Tag Archives: Mediacom

The Broken Cable Industry

Fatty_watching_himself_on_TVLast week Mediacom filed a petition asking the FCC asking to open a rulemaking about regulating programmers. The FCC is under no obligation to act on this request, but I hope that they do.

Mediacom makes a point that I totally agree with, which is that the relationship between programmers and distributors is broken. The industry has evolved to the point where the programmers dictate all of the terms for carrying their content. In the early days of the industry the power was mostly with the cable companies. The FCC changed that with the Cable Act of 1992 that required that cable companies to carry local networks. But over time since then the industry has tilted nearly 100% in favor of the programmers.

The power of the programmers is due in a large part because the ownership of content has become concentrated in the hands of a few companies. There are six corporations that together own most of the programming that people think of as part of the cable TV experience. This has happened through mergers and acquisitions, and the situation might get even worse if Rupert Murdock and New Corp is successful in buying Time Warner.

Condensed media power has resulted in the following:

  • Programmers dictate what content cable companies must buy. Each of the six major programmers owns some ‘must see’ channels but each also owns many other channels. Most programming contracts require a cable company to take everything offered by a programmer in order to get the must see channels.
  • Additionally, the programmers dictate where many of the channels must be placed in the line-up. This is why the line-ups of different cable companies look so eerily alike – they don’t have a lot of options about how to create packages from the content they buy. I have one client who recently got into the cable business. They hoped to have a basic lineup of around 60 channels, but the programming contracts instead forced them into carrying nearly 85 channels.
  • The programming rate increases are accelerating. Some of the recent rate increases I have seen are mindboggling. Earlier this year Viacom forced a nearly 100% rate increase over five years upon several cable providers. But the largest rate increases have been for local network channels. Five or six years ago these channels (ABC, CBS, FOX and NBC) were free or nearly free for cable companies. Now most of my clients are paying between $8 and $10 per customer per month just for these networks.
  • To make matters worse for cable companies, the programmers turn around and make a lot of their content available online on a delayed basis to companies other than the cable companies. This means the cable companies pay to carry the content and then see customers watching it somewhere else (with somebody else’s ads).

All of this translates into runaway inflation in cable rates. I’ve seen various industry estimates that the average cable rates by 2020 could be around $200 per month. The high cost of cable is obviously is affecting households and is starting to drive people to find an alternative to the big cable packages.

This is not to say that the cable companies don’t also have policies that are making cable too expensive. For example, they keep increasing rates on settop box rentals and cable modem while also introducing other mysterious charges onto cable bills.

Mediacom has asked the FCC to explore this issue and to find a fix. They call this a broken industry and they are right. The constant large rate increases cannot be sustained and every rate increase is driving more customers away from traditional cable TV.

Mediacom is asking for common sense fixes. They are asking to be allowed to unbundle the programming packages and buy only those channels they want and to then be able to package content to customers in ways that they want to buy it. These changes will require FCC intervention, because right now all of the terms are being dictated by the programmers. Every company that offers cable would benefit by these changes and if the FCC opens a docket I will be making comments.

If the FCC fails to act, I predict that within a few years that the industry will implode. There will become a point where households will abandon cable in sufficient numbers to put that part of the industry into a death spiral. It’s a tricky set of issues and one wonders how much authority the FCC has to make drastic changes without some assistance from Congress. But if nothing is done then the industry is headed over a cliff in the not too distant future.

The Story of the Numbers

I ran across some interesting statistics from the Leichtman Research Group. They track a lot of basic industry statistics and the ones I found most interesting are summaries showing the number of cable and data customers at all of the largest carriers in the industry. Consider the following table that I have created from their statistics:

Data Customers 2013 2012 2011
Comcast 20,662,000 19,366,000 18,143,000
Time Warner 11,606,000 11,395,000 10,909,000
Charter 4,640,000 4,269,000 3,946,000
Cablevision 2,740,000 2,723,000 2,633,000
Suddenlink 1,059,500 1,002,100 948,700
MediaCom 965,000 915,000 851,000
Cable One 472,631 459,235 451,082
Major Cable 42,145,131 40,129,335 37,881,782
AT&T 16,425,000 16,390,000 16,427,000
Verizon 9,015,000 8,795,000 8,670,000
CenturyLink 5,991,000 5,851,000 5,659,000
Frontier 1,836,000 1,724,000 1,702,000
Windstream 1,170,900 1,214,500 1,207,800
FairPoint 329,766 324,977 312,745
Cincinatti Bell 268,400 259,400 257,300
Major Telco 35,036,066 34,558,877 34,235,845
Major Carriers 77,181,197 74,688,212 72,117,627
Cable Customers 2013 2012 2011
Comcast 21,690,000 21,995,000 22,331,000
Time Warner 11,393,000 12,218,000 12,743,000
Charter 4,342,000 4,158,000 4,314,000
Cablevision 2,813,000 3,197,000 3,250,000
Suddenlink 1,177,400 1,211,200 1,249,000
Mediaom 945,000 1,000,000 1,069,000
Cable One 538,894 593,615 621,423
Major Cable 42,899,294 44,372,815 45,577,423
DirecTV 20,253,000 20,084,000 19,885,000
Dish 14,057,000 14,056,000 13,967,000
DBS 34,310,000 34,140,000 33,852,000
AT&T 5,460,000 4,536,000 3,983,000
Verizon 5,262,000 4,726,000 3,981,000
Major Telco 10,722,000 9,262,000 7,964,000
Major Carriers 87,931,294 87,775,815 87,394,423

This table only looks at the major carriers, but in this country that is almost everybody. For example, missing from the table of cable customers are all of the other providers, who altogether only have 7% of the total cable market.

