Walking into the office today, I actually felt pretty good about myself and the work I do here at your friendly neighborhood cable company. But after reading The Wall Street Journal this morning, I suddenly feel like the dirty, destructive, dangerous, evil criminal I apparently am. Yes, according to an opinion piece in the WSJ, I shill for “the most pernicious monopoly in America.” And all this time I innocently thought we simply delivered entertainment and communications services. Silly insidious me.

Of course, the message that I am pernicious was delivered by a lobbyist—or, I should say, “senior adviser”—for AT&T. Yes, the same AT&T whose financial prospects are exponentially improved by passage of the statewide video franchises heralded in this exposé of the evil cable guys. The same AT&T whose logo should be drawn in the margin beside the dictionary definition of “monopoly.” The same AT&T that’s essentially the Humpty Dumpty of today’s American economy (all the king’s horses and all the king’s men are certainly trying to put it back together again—the “it” being Ma Bell, inarguably one of the largest monopolies ever). But if a “senior adviser” to AT&T declares that Cable is the monopolistic devil and the offspring of Ma Bell the valiant knights of communications commerce, then surely it is thus. I’m so thankful we cleared that up.

For at least the second time in a week, an article in a major daily highlights the business basics of Cable—emphasizing that cable distributors pay cable networks for the right to deliver those channels to their customers, as well as the direct link between increased programming costs and higher cable bills. Last week it was a New York Times column on NFL Network; today it’s an Atlanta Journal-Constitution piece on Fox News (“Fox News Wants More $$ from Cable Operators”). The latest piece notes that the popular news channel is proposing to nearly quadruple the price it charges cable distributors—from an average of 27 cents per subscriber per month to $1. That increase, of course, would ultimately be paid by cable customers. Fox has placed legal notices in Connecticut announcing that the network may be off the local Cablevision lineup if the two companies can’t agree on Fox’s higher license fee demands. Fox is also negotiating with DirecTV. From the AJC:

Some believe Fox is playing an aggressive bit of gamesmanship with its $1 request and will settle for a smaller increase. "Going from 25 cents to a dollar is completely unrealistic," said Derek Baine, an analyst with Kagan Research. Yet honchos at Fox's parent, News Corp., have postured about putting up a fight if they don't get what they want, including the possibility of yanking the channel and unleashing the wrath of the channel's base of vociferous viewers....
The brewing battle highlights a little-seen side of the cable business. Networks typically earn money in two ways: by selling ads and by gathering monthly license fees from cable companies. Networks and cable operators rely on each other yet, at times, have a love/hate relationship.

The topic of the season in Cable is clearly going to be sports programming costs. Amid the ongoing debate/battle NFL Network is having with Time Warner Cable and other cable companies on carriage of the network and the channel’s broadcast of eight live games, Comcast Chairman and CEO Brian Roberts weighed in yesterday. Following a speech in Washington, D.C., Roberts opened up about the pressure of rising sports programming costs. He admitted Comcast is “conflicted” since it owns sports networks, but called it a serious issue and advocated “dialogue.” Noting the flood of new sports networks being launched by pro leagues and regional college conferences, Roberts said, “I don’t know the answer, but I’m here to tell you that I’m worried that there is a sea change occurring, a tipping point, with the amount of new sports channels that are getting created and how that cost gets distributed.” From Multichannel News:

Roberts -- whose company pushed into sports programming long ago -- raised an issue that has soured relations between cable operators and sports programmers in recent years. More and more, operators want to create sports tiers to take pricing pressure off expanded basic and reduce regulatory pressure. Last week, Federal Communications Commission chairman Kevin Martin called expanded basic a “tying” arrangement....

Comcast, under pressure from the FCC, caved in last month and launched Mid-Atlantic Sports Network, the pay TV home of Major League Baseball’s Washington Nationals. The MSO raised expanded-basic rates by $2 per month for 1.6 million customers to cover MASN’s cost -- a move that drew negative publicity. Comcast had balked at carrying MASN largely over the regional sports network’s license-fee demands.

Roberts alluded to the MASN dispute by suggesting that in the eyes of regulators, fan access to the games of the home team right now seems to outweigh cable operators’ interests in managing costs.

The high cost of cable programming (particularly sports) is one of the biggest economic pressures affecting cable distributors and, whether they realize it or not, cable customers. It’s safe to say most customers don’t realize or care that their cable providers have to purchase the channels delivered into their homes. They just want to turn on their TVs and watch The Closer, Project Runway and SportsCenter. However, behind-the-scenes negotiations about how much cable providers pay to carry networks does directly affect cable customers—smack dab in the wallet. So we applaud pieces like Richard Sandomir’s column in today’s New York Times (“Network is Counting on Fans to Pay a Lot for a Little”) that reveal the direct link between the prices cable networks charge for distribution and the price cable customers in turn pay.

Sports programming is by far the most expensive of all categories of programming. And, as Sandomir points out, the NFL Network’s determination to extract hundreds of millions of dollars from cable operators and cable customers for eight NFL games illustrates how the aggressive demands of some networks directly impact consumers: "...the league wants cable operators to swallow a large fee, which would inevitably find its way to consumers."

