A new report from BernsteinResearch includes some interesting stats from Massachusetts, where Verizon is delivering its FiOS video service in several communities.

We draw two conclusions from the [Massachusetts Department of Telecommunications and Cable] data. First, the data broadly confirms the obvious; Verizon's FiOS is, as expected, gaining traction and share. Second, the results belie the consensus expectation that Verizon's gains will inevitably mean steep losses for cable incumbents.

Thre report notes that Verizon’s 2007 gain in the Massachusetts communities was far larger than Comcast’s losses.

This counter-intuitive observation reflects the manner in which cable subscriber growth has remained essentially flat even while new entrants (the DBS providers) have, over the last fifteen years, grown to 33M subscribers: industry growth and, to a lesser extent, loss of share by smaller providers.… The result runs contrary to expectations about TelCo entry into the TV market, but are consistent with broader themes of limited TelCo overlap: Verizon FiOS will be available to just 16 to 17% of Comcast subscribers by the time Verizon completes construction of the FiOS network in 2010/2011; and continued (even modest) industry growth. The net effect on the cable industry is a loss of share – but a relatively steady subscriber count over the period.

Fellow un-scripted cable programming fans... it’s time! It’s time to let the world know that you did, in fact, stay up until 1 AM watching MTV’s Run’s House marathon last Tuesday. It’s time to admit you always think the well-meaning couple should have gone with house number one in HGTV’s House Hunters. It’s time to stand up and say “Yes, I’m addicted to E!’s The Girls Next Door!”

But why the sudden emphasis on the shows we’ve been watching on cable programming? With production halted on many broadcast primetime-favorites due to contract disagreements between the Writers Guild of America (WGA) and the Alliance of Motion Picture and Television Producers (AMPTP), television viewers are looking beyond the “Big 3” broadcast networks for entertaining programming options.

There was plenty of news concerning television and cable networks at CES this year, as there was a clear new emphasis on content and programming. But outside of the cable arena, there were several other trends that revealed themselves in consumer electronics. From a new focus on “green” technologies, to the electronic crusade to the car, to what may finally be the end of the war between Blu-Ray and HD DVD, CES 2008 will be one that may be remembered for influencing the electronics industry for years to come.

... a tradeshow booth with a Dish!

It's hard to ignore the TVs that are on display at CES, and until now I've been doing just that. However, there is some big news regarding television technology that debuted at CES this year. It's my final day on the show floor, and today I'm focusing on doing some technology wrap-ups.

The biggest news, literally, is the 11-foot, plasma prototype that joined Panasonic President Toshihiro Sakamoto onstage for his keynote address Monday. Later, after seeing it in the Panasonic booth, it was clear that whatever was playing on the screen was hardly suitable for such a massive display. At a resolution of 4x 1080p, it's a very stunning display. Last year, Panasonic displayed a retail 103-inch plasma display. Since, they've managed to sell over 3,000 of the 103-inchers, at a price of $51,000 each.

Panasonic isn't the only company showing off its new tru2way-capable products; a quick trip around the show floor at CES along with a little bit of searching revealed many new components that are very close to hitting store shelves.

LG and Samsung each had a couple of televisions on display, all in the 40-57" range, much like Panasonic's offerings. Finding them proved to be a bit of a challenge, however, as none of the associates in the booths seemed to know anything about tru2way or OCAP. This is not completely unexepected at a show prone to 11th-hour announcements of emerging technologies.

The TV Guide booth had a display of its j-Guide, a rich java-based display that conforms to the OCAP standard. TV Guide also seems in need of the memo, as all of their signage still referred to Open Cable, rather than the rebranded tru2way.

On hand at Microsoft was a CableCard equipped device that interfaces with Media Center PCs. No tru2way capability was on-hand, but the associates were aware of the recent announcement and said products were currently in development.

by Tony Brown, a junior at the University of Missouri

Brian Roberts, CEO and President of Comcast, took the stage yesterday in the first keynote address to the assembly from a cable company chief in the entire 41-year history of the CES. Riding on the coattails of Monday's keynote by Panasonic President Toshihiro Sakamoto in which the Roberts made a cameo to announce new tru2way devices, Roberts' Tuesday speech highlighted Comcast’s plans for implementation of DOCSIS 3.0 and delivery of more HD content.

"The age of the closed, proprietary set-top box is behind us," said Roberts, who, like others, says open source development must be a priority for the electronics industry. The new tru2way technology will allow consumers to go to a retail store, purchase a new component such as a DVR or set-top, bring it home and plug it in, "and expect it to support all cable interactive services," Roberts said. He reminded the audience that the cable industry learned a great deal about how open-source stimulates innovation and consumer adoption with the development of the cable modem, based on the old DOCSIS standards.

Yesterday morning's CES keynote with Panasonic President Toshihiro Sakamoto brought big news to the world of cable with the announcement of Panasonic's new line of HDTVs and set-top boxes integrating tru2way technology. Joined onstage by Comcast's CEO, Brian Roberts, Sakamoto said, "Panasonic will not only deliver a Panasonic Viera Plasma HDTV with tru2way technology later this year, we are also announcing the first portable DVR and digital cable set-top boxes powered by tru2way technology, all of which truly allow consumers to maximize their enjoyment of digital cable television programming.”

The Viera televisions equipped with tru2way will eliminate the need for a set-top box and will eliminate clutter and confusion that stems from multiple components. The Viera Plasma HDTV is expected to be available at retail later this year.

Also announced was a portable DVR which will allow users to record programs at home and then watch them later, acting like a portable DVD player. The tru2way device has a fold-up 8.5" screen and speakers, and docks with a set-top box. Named the AnyPlay, it is expected in Comcast markets in early 2009.

I personally like the idea of the portable DVR, though I doubt people will choose a large portable DVD player-type device over the smaller pocket-sized digital media players they most likely already own. However, it's not hard to imagine the technology spurring a new movement in bridging the gap between those smaller media players and the home DVR.

by Tony Brown, a junior at the University of Missouri

Talk of open development was a hot topic today, with everyone from Jerry Yang of Yahoo! and Rob Stoddard of NCTA to the editors of CNET calling open source development and new industry standards the keys to creating more useful and marketable consumer electronics.