There are some interesting things to notice about these statistics:

  • The number of high-speed data customers continues to grow and the major providers added 2.5 million more customers in both 2012 and 2013.
  • The major cable companies either have or soon will have more data customers than cable customers. This explains why they now view themselves as ISPs who happen to sell cable.
  • The cable companies lost 2.7 million cable customers from 2011 to 2013. This may have more to do with service and competition than anything else since AT&T and Verizon picked up 2.7 million cable customers during that same time period.
  • The Comcast / Time Warner proposed merger is gigantic since those two firms are two of the top three data providers today and two of the top four cable providers.
  • As much effort as the satellite companies expend in advertising they are barely growing. Dish Networks, for example added a net 1,000 customers in 2013.
  • A few companies are really bleeding cable customers and Cablevision and Cable One both lost 14% of their cable subscribers over a two year period. Even Time Warner lost 11%.
  • As well as AT&T and Verizon have done in cable, together they have only grown to be 12% of the cable market.
  • The fastest growing ISPs over the two-year period are Charter (17%), Comcast (13%) and MediaCom (13%).

Make it Faster

Cable modem Motorola SurfBoard for broadband i...

Cable modem Motorola SurfBoard for broadband internet (Photo credit: Wikipedia)

Whenever I look at my client’s data products I almost have the same advice – make it faster. I am constantly surprised to find companies who deliver small bandwidth data products when their networks are capable of going much faster. I have come to the conclusion that you should give customers as much bandwidth as you technically can deliver, within any technical restraints.

I know that networks are operated largely by engineers and technicians and very often I hear the engineers warn management against increasing speeds. They typically are worried that faster speeds mean that customers will use more bandwidth. They worry that will mean more costs with no additional revenue to pay for the extra bandwidth.

But the experience in the industry is that customers don’t use more data when they get more speeds, at least not right away. Customers do not change their behavior after they get faster data – they just keep doing the same things they were doing before, only faster.

Of course, over time, internet data usage is steadily increasing on every network as customers watch more and more programming on the web. But they are going to increase usage regardless of the speed you deliver to them as long as that speed is fast enough to stream video. Going faster just means they can start watching content sooner without having to worry about streaming glitches.

The engineers do have one valid point that must be taken into consideration, in that many networks have chokepoints. A chokepoint is any place in a network that can restrict the flow of data to customers. Chokepoints can be at neighborhood nodes, within your network backbone, at devices like routers, or on the Internet backbone leaving your company. If your network is getting close to hitting a chokepoint you need to fix the issue because the data usage is going to grow independently of the speeds you give your customers. When I hear worry about chokepoints it tells me that the network needs upgrades, probably sooner rather than later.

Historically telecom companies were very stingy with data speeds. The first generations of DSL didn’t deliver speeds that were much faster than dial-up and even today there are many markets that still offer DSL with downloads speeds of 1 Mbps. Then cable modems came along and they upped speeds a little, with the first generation of cable modems offering speeds up to 3 Mbps. And over time the telcos and the cable companies increased data speeds a little, but not a lot. They engaged in oligopoly competition rather than in product competition. There are many notorious quotes by the presidents of large cable companies saying that their customers don’t need more speed.

But then Verizon built FiOS and changed the equation. Verizon’s lowest speed product when they launched service was 20 Mbps, and it was an honest speed, meaning that it delivered as advertised. Many of the DSL and cable modem speeds at that time were hyped at speeds faster than could be delivered in the network. Cable modems were particular susceptible to slowing down to a crawl at the busiest times of the evening.

Over time Verizon kept increasing their speeds and on the east coast they pushed the cable companies to do the same. Mediacom in New York City was the first cable company to announce a 50 Mbps data product, and today most urban cable companies offer a 100 Mbps product. However, the dirty secret cable companies don’t want to tell you is that they can offer that product by giving prioritization to those customers, which means that everybody else gets degraded a little bit.

And then came Google in Kansas City who set the new bar to 1 Gbps. Service providers all over the country are now finding ways to 1 Gbps service, even if it’s just to a few customers.

I am always surprised when I find a company who operates a fiber network which does not offer fast speeds. I still find fiber networks all the time that have products at 5 Mbps and 10 Mbps. In all of the fiber-to-the-premise technologies, the network is set up to deliver at least 100 Mbps to every customer and the network provider chokes the speeds down to what is sold to customers. It literally takes a flick of a switch for a fiber provider to change the speed to a home or business from 10 Mbps to 100 Mbps.

And so I tell these operators to make it faster. If you own a fiber network you have one major technological advantage over any competition, which is speed. I just can’t understand why a fiber network owner would offer speeds that are in direct competition with the DSL and cable modems in their market when they are capable of leaping far above them.

But even if you are using copper or coax you need to increase speeds to customers whenever you can. Customers want more speed and you will always be keeping the pressure on your competition.