Fortune has a great piece on continuing reports that Rupert Murdoch is in talks to sell News Corp.’s stake in DirecTV. “Murdoch also seems to have fallen out of love with the satellite business, after spending close to a decade trying to buy into DirecTV.... Murdoch, associates say, now sees that broadband is the future, and DirecTV simply can't keep up.” The article notes that News Corp.’s experience with the social networking phenomenon MySpace.com is driving its strategy decidedly to broadband. Click here for the full article, “Take my satellite business – please.”

It seems like confusion was in the air at an IPTV workshop last week at the Fall 2006 VON (the "Global IP Communications Industry Event" in Boston). Telephony magazine, which sponsored the IPTV workshop, reported: "…it was also clear for the 150-plus attendees today that, while it’s certain telecom service providers must compete with cable and do so immediately, it’s much less certain which network approach will serve them well in doing so."

Following presentations from Verizon and BellSouth, the mostly telco audience had no shortage of questions, ranging from “How do you know if you have enough bandwidth?" to "What’s the greater risk, taking longer to build out an all-fiber network or building a near-term fiber rich network that doesn’t go all the way into the home?” Perhaps the Telephony writer summarized it best as she began to recap the workshop: "It’s clear that there is still uncertainty among telecom service providers when it comes to what form of fiber optic access network makes the most sense – fiber to the premises, fiber to the curb or fiber to the node." Just imagine how things would’ve heated up if a cable operator had actually been in the room.

Tony Brown, DST Correspondent

What many described as the largest student protest since the ‘60s resulted last week in a victory for the users of Facebook who had protested a new feature on the student social networking site. A News Feed service on the site that posts updates of social events within one’s network of friends quickly came under fire after its debut on Tuesday morning. The News Feed acts as an RSS of gossip, highlighting the juicy details of daily life: Bobby added Jill as a friend, Jane and Michael broke up, and Morgan added new photos of herself—complete with time stamp and link to the subject’s page. All of the information provided in the News Feed can be found by browsing each user’s page; the News Feed simply makes the hot details easier to access.

Students called the feature stalkerish and a serious invasion of privacy and began to make noise the best way they know—on Facebook itself. Within hours of the News Feed premiere, several groups of thousands of students had formed in protest of the new feature. Membership in the largest group, Students Against Facebook News Feed, spread like wildfire among angry students and in three days amassed nearly 800,000 members.

Ironically, it was the News Feed itself that enabled many of Facebook’s 8 million-plus student users to sound off on the topic. Displaying each friend’s enrollment in a protest group on a user’s home page was the only advertisement needed to assemble such immense numbers. Within 72 hours, Facebook founder Mark Zuckerberg had offered peace via an open letter apology and new privacy controls: “We really messed this one up… we did a bad job of explaining what the new features were and an even worse job of giving you control of them.” For now, all seems to be quiet on the Facebook front and the majority of users seem to have adopted the new privacy policies.

Yet another new research report underscores the growing popularity of bundling up on multiple communications services. According to consumer research firm Telephia, nearly 43% of online households subscribe to a bundle of at least two services (among Internet, phone and TV) from a single provider. The company’s research revealed that price was the leader in driving consumers to bundle, along with customer service and convenience. While we certainly love reading more and more about the business and consumer benefits of bundling, we can hardly resist the urge to respond (oh so maturely) “duh.” From the time Cox Communications launched high-speed Internet in 1996 and digital telephone shortly thereafter, we’ve experienced first-hand that customers love the convenience and value of getting multiple services from a single source. However, for a long while, it was pretty lonely in the bundling camp; only recently have most other major providers woken up to the benefits of bundling. Meanwhile, Cox remains the best bundler, and more than 50% of the company’s nearly 6 million customers subscribe to at least two of Cox’s major residential services (cable TV, phone and high-speed Internet services).

Intriguing quote from Forrester Research analyst Maribel Lopez in an Associated Press article today about the major RBOCs' TV strategies: "Telcos expect to grab 20 percent-30 percent of the market just by showing up. We think acquiring TV subs in a three-way battle will be much tougher than that.... Assuming telcos execute flawlessly, they still have to steal customers in a saturated market whose growth is largely tied to population growth." The article reports that the major telcos are seeing higher stock values following a tough 2005, citing wireless growth and cost-cutting, but noting that the rise in stock price comes as the telcos suffer continued loss of phone customers to VoIP providers, including Cable. In fact, as of the end of the second quarter, the number of Internet-based phone customers had risen 150% from a year earlier, to 7 million. As we all know by now, the loss of phone customers is driving Verizon and AT&T's push to upgrade their networks with fiber. Speaking of which, Verizon says its $20 billion fiber-to-the-home project had helped garner 110,000 FiOS customers at the end of the second quarter—“a level the company said represented an average market penetration of 15 percent,” according to the AP.

But some analysts aren't sure that early success can be seen as indicative of how the battle will play out. Already, Verizon's FiOS rollout has sparked a nasty arms race in the Long Island region of New York, where cable provider Cablevision Systems Corp. has been boosting its Internet speeds in retaliation. Meanwhile, in a possible sign of the technological challenges phone companies face with their foray into cable, the new AT&T has fallen well behind with its original timetable for U-verse. That service, which uses Internet technologies to deliver TV over a copper phone line, costs only a fraction of the investment of FiOS, but the company has yet to show enough confidence for a full-scale market launch.