Yang’s keynote address highlighted the release of Yahoo! Go 3.0, the site’s software offering for mobile phones. In it, he explained that leaving Yahoo! Go open sourced was imperative to the continued development of the software. “Having the ability for third party software to interact with Yahoo! Go makes it easier for users to receive relevant content,” Yang said.

Yahoo! Go offers widgets to perform many different tasks, including eBay, MySpace, and MTV News integration. The hope is that software developers and other websites will develop software to work with Yahoo! Go and ultimately make the Internet more efficient and useful to consumers on mobile phones.

In a CNET-hosted panel titled “The Next Big Thing in CE,” Stoddard, along with George Kliavkoff of NBCU agreed that open-sourcing and creation of (and conforming to) industry standards would allow consumers to integrate different technology components with ease. In a discussion about the future of content delivery, both agreed that portable devices must be able to connect to televisions, computers, and DVR set-tops and share content without limitation. One of the major current limitations of programming that is available online is that it is unable to be transferred to mobile devices, they said.

by Tony Brown, a junior at the University of Missouri

Bill Gates officially launched CES 2008 with a Guitar Hero duel against Velvet Revolver guitarist Slash, yet attendees were most likely more impressed with the product demos in the Microsoft front man’s keynote address. In his final of eight consecutive CES introductions, Gates spoke about how content and software will define what he calls “the Next Digital Decade,” and showed off new levels of device interconnectivity and user-centric experiences that always seemed to be just over the horizon. Yet suddenly they’ve arrived.

I came into this year’s show expecting Sync, the Ford Motors and Microsoft partnership in mobile integration, to be the buzz on the floor and a major part of Gates’ address. However, the Sync demonstration was merely a thread of Microsoft’s envisioned blanket of interactive interfaces and entertainment devices. From the web-based Silverlight interface that will help NBC provide the “most most comprehensive broadband coverage of any event, ever” during the 2008 Beijing Olympics, to the continued development of the Xbox 360 platform as a central device in home entertainment and content delivery, Microsoft seems to have all bases covered.

Congrats to CableLabs! It’s another sign that collaboration truly pays off. CableLabs, the cable industry’s non-profit research and development consortium, announced this week that its awarded “qualification” status to DOCSIS 3.0. What does that mean for the customer? This opens the door to even faster Internet speeds and a broader variety of services that can be offered over cable’s broadband network.

According to CableLabs experts, DOCSIS 3.0 specifications enable “downstream data rates of 160 Mbps or higher and upstream data rates of 120 Mbps or higher.” In the CableLabs release, Cox President Pat Esser is quoted as saying, “This DOCSIS 3.0 specification is yet another example of how cable is continuing to advance the power of broadband. This technology ensures that our customers will have access to the fastest and most robust Internet service available and allows us to introduce a new generation of advanced service offerings to our customers.” Click here to read the full CableLabs announcement.

We couldn’t be prouder of our leader, Pat Esser, who is named as the first Executive of the Year by Multichannel News in this week’s issue. The caption on the caricature of Pat says it best, “Recognized for outstanding leadership and corporate management, the Executive of the Year demonstrates that success in the marketplace is achieved by putting customer satisfaction front and center and that by focusing on customer service, a company also serves its employees, investors and the overall industry.”

Pat is prone to describing himself as one of the luckiest guys in cable, but we all know that the “luck” is the sum of opportunity and preparation. While Pat entered the industry as an average communications graduate from the University of Northern Iowa, he has consistently positioned himself to meet opportunity (like when he packed up all of his belongings into the back of his car to try and get a job with Cox in Virginia). His preparedness is second to none. As detailed in the story, Pat spent his first 60 days as president interviewing Cox employees to talk about what they expected of him and the company. Pat understands that listening is an essential ingredient in leading.

Perhaps the best thing about Pat is that, at work, he’s just another member of the team with a contagious excitement for the possibilities ahead.

Have you been to a Wal-Mart lately? If so, Wal-Mart’s latest in-store adventure, “Connection Centers,” might have caught your eye. It’s a consumer-electronics experience, backed by specially trained Wal-Mart employees who are there to sell popular home electronics products like high-definition television, telephone and broadband Internet services. And there we are, Cox, inside the nation’s largest retailer, showcasing our bundle of Internet, video and phone services and making it even easier for consumers to connect their new high definition televisions, personal computers and more to Cox services. And with more than 140 million consumers nationwide visiting a Wal-Mart store every week, this translates to LOTS of HDTV’s being sold. So, yes we are elated to have our services located in the same spot that consumers make their electronics purchase. Talk about convenience. Now, Wal-Mart shoppers can go home complete: A new HDTV, an extra surge protector from aisle #7 and a bundle of Cox services to enhance their home communications experience (and save some money too). It’s the Wal-Martization of Cable and it’s long overdue!

With the number of HD channels rapidly increasing at Cox and in the spirit of anticipated benevolence bestowed upon budding home entertainment aficionados this Christmas, we decided to do a quick analysis of the most popular HDTV options in the market.

LCD (liquid crystal display) and Plasma flat screens are the most debated options, but microdisplay rear projection televisions, such as DLP (digital light processing, manufactured by Samsung, Toshiba, Mitsubishi, Panasonic, LG, RCA), LCoS (liquid crystal on silicon, manufactured by Sony, JVC and Brillian) are another great HDTV option. These TVs aren’t thin enough to hang on walls in most cases, but they have a small footprint, 15 inches deep on average and are relatively lightweight.

CableFAX Daily is reporting that Verizon is raising the price of the most popular programming package on its FiOS TV service. The cost of the premier package will increase 11.6% next year for new customers, while existing customers will see a 7.6% increase. CableFAX cited a Sanford Bernstein research note stating that “the price increase will ‘almost certainly’ be larger than any instituted by cable or satellite ops. It also should signal to legislators that more factors impact pay-TV price jumps than just a dearth of competition.”

Cox and NBC Universal announced this week an On DEMAND trial through which select NBC primetime shows will be available for free starting the day after they first air on the network. Featured shows: “30 Rock,” “Friday Night Lights,” “Las Vegas,” “Bionic Woman,” and “Life.” The announcement generated a fair amount of interest. Here’s a round-up of some of the coverage, from Mediaweek, Marketing Shift, and Digital Media Wire. Cox’s agreement with Hearst-Argyle covering retransmission of the broadcaster’s high-definition and analog signals for stations in six markets also generated coverage, including here, here, and here.

