Small Cable Systems Failing

coax cablesThe American Cable Association (ACA) recently asked the FCC to look at the issue of why small cable systems are shutting down. The ACA represents small cable systems nationwide. Using data from the National Cable Television Cooperative (NCTC), the ACA says that 1,169 cable systems have shut their doors since 2008. In 2014 there were 91 cable systems that closed and in 2013 there were 133 systems.

The ACA says that the primary reason that these small cable systems have closed is programming costs, and I’m sure that has to be a major reason. The other reason is probably due to competition from satellite providers, which is also tangentially related to programming costs.

I am guessing that many of the systems that are closing are small bandwidth systems that don’t carry the 200 – 300 channels that people associate with urban cable systems. There are numerous rural systems that carry smaller channel line-ups from 30 to 100 channels. They tend to carry the most popular stations and so their customers are generally happy with them.

There is one programming issue that I think particularly discriminates against smaller systems. While I can’t cite specific numbers due to various NDAs, there are programmers that price programming in a way that kills the small operators. For instance, the programmers often make the large systems take all of the channels they offer in an all-or-nothing deal. But they price this in such a way that all of the ‘cost’ to the cable system is allocated to one or two primary channels in the suite with the rest being added for free or for a very low cost. This means that a small system that takes only a few channels from a programmer might pay as much for the programming as a large cable operator that carries everything from that same programmer.

While it is probably impossible for the FCC to regulate the programmers, I think it is probably within their purview to say that the practice of forcing systems to take every channel is discriminatory. If they could do that they could probably also insist that the programmers fairly allocate the fees among the many channels in their package. That would allow the small systems to save a lot of money on programming and to stay competitive against satellite providers.

The satellite providers are definitely hurting the small systems. The satellite companies are large enough that they can buy programming for a little cheaper than a small system. But this is only a minor edge because even the big companies don’t get much of a discount on programming. The real advantage the satellite companies have is that they don’t have to maintain a fleet of technicians in trucks. That is a true competitive advantage and the small systems can’t compete with that while paying more for programming than they ought to.

The other issue that small cable systems face is not related to programming. A lot of these smaller systems are low bandwidth, meaning that they have only enough bandwidth to carry the smaller cable lineup they offer. This means they cannot offer cable modem service, which is the one huge advantages that larger cable companies have. Even if the small systems were able to increase their bandwidth somehow, these older systems often would require a major rebuild of the coaxial plant in order to handle larger bandwidth. It would mean replacing and moving power taps and amplifiers, and in some cases even replacing the coaxial cable.

To some extent a number of these systems were doomed to fail when the rest of the industry shifted to make all of their profits from cable modems and voice. Without that extra margin these small companies are competing with only a cable product against satellite providers who can offer more channels for a lower price. And these small systems have the same issues with cord cutting and a general loss of cable customers that everybody is seeing. That is a recipe for failure and I’m not sure that the FCC ought to prop up systems that are doomed to fail almost by definition.

But there are many other cable providers that would benefit and thrive if the programming issues can be made fairer. If the FCC really wants to help out cable providers of all sizes and of all technologies they will give cable providers the chance to offer smaller packages of programming to match what the OTT guys are doing. This will benefit fiber systems as much as coaxial systems and can put some balance back into the relationship between programmers and providers.

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