Some of the country’s largest cable systems are close to a series of deals that could shift popular cable networks onto higher-priced tiers.
That’s the word from Michael J. Ritter, president and chief operating officer of Continental Cablevision, the third largest MSO, who said negotiations with cable networks have accelerated.
The parties must conclude their transactions to meet the June 21 Federal Communications Commission deadline, when operators must publish an inventory of the prices they charge subscribers for each of the channels their systems carry.
Ritter declined to mention specific networks.
However, sources say ESPN, CNN, USA, Discovery, Nickelodeon/Nick at Nite, TNT and the Family Channel will likely, and reluctantly, allow cable operators to price them separately — or a la carte — and in tiered packages, providing operators guarantee circulation doesn’t fall below 80% of the networks’ current reach.
“The programmers are all shouting that the sky is falling,” Ritter told reporters following a panel discussion at the National Cable Television Assn. show Tuesday. “But cable operators are facing problems we’ve never seen before.”
Ritter envisions Continental removing two big networks (each with a circulation of more than 57 million households) and two smaller networks from the expanded-basic tier, sticking a price tag on them of $ 1.25 apiece, then making them available at a discount on a separate four-channel tier for $ 2.95. The two big networks “would serve as locomotives,” he said, to lure subscribers to shell out $ 2.95 for the tier.
Continental, Tele-Communications Inc., Time Warner, Comcast and Cablevision Systems are praying from the same a-la-carte hymnbook because the FCC, interpreting the Cable Act of 1992, has put forward specific price ceilings that regulate basic-cable networks.
These ceilings will force most cable operators to roll back the prices they charge subscribers, unless these ops turn a couple of the basic networks they carry into mini-pay networks and thus rescue them from the jaws of the regulators.
All sorts of behind-the-scenes wheeling and dealing is going on as cable operators try to outwit the FCC’s regulations. Ritter said Continental could replace the expensive networks it catapults onto new tiers with low-cost networks that would ease the pain of any rate givebacks to subscribers.
Another MSO executive, who requested anonymity, said ESPN offered him the right to a-la-carte the network if the operator agreed to put its proposed new sister network ESPN 2, which kicks off Nov. 2, on the most widely circulated basic-cable tier for a monthly fee of only 2 cents-3 cents a subscriber.
John Lack, ESPN executive VP of marketing and programming, said he has no plans to sell ESPN 2 for such a low rate.
Hitting webs in wallet
Cable networks have to be forced to agree to new tiers, Lack said, because any loss of circulation could cost them rating points, thus costing them advertising revenues.
“The established cable services have to maintain their cash flows,” said panelist Paul Beckham, president of Turner Cable Network Sales, which drums up advertising dollars for CNN, TBS, TNT, CNN Headline News and the Cartoon Network.
Rick Boyce, an exec with ad agency Hal Riney & Partners, said, “We’d hate to see major cable networks lose penetration.”
But the consensus of the industry is that a la carte, by necessity, will become a way of life in the new regulatory climate. The model for the future is a monthly bill from the cable company that would parallel the phone bill — subscribers would pay a separate fee for each program they watched.
As Sharon Patrick, president and chief operating officer of Rainbow Programming Holdings (American Movie Classics), put it, “The world is going in the direction of choice, and we’re going to have to adjust.”