As football season starts, another battle between a sports net and cable distributors is getting heated. Fox Cable Networks wants broad analog carriage and high fees for its new regional sports channel, the Big Ten Network, and is running ads encouraging consumers to switch to DirecTV, which is carrying the net. Cox Communications and other cable companies are negotiating with the network for distribution on cable systems within or adjacent to Big Ten territories, but want to distribute it on digital sports tiers, so that only those customers who are interested in the programming will have to pay extra for it. In a letter to customers last week, Comcast declared: “The Big Ten and Fox see huge revenue opportunities in creating their own network and want to charge Comcast customers hundreds of millions of dollars to watch it on expanded basic. We believe that our offer to carry Fox's BTN on a sports tier best protects the interests of all of our customers, including Big Ten fans.” Comcast directed customers to a new site, www.puttingfansfirst.com, that breaks down the issue in detail and encourages them to take action.

Buying cable advertising is simple, streamlined and superior. That was the message delivered to D.C. media buyers, campaign insiders and other politcos in a conference this week targeting increased cable ad sales for the ’08 election cycle. At the political advertising summit, Cox's John Dyer, Comcast's David Cohen, and Time Warner's Landel Hobbs pledged to make it easy to buy cable spot time across the country and discussed unique interactive advertising applications under development by the industry. Pitching cable's superiority over broadcast in surgically targeting specific demographic groups and multicultural audiences, the industry expects to attract significant ad spending in the upcoming election cycle. Cable providers have also joined forces to develop a common On Demand advertising platform -- Elections '08 -- allowing campaigns to engage with prospective voters through long-form ads, available 24/7 on digital cable. From the Hollywood Reporter’s coverage of this week’s event:

The nation's big cable companies are taking aim at one of broadcast television's last cash cows as they hope to turn their newfound ability to target small segments of voters into advertising dollars. Cable industry executives think they can help supplant broadcast television as the dominant political medium as politicians look for ways to reach smaller slices of the electorate.

"Broadcast television is targeting by machete," Comcast executive vp David Cohen said. "What cable lets you do is target by scalpel. There's much less blood loss."

Click here for the full Hollywood Reporter article.

Perhaps defying conventional wisdom, a new study reveals that college students watch a lot of TV and prefer watching on a traditional set over a computer or other devices. Of course, 17-to 23-year-olds are still very connected via a slew of technologies and devices. While 70% of respondents said they prefer watching TV on a traditional set, 21% do view video on their computer (including watching clips on YouTube and social networking sites). Further, the study revealed that college students prefer cable providers over satellite companies and telcos, and the average student watches about 16.6 hours of programming a week. The research was conducted by the Market Research Department (MRD) for the cable industry’s marketing association, CTAM. Click here for full results (subscription may be required).

Cox’s 2nd quarter highlights included the lowest customer churn (2.5%) in company history. (Here’s some media coverage of the announcement and here’s the official Cox release.) It’s a testament to the power of a “bundle” of services, even in the face of increasing competition. Another highlight is that, by selling multiple services into single homes, the company’s subscriber gains in the past year have more than made up for the loss of customers due to the company sale of cable operations representing about a million subscribers to Cebridge Connections last year. Overall, more than 60% of Cox’s roughly 6 million customers subscribe to at least two of the three major services, and bundled customers increased 11.9% over 2006. Speaking of the bundle, Cox will celebrate a full decade of delivering the bundle of cable, phone and high-speed Internet next month. It was September 1997 when Cox launched telephone in Orange County, Calif., completing the bundle and becoming the first major provider to commercially deliver cable, phone and high-speed Internet over a single broadband network.

In a panel that otherwise covered little new ground, yesterday’s closing session of the CTAM Summit in D.C. was notable for a tidbit dropped by ESPN’s George Bodenheimer. “Power to the People,” the theme of the cable marketers’ annual conference, was well reinforced when Bodenheimer, in a discussion on “how to make your customers love you,” noted that at least 30 babies have been named ESPN--“one as early as last week.” The poor children’s parents’ questionable thinking aside, it was a fitting anecdote to end a conference packed with no small amount of discourse about how to create and capitalize on customer loyalty in this digital age. And in other news from the panel, the Internet is dead.

This Los Angeles Times editorial takes a swipe at the telcos for hiking fees on custom calling features:

AT&T and Verizon wasted little time taking advantage of the freedom that the California Public Utilities Commission granted them in August. Unleashed from regulations that limited how they priced many of their services, California's largest telcos quickly hiked the fees they charged for many of their custom calling services, such as caller ID and call waiting. The phone companies had argued for unlimited "pricing flexibility" by pointing to the many phone lines they were losing to rivals, such as cable TV operators. They also said allowing them to respond quickly to competitors' promotional offers would (in AT&T's words) ensure that "customers reap the full benefits of competition."

While I’m not technically a cable employee, I write about the industry here on DST. And, for some people, that seems to grant full license to give me an earful about their cable experiences.

A few weeks ago, I was in the middle of an interview for a local moving company when the manager, looking over my previous employment, asked about my arrangement with DST. After a quick explanation he sat back and said, “I hate my cable. It’s terrible.”

Multichannel News reported that a bill has been introduced on Capitol Hill that would force cable operators to create a family-friendly programming tier, comply with existing federal indecency rules for broadcast stations and/or rebate customers who have blocked channels in a tier. This legislation would seem to force a version of a-la-carte and a view of indecency rules on the cable industry and consumers, but do consumers really want this?

Consider this. Most of the major cable operators reported outstanding first quarter 2007 performance, including significant success with digital cable which features dynamic parental control features. Cox even saw an up tick in basic analog cable. Cable TV is performing well in the face of ongoing stiff competition from satellite and new telco competitors. Cox customers are showing increased satisfaction with their services thanks to new programming choices as well as high definition, On DEMAND and DVR innovations which are increasing the value of their video service and the convenience associated with its use. Consumers direct the free market with their wallets. Americans clearly love their cable TV, and Government intervention threatens this love affair by threatening private investment and further innovation.

