revenue increased 6.7%, to $65.3 million, while service-and-technology revenue-which excludes TiVo's hardware business-rose 10%, to $54.1 million. The figures were slightly better than analysts expected, according to Thomson Reuters.

Ms. Brunelle said the company is again expecting a "very heavy quarter" of spending on litigation in the current quarter. The company predicted a loss of $27 million to $29 million and service-and-technology revenue of $57 million to $59 million. Analysts polled by Thomson Reuters recently had predicted a $21 million loss on $56 million in comparable revenue. TiVo's short-term target is to break even on what it describes as adjusted Ebitda-earnings before interest, taxes, depreciation, and amortization-excluding spending on litigation. "We are making real progress toward our goal," Mr. Rogers said. Wall Street Journal