And the latest winner of the Let’s Bash Cable for Fun and Profit Award is Haggar. Yes, the pants people. In an “episode” of their “Making Things Right” campaign, two very average Joes make everything better by taking their frustration out on a hapless, clueless, tardy cable guy by stranding him on the roof. (Wait, if he’s on the roof, wouldn’t that make him a satellite guy?) Hapless cable guy: “I’m freakin’ out here, all right? Just bring the ladder.” Very average Joe #1: “Oh, we will, sometime between the hours of 7 and 11. Probably closer to 12:30.” Oh, we’re in stitches here. Stitches like those on uncomfortable poly-blend sans-a-belt slacks.

Cox Communications and ABC recently announced a trial of advanced video on demand, through which four of the network’s top primetime shows and select sports programs from ABC and ESPN will be available on Cox’s On DEMAND service. Starting this fall, “Desperate Housewives,” “Grey’s Anatomy,” “Lost” and “Ugly Betty” will be available to Cox’s On DEMAND customers in Orange County, Calif., the day after their broadcast premiers. The trial, and the fact that fast-forward capability will be disabled for these shows, has generated a lot of attention and questions. Here, Cox’s Senior VP of Programming Bob Wilson, responds to questions about the ABC venture and its implications.

1. Bob, what’s driving the VOD deal with ABC?

This is a step in the direction of taking VOD to the next level. It will put some of ABC’s most popular and valued shows, which are some of the highest rated in all of television, on Cox’s On DEMAND service the day after the programs first air. For Cox, it gives our customers enhanced access to free, over-the-air, premium broadcast content without either Cox or the customer paying incrementally more for it, and for ABC it will enhance the return on programming investment by providing extended program access in a way that protects and potentially enhances advertising value.

Okay, this one may scream self-promotion, but we simply couldn’t ignore an article in the current BusinessWeek, “A Cable Company People Don't Hate – How Cox is keeping customers happy and stealing business from the phone giants.” Yes, we cringe a bit at digs like the one in the headline, but, then again, we have to admit it’s a fair dig since Cable’s customer service record hasn’t always been sterling. But back to the present: the article addresses not only Cox Communications', but the industry’s, successful entry into the phone biz and our push into wireless. Here’s a snippet:

There's a ton of money to be made in phone service--about $60 billion of yearly revenue just on voice plans for U.S. consumers. And don't cable companies know it. For years they have been laying miles of new fiber-optic cable and doing everything they can to steal chunks of that business from the phone giants. So far they've managed to pull away about $4.6 billion in phone revenues, according to Sanford C. Bernstein & Co.

In the scramble for every customer, one cable outfit seems to have hit upon a formula that works: beating the phone companies at customer service. In recent surveys conducted by J.D. Power & Associates Inc., owned by Business Week parent The McGraw-Hill Companies, Atlanta-based Cox Communications outscores traditional phone providers such as AT&T, Verizon Communications, and Sprint Nextel. On a variety of metrics, from network performance and reliability to billing and cost, customers in several regions describe Cox as their preferred provider.

Techdirt has a post about the BusinessWeek article, here.

Things are in full Vegas swing as the Cable Show kicks off. In one of yesterday's more interesting panels, Turner’s Coleman Breland offered an apt analogy for the dynamics of the cable industry. Keeping things interesting and lighthearted in a potentially tense session on programming which touched on new platforms, the threat and opportunity of the Internet, and challenges to traditional revenue models for content, Breland compared cable companies (programmers and operators) to members of a rock band who find themselves struggling to get along after reaching uber-success.

He explained how musicians in a rock band start out creating music together, working together to achieve success, and also partying together. In the beginning, the members of the band aren’t necessarily that good at what they do individually, but together they do something that resonates. They achieve success, and over time they become better at their craft. With success comes the pressure of expectations for continued success, and individual members become restless and want to try new things. He suggested the importance of the band members allowing their colleagues the room to grow. The point, he said, was that the members of the cable industry had been very successful together and could continue to be so. He pointed to the Stones and the Beatles and noted that the Stones were the model since they were still making lots of money together.

New Orleans is definitely back in business, and Cable is helping spread the word. Today, 12 cable companies announced a donation of more than $12 million in airtime to promote New Orleans tourism. The Cox-led program will place tourism commercials on cable channels nationwide. The spots feature stars like John Goodman and Wynton Marsalis sharing what they love about New Orleans and directing viewers to www.NewOrleansOnline.com for travel info. The New Orleans Tourism Marketing Corporation (NOTMC) estimates the donation alone will deliver $1.3 billion in economic impact to the area. Mayor Ray Nagin, himself a former cable guy (he was General Manager of Cox’s New Orleans operation), certainly understands the power of the in-kind donation. “On behalf of everyone who calls New Orleans home, even those who remain relocated, I give heartfelt thanks to Cox and their cable peers for this incredible gift,” he said.

The FCC released a report this week concluding there’s too much violence on TV and that it’s harmful to children. Further, the Commission urged Congress to enact limits on violent content and pushed for a la carte delivery of cable channels. We haven’t digested the report yet, so we can’t comment on all of its conclusions and content. But we do know that managing what children see, and don’t see, on TV is of critical concern for our customers.

While we believe in a customer’s right to choose the programming that is right for them, we know not all programming is appropriate for all members of the family. At Cox, we think a big part of the answer is ensuring customers have the tools to make viewing choices that are appropriate for their family. We’ve found that by providing our customers not only the right resources, but also the right education on how to use them, they can and do effectively manage TV viewing in their home and are empowered to make smart choices for their family. That’s the primary goal of our Take Charge initiative—to provide appropriate tools and education on how to get the most out of them—and the response from our customers has been extremely positive. Clearly, the debate will continue. Stay tuned.

A Convergence Consulting analyst has gotten press recently speculating that cable companies will be forced to eventually disable digital video recorders’ fast-forward capability. Brahm Eiley of Toronto-based Convergence has issued two recent reports predicting such a fate for the FF button, and, ultimately, a bleak future for the DVR. Eiley’s conclusion is that DVR-enabled fast forwarding is killing the advertising model and that, to protect the $71 billion television advertising revenue stream, service providers will have to prevent customers from speeding through commercials.

At Cox, we certainly have no plans to stop customers from fast forwarding through DVR-ed content, a favored feature of these amazing devices. Indeed, we shudder to imagine the likely consumer outcry. With DVRs, it’s unrealistic to think we can or should eliminate such a valued feature as FF now, after paying customers have embraced it and will likely protect it vociferously. It simply wouldn’t be prudent for us to take away this feature, especially when customers could likely get it from our competitors.

But while we disagree with the conclusion, we admit parts of Eiley’s argument are sound.

An intriguing sign of the times: Discovery is expected to announce today that it’s rebranding Discovery Home as an eco-friendly channel all about environmental consciousness. According to Broadcasting & Cable, the move is part of Discovery’s PlanetGreen initiative, which is about “celebrating, preserving and protecting the planet” (in the words of Discovery CEO David Zaslav). In addition to the network rebrand, coming in 2008, the initiative will include green-focused Web content and sites, as well as environmental programming on Discovery Communications’ other networks. Somewhere, Al Gore is smiling.

Baseball fans can rest easy now. As can cable operators who want to keep those fans happy. The intense negotiations between Cable and Major League Baseball have ended favorably. Cable will retain rights to the Extra Innings package of out-of-market games. Reportedly, Cable agreed to digital carriage of The Baseball Channel, coming in 2009, and will have a minority ownership in the network, although details haven’t been released yet. Stay tuned.
UPDATE: some more deal details here and here.

Last week, Cox Communications signed a letter of intent to exchange our 25% stake in Discovery Communications for the stock of a company that owns the Travel Channel business, Discovery’s Antenna Audio business and cash. We thought this would be the perfect time to start a new feature on Digital Straight Talk called Five (or so) Tough Questions For…. The first person in the hot seat is Cox’s President, Pat Esser.

1. Pat, Cox is a cable distributor. Why in the world are you interested in owning and operating a cable network like Travel Channel?

Yes, Cox is a cable distributor, and distribution will remain our core business. But I’m always interested in opportunities that can make our business even stronger. We’ve been very pleased with our interest in Discovery, but it's a financial asset that doesn’t hit our bottom line. Converting it into an operating asset like Travel Channel on our balance sheet that will generate revenue and cash flow is a good move for Cox. But beyond that, Travel Channel is a phenomenal brand with powerful content that I’m confident can be leveraged in multiple ways across the businesses and services of Cox Communications and our parent company, Cox Enterprises. That would include our wireless service, as well as newspapers and broadcast stations. There seem to be unlimited opportunities to make the most of Travel’s amazing content. I’m extremely impressed by Pat Younge (general manager of Travel Channel) and his team. My plan is to provide them all of the support they need from me and my team to continuing growing the Travel Channel brand, and to let them do their jobs.

Major League Baseball’s March 31 deadline for negotiations on Extra Innings carriage was extended and negotiations are reportedly continuing today. Stay tuned. In Saturday’s New York Times, writer Joe Nocera marveled that the battle had attracted Senator John Kerry and led to last week’s Senate hearing. While not particularly favorable to MLB or to Cable, the article nonetheless captures many of the underlying issues, including the ever-rising cost of sports TV rights.

So let’s think about what baseball has done here. In the interest of seeing to it that its baseball channel gets a running start on DirecTV, it has infuriated the cable industry, which is now unlikely to ever give it the time of day. It has turned down the opportunity to be guaranteed an astounding 30 million subscribers on Day 1 because it wants to squeeze the cable industry for more. “They allowed the cable industry, which is probably the most reviled industry this side of used car dealers, to become the victims in this thing,” said Marc Ganis, president of the Chicago-based SportsCorp. “You have to really screw up to make cable look good.” Plus, it has alienated 200,000 of its most passionate customers — the ones willing to pay $165 a year to see baseball games every night — taking away from them a fruit they had already tasted. Plus, it has forced those same fans to go to the baseball Web site to see those games — which, however good the site is, still entails scrunching over a screen and looking at a picture that doesn’t compare to say, a flat-screen plasma TV. Plus, it has reminded the world yet again how much sports is just another greedy business — exactly what its customers don’t want to be reminded of. Plus, it’s gotten Congress up in arms.

Cox Communications today signed a letter of intent to exchange our 25% ownership interest in Discovery Communications for $1.275 billion in cash and ownership of Travel Channel and related businesses. Cox was an original investor in Discovery in 1986 and we’ve been delighted with the investment as Discovery has grown into one of the strongest content brands in the world. While we’ve been very pleased with the financial asset, we’re excited about the opportunity to convert it into an operational asset that generates revenues and cash flow, and to continue paying down debt with the cash proceeds.

Travel Channel, now available in nearly 90 million homes, is an impressive, growing network, and we’re excited about owning and operating it and exploring ways to leverage its unique content with other Cox businesses, including wireless ventures and Cox Enterprises’ broadcasting and newspaper businesses. When the transaction is complete, Cox would own Travel Channel, travelchannel.com and Antenna Audio, which produces audio and multimedia content used at museums and other attractions worldwide. Here’s the press release issued this morning by Discovery, announcing the letter of intent. The deal is expected to close by mid-May.

Senator John Kerry (D-MA) continued to press Major League Baseball on its Extra Innings deal yesterday. In a Senate Commerce committee hearing, Kerry urged MLB to accept Cable’s offer – made last week via the iN Demand consortium – to carry the Extra Innings game package at the same terms as DirecTV, while holding off on carriage details of MLB’s yet-to-be launched new network, The Baseball Channel, until it debuts in 2009. MLB, not surprisingly, balked, saying DirecTV “has the right to begin to help us build the channel.” Meanwhile, the clock ticks away on MLB’s end-of-March ultimatum to all providers other than DirecTV.

“By rejecting the matching offer, MLB has proven it never intended for iN Demand to have a fair and equal opportunity to bid for Extra Innings." That was a statement from iN Demand President Robert Jacobson after Major League Baseball rejected iN Demand's offer, which iN Demand said matched DirecTV's deal for carriage of the Extra Innings package. According to Mediaweek:

Both sides were vague as to what the points within the deal were matched or not matched specifically, but sources familiar with the situation said that while In Demand offered to match the dollar amount to carry the MLB Extra Innings package of out-of-market games and to launch the MLB Channel, the disagreement is over how the MLB Channel will be carried or distributed.

Major League Baseball said last week if Cable and other providers agreed to the same terms as DirecTV, they could carry the Extra Innings game package. Today, iN Demand Networks, on behalf of the cable industry, offered to carry Extra Innings and MLB’s yet-to-launch network, The Baseball Channel, at what it called the same terms as the DirecTV agreement. [Click here for iN Demand’s press release about the offer.] So, was MLB’s offer serious, or just a condition-laden bluff? Its response to today’s cable’s offer should tell the tale.

In honor of March Madness, TVPredictions.com offers an interesting comparison: Duke University basketball and DirecTV.

DIRECTV is the Duke of TV providers. The satcaster now has 16 million subscribers and it's arguably the most successful TV service in the nation, offering unprecedented features and programs. But for some reason, many people hate DIRECTV. I don't mean dislike. I mean hate. Whenever I write an article about DIRECTV -- whether it's positive or negative -- I get blitzed with e-mails from people calling the satcaster every name in the book. Likewise, Internet message boards are overflowing with comments from people saying extremely nasty things about everything from DIRECTV's HD picture quality to its customer service department to its DVR features. No TV provider, even the most inefficient cable operator, gets this kind of reaction. The hatred is raw and ugly. (Click here for the full post and a slew of comments.)

A panel of execs kicked off the Cable Television Public Affairs Association (CTPAA) FORUM conference in D.C. this morning. Before they took the stage, the group’s president, Mark Harrad of Time Warner Cable, revealed that CTPAA is disappearing. At least, the unwieldy acronym will bid adieu. The group will live on with a new name—Association of Cable Communicators (ACC)—that, he said, better reflects the full array of accountabilities of the industry's PR professionals today.

Back to the panel: It covered familiar ground, with moderator Mark Robichaux of Broadcasting & Cable covering the gamut of topics from a la carte to retransmission consent. This one quickly became the Robichaux and Willner Show, as the wittily dry reporter goaded always-quotable Insight Communications CEO Michael Willner, who delivered the best quips and most memorable insights. He started by giving props to bloggers, revealing that at the height of the company’s prolonged high-speed Internet outage last summer, they turned to blogs “to learn what we didn’t know about (our own network).” Of the rapid rise of blogs and other new-media outlets companies must pay attention to, he said, “If we’re not listening as much to our constituents as we are speaking to them, we’re only doing half our job.”

DirecTV and Major League Baseball announced a $700 million deal yesterday for carriage of the MLB Extra Innings game package. While it isn’t quite the exclusive deal that had been rumored, it appears MLB will use the arrangement to press cable companies and other providers for a sweeter deal. And if they don’t get it, the PPV package will be exclusive to the satellite company.

MLB said other providers can continue to sell the games, but only if they “agree to carriage rights to the MLB Channel proportionally equivalent to DirecTV’s commitment.” As part of the Extra Innings agreement, DirecTV took a minority ownership stake in the MLB Channel, which will launch in 2009, and agreed to carry the network on its basic tier. Cable companies would have to agree to basic carriage to get Extra Innings. Said MLB and DirecTV in a joint agreement: “Should the incumbents decide not to match DirecTV’s commitment, the MLB Extra Innings package will be exclusive to DirecTV.” MLB said such deals must be finalized by the end of March. At Cox, we continue to negotiate for Extra Innings with our customers’ best interests in mind and are working to reach a fair deal.

An encouraging development regarding DirecTV and Major League Baseball's reported exclusive deal that would deny cable TV customers access to the MLB Extra Innings PPV package: In response to a letter from Sen. John Kerry (D-MA) expressing concern about the exclusive arrangement, FCC Chairman Kevin Martin said the Commission would investigate.

In Kerry’s letter, he wrote, “I am opposed to anything that deprives people of reasonable choices. In this day and age, consumers should have more choices – not fewer. I'd like to know how this serves the public – a deal that will force fans to subscribe to DirecTV in order to tune in to their favorite players. A Red Sox fan ought to be able to watch their team without having to switch to DirecTV.” Martin wrote back to Kerry saying he also is concerned about the reported deal and has asked both DirecTV and MLB for information. “Once we have this information, we will report to you on the deal's implications for consumers and any recommended changes to the law to ameliorate any harm to consumers,” Martin wrote to Kerry.

For many consumers, the center of attention during this Sunday’s Super Bowl won’t be the Colts or the Bears but rather the new flat-panel HDTV they’ve purchased just in time for the big game. A survey released earlier this week by the National Retail Federation said 2.5 million consumers planned to upgrade their screens for the game, up from 1.7 million last year. The Super Bowl remains the single greatest spotlight for television technology; Hallmark reports more people will attend parties on Super Bowl Sunday than on New Years Eve. And it’s all to sit down and watch a couple hours of good ol’ TV.

FCC Chairman Kevin Martin testified before the Senate Commerce Committee’s Oversight Hearing On Telecommunications Issues earlier today. Addressing the price of basic cable, Martin said it has “gone up at a disproportionate rate...when compared against over communications sectors.” (Click here for his complete remarks.) In response, the National Cable & Telecommunications Association released the following statement: “A real analysis of today’s marketplace shows the actual price of cable’s bundle of video, Internet and telephone services is 20 percent lower than the price of the same package of services 10 years ago. Chairman Martin's comments reflect an outdated, incomplete and wholly inaccurate analysis that doesn't reflect the realities of today’s marketplace, where consumers enjoy more competition, greater choice and better services than ever before.”

This year at Cox Communications, we’re celebrating 10 years of delivering a bundle of cable, telephone and high-speed Internet services. As our 2006 accomplishments demonstrate, the benefits of bundling continue to make a huge positive impact. Some highlights: The number of new cable customers who also subscribe to Cox’s phone and/or Internet services is 60%, a record high. Customer churn (i.e., disconnects) is at an all-time low. In all, as of the end of 2006, Cox had 3.4 million “bundled” customers, representing an increase of about 15% over 2005. The bundle will soon grow larger with the addition of a fourth service, wireless. In related bundling news, Verizon said this week that, in an effort to compete with the cable bundle, it will integrate its wireless service, previously offered separate from landline and other services, into its bundle. Verizon also said its FiOS service added 89,000 TV customers in the quarter, although the company's profits declined 38% due to its aggressive fiber roll-out. Meanwhile, AT&T’s U-verse TV service added zero customers in the fourth quarter.

Satellite providers Dish Network and DirecTV are raising prices, effective early February, for the fifth consecutive year. DirecTV is hiking its two most popular packages 11.1% and 10%, while Dish is increasing the price of three of its four packages an average of 5.9%. However, that’s probably new news, if you rely on consumer press for such coverage. A quick search of recent articles about cable and satellite price increases reveals decidedly one-sided coverage. We found scant coverage specifically about the satellite increases, and those articles generally featured no commentary, no quotes, no consumer reaction. Conversely, a slew of articles about cable price increases included a heavy helping of commentary and quotes from consumers, consumer advocates and regulators. (Much of the coverage was driven by the FCC’s cable pricing survey, released in December, that excludes satellite TV prices.)

Beyond the disparity of press coverage, the satellite price hikes underscore an important and frequently glossed-over reality: the pressure of rising programming costs. All video providers purchase the same networks from the same owners and therefore face the same reality of rapidly rising wholesale programming costs. When Verizon recently increased its video prices 8%, wholesale costs were a big factor, just as they are with the satellite providers’ latest increases. Until content providers drop their wholesale prices, or reduce their price increases, it’s unrealistic to expect retail video prices to drop significantly—whether the provider is cable, satellite or telco.

Richard Sandomir wrote in The New York Times Friday about a reported deal between DirecTV and Major League Baseball for exclusive carriage of the Extra Innings PPV package (“Extra Innings Throws a Curve, and Fans Cry Foul”). There has been no announcement from MLB or DirecTV, and cable companies are continuing to negotiate with MLB to retain the carriage rights they’ve held since 2002. Assuming the reported deal is true, fans are understandably irate that that MLB would rip the games away from a cable audience that’s more than five times the size of DirecTV’s subscriber base. From Sandomir’s NYT piece:

[Yankees fan Jeanette] Bottone is part of the resentment expressed on fan forums, blogs and inside my e-mail inbox against a pending seven-year, $700 million deal that would shift Extra Innings this season into an exclusive arrangement with DirecTV after five seasons of being available to 75 million cable, DirecTV and Dish homes. A writer on the Cards Fan Union blog said, “I feel as though I’ve just had my teeth worked on with a drill that entered my body through my big toe.” On the umpbump.com fan site, a screed against the deal was titled, “MLB Only Needs 700 Million Reasons to Tell You to Drop Dead."

Fresh back from CES, and with the turn of a new year, it's worth reflecting on where we as an industry stand. One of my favorite mental exercises is to reflect on how far we've come in the last ten years. In 1996, we were in the analog video delivery business. Period. Yes, we had some other business activities, but I'd bet that 90+% of our revenues were pure analog video. Then I fast forward and look at today: digital video, on-demand, program guides, high speed data, telephony, advertising, commercial services, cellular... the list goes on. It's truly mind-boggling.

The fun part is to extrapolate; where will we be 10 years from now? If you're not careful, it's easy to think we'll be a powerful full-fledged telecoms provider, but largely still providing the same services that we do today (albeit with many enhancements). However, when you ponder how much has changed in the past 10 years, coupled with the pace of change that you can observe at CES, you can reach a different conclusion: that we will look vastly different than we do today.

Pat Esser
President, Cox Communications

It took a little while to decompress following the overwhelming spectacle of CES, but with the benefit of a couple of days of calm, here’s some reflection on the highlights and themes that resonated with me during and after last week’s show:

 For me CES began, surreally, in Barry Manilow’s green room at the Las Vegas Hilton Theater, site of the “Pipelines Power” session. The area is adorned with seemingly hundreds of photos of the star with other stars, which provided some light escapism and mood-calming before we were ushered onto the stage and into the spotlight before a large crowd wanting to hear how cable, telco and satellite execs view convergence. As I stated then, as service providers, we must deliver the benefits of convergence minus the “hassle factor” for our customers. Throughout the week, as I viewed thousands of gizmos, gadgets and random awe-inspiring products—most of which likely will never make it to market—I was even more convinced that while consumers may welcome “wow,” above all they just want it to work. It won’t matter how amazing these converged products are if they don’t interact properly.

A recent Wall Street Journal editorial (“Franchise Freedom”) was a wake up call for those of us who communicate about Cable. In a few short paragraphs, the editors somehow managed to color the mammoth and glacier-like former Bell companies as the champions of competition and cable companies as anti-competitive incumbents who are “crying foul” at the prospect of having to earn our customers’ business. An opinion on the FCC’s recent ruling on video franchising, the editorial goes so far as to levy accusations that Cable is blocking the franchise applications of the RBOCs by pulling the strings of the local franchising authorities (LFAs) – causing them to slow roll applications and make unrelated demands for things such as parking garages and community swimming pools.

In “Martin FCC Purges Per-Channel Rates,” Ted Hearn at Multichannel News notes a change in the FCC’s cable pricing survey that stayed largely below the radar immediately following the Commission’s release of the survey last week:

Although the FCC has routinely crunched the per channel data in previous reports, it did not do so in the latest one. “This [per-channel] data is [sic] not included in the 2005 price survey report because of the weaknesses associated with using it,” the FCC said. “If cable operators offered consumers the option to purchase channels individually, it would be appropriate to consider the prices charged to consumers for those channels.”

One possible reason for the new policy: While the price of cable programming tiers has risen, inflation-adjusted per-channel cable rates have declined in the decade before January 2005.

The FCC contends the per-channel analysis is irrelevant because consumers can’t buy channels a la carte and can’t get refunds for channels they block. In the FCC report and in virtually every quote issued about it last week, the Commission focused on a “93% increase” in cable prices since 1995. But according to MCN, the per-channel rates can still be extrapolated from the survey: “For the decade, nominal per-channel cable rates rose 19.6%, from 51 cents to 61 cents. Inflation, according to the Bureau of Labor Statistics, was 25.05% for the same period. Since inflation outpaced per-channel rate hikes, real per-channel cable rates actually declined, a result that clashed with Martin’s emphasis on bundled cable rates.”

The FCC voted along party lines, 3-2, to treat service providers differently in video franchising. The Commission didn’t release an order, and likely won’t for several weeks, so we can’t comment on all of the details. But based on what has been reported, it’s a disappointment that the FCC appears determined to create an uneven, unfair playing field slanted decidedly in the telcos’ favor. Of course, it’s far from a done deal, with lawmakers questioning the FCC’s authority on the matter and cities likely to sue. (Here’s the official NCTA response.)

The other matter on the FCC’s meeting agenda was release of the 2005 cable pricing survey. No surprise there, since details had been leaked for months. NCTA head Kyle McSlarrow on Tuesday called the study “almost entirely useless as a foundation for any policy decision.” Although we haven’t seen the full report, based on the data that have been released, the conclusions of the study just aren’t true for Cox Communications. The FCC’s chief contention is that speeding the entry of AT&T, Verizon and other large telcos into the cable business will reduce prices. Truth is, Verizon and AT&T’s video services are already priced well above $35.94, which is the FCC-reported average price of cable in markets with at least two wireline competitors. Verizon’s FiOS service is $47.98 ($42.99 + $4.99 for a required converter) and AT&T’s U-Verse starts at $59. The FCC’s report claims that cable prices in markets with video competition from the telcos are about 20% lower (or $7) than in markets without telco video. Again, in Cox markets at least, that’s just not the case. Our prices in competitive markets aren’t distinctly different – only about 3% lower than in other markets. So, our prices are essentially the same whether we’re competing directly against satellite or telco video.

We were pleased to see that this Wall Street Journal article touched on a few key issues of relevance in their discussion of cable’s price increases. First, they referenced the price increases of our satellite competitors, which have been more frequent and larger than the price increases implemented by many cable operators in recent years. This clearly supports something that we at Cox have been saying for years—that programming is the single biggest driver in the retail price we charge for cable TV. In the article, Cox was the only cable operator to highlight rising costs of our wholesale product as a driver in our retail prices.

The fact is that the universe of programming content is not infinite and often not competitive in nature. All video service providers buy content from the same providers, and in many cases the retailers have interests on the wholesale side as well. Several cable and satellite video distributors own programming networks (or have ownership stakes in them) which they distribute themselves, and sell to their peers and competitors. (Cox Communications, for example, holds about a 24% stake in Discovery. )

A major premise of this story is that competition from DBS and more recently the telcos has already slowed the rate of cable price increases. While we agree wholeheartedly that competition is always good for consumers, we still suggest that telco competition in the video space will not be the panacea suggested by policy-makers and the media. There is much additional room for studying the food chain in television; it’s nice to see the Journal taking some initial steps toward that end.

Today’s CableFAX Daily notes our Friday post about the misleading way cable price increases are frequently reported. Citing Friday’s USA Today’s article, CFD agrees that FCC Chairman Kevin Martin will apparently tie rising cable prices to proposed plans making it easier for the telcos to receive video franchises. While the FCC’s annual price survey isn’t out yet, CFD did its own calculations:

It appears that the avg monthly rate of cable has increased about 5% from $41.29 for Jan 1, ’04 and about 7% in areas where there’s effective DBS competition. If those numbers hold, expect cable to point out that Verizon plans to raise its rates for new customers 7.6% in Jan to $42.99. The most basic AT&T package listed on its Website (over 190 channels) starts at $59.99. Martin, however, will probably base his argument on the idea that the avg rate declines where wireline overbuilder competition exists.

As the familiar holiday song goes, “It’s the most wonderful time of year.” If only that were true in the halls of cable TV companies; you see, this is the time of the year when we are assailed by the media over rising video prices. These reports rarely get into the real issues impacting the cost of TV, leaving readers with a sour taste in their mouths and the wrong impressions of cable providers.

Today, we see coverage in USA Today: “Trying to spur competition and beat back cable TV prices, Federal Communications Commission Chairman Kevin Martin has proposed rules to make it easier for phone companies and others to jump into the video business.” The story goes on to discuss a “cozy duopoly” between satellite and cable and refers to a forthcoming FCC study which purportedly shows a $7.40 difference in the average price of cable TV in markets where a third wireline competitor is present.

While we welcome competition from a fourth, fifth, or sixty-fifth competitor in our markets, there are a few problems with such a rudimentary analysis of potential benefits:

David Zaslav’s ascension to President and CEO of Discovery Communications is getting a lot of attention today. He’s the second NBC executive to exit this week, following TV group President and COO Randy Falco’s move to AOL. At Discovery, Zaslav will work for Founder and Chairman John S. Hendricks, whom Zaslav calls a mentor and credits for helping him join the cable industry in the ’80s. Discovery board member Pat Esser, President of Cox Communications, one of Discovery’s owners, said of Zaslav: “His unique understanding of strategic development, programming and operations will absolutely be a huge asset to Discovery’s continued success and long-range outlook.” A sampling of today’s media coverage about Zaslav: The New York Times, The Washington Post, Multichannel News, Broadcasting & Cable.

Nielsen Media Research analyzed DVR playback. Among its findings is that most viewing of programs on DVR occurs within three days of broadcast. However, in the coverage of the research, one of the most compelling stats is virtually buried—that 22.9 percent of prime time minutes watched are viewed via DVR playback. How quickly these amazing little devices have altered the TVscape. In the early days of TiVo, the few pioneers who had one proclaimed that it would change your life. Just a few years later and, if DVRs aren’t exactly changing lives, they’re at least changing TV viewing behaviors dramatically. And, given the amount of time we Americans watch TV, any drastic change in TV viewing quickly can become a life changer.

Over the past several years, cable companies have made the transition to multi-service providers of more than just cable—a journey that started for Cox Communications with the launch of high speed Internet in 1996 and digital telephone in 1997. Cox has led the industry in “bundling” services. Yesterday, Cox announced that 57% of its nearly 6 million residential customers subscribe to more than one service—a 16% increase in bundled customers over the past year. But reflecting the ongoing transition away from just cable, Cox also has made a concerted effort recently to ensure a “line into every home” and pursue business out of every home passed by its network, even if that home has no interest in cable. Yesterday Cox announced success with that strategy, reporting an industry-leading number of non-video customers (432,000 of them) who choose Cox for high speed Internet and/or telephone, but not cable. Cox President Pat Esser described the rationale of Cox's "line in every home" strategy this way: “Our world is changing, and we needed to change our marketing strategies too.” Even so, Cox also saw strong video growth in the third quarter, growing basic cable subscriptions by 1.6%. Click here for Multichannel News' coverage of Cox's announcement.

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."