... a tradeshow booth with a Dish!

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.

You can file this one in DirecTV’s ever-growing file of promises made vs. promises kept: The company finally announced some new hi-def channels today, more than a week after their previously committed-to date. And the reality of the announcement was much more modest than the company’s commitment of 70 HD channels in September.

Beyond the credibility issues with not delivering on promises is the “fine print” about DirecTV’s HD claims. We won’t belabor these, but a quick summary of the hassles and realities: 1) you'll need a larger elliptical dish to get the HD signal; 2) existing DirecTV customers will likely have to upgrade their dish and other equipment; 3) as always, interference is common from wind, rain and snow, and you’ll need to guarantee an unobstructed signal from the dish to the HD satellite position in the sky – so get the chainsaw ready as you may need to do some heavy “pruning” of trees; 4) there are significant fees associated with the required programming packages that gain you access to many of the HD channels they will be launching – up to $1000 more per year. Beyond some of the classic satellite hassles is the fact that DirecTV’s math really doesn’t add up on its numerous HD claims. The company now says it will offer 70 HD channels by October and 100 by the end of the year. But “100” will be a looooooong stretch for the large majority of both current DirecTV customers and potential new customers based on the expense they’d need to incur to get even close to this number of channels.

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.

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.

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."

Phillip Swann at TVPredictions.com opines that DirecTV's HD DVR "has more bugs than a hot summer night in Mississippi." Beyond his DirecTV review, "Swanni" delivers other HD scoop. Click here for some of his latest HD answers.

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.

Kyle McSlarrow, president of the National Cable & Telecommunications Association, didn’t hold back in a year-end media briefing earlier today. His ire was directed toward the FCC and his timing surely was not coincidental. The Commission is set to meet tomorrow and is expected to release the ’05 cable price survey and to take action on new rules that could further ease franchising requirements for AT&T, Verizon and other telcos entering the video business.

Addressing the price survey, McSlarrow said, “It is unclear to me why a report that was clearly finished at the beginning of this year was kept under wraps or why it has been subject to selective leaks of information.” He further derided the report as “almost entirely useless as a foundation for any policy decision,” noting that the data in it are almost two years old. He further declared it “severely limited” in its focus only on analog expanded basic cable, which ignores the reality that most cable customers subscribe to digital and that satellite TV providers DirecTV and Dish Network have significant video market share, yet are excluded from the report. Of the satellite competitors, McSlarrow noted that they have aggressively increased their prices, as has Verizon. As for the so-called Section 621 proceedings the FCC is expected to address tomorrow, McSlarrow said, “Based on what we know, I think it’s a proposal that has to be dramatically pared back. The case has been made by the telcos that they’re being held back from getting franchises. There’s no evidence in the record at all to support that.”

Early in his remarks, McSlarrow exasperatedly declared that the current agenda of the FCC “represents one of the most sweeping regulatory examples of government micromanagement.” Asked later by a reporter if FCC Chairman Kevin Martin has a grudge against the cable industry, he replied, “You’d have to ask him. All I can say is I just think there is a fundamental misunderstanding of what actually our industry is doing. It’s almost like they are moving through a time warp.” How misunderstood? How far into a time warp? Stay tuned for news out of the FCC meeting tomorrow.

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:

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.”

We have to point out what we could best phrase as “curious interpretation of the facts” in a Multichannel News article—“Satellite Rules J.D. Power Survey”—about the market research firm’s latest cable TV/satellite TV customer satisfaction study. To start with, the lead is baffling: "DirecTV and EchoStar Communications once again dominated J.D. Power & Associates’ annual customer-satisfaction survey...."

The fact is that Cable took home the trophy for highest customer satisfaction in three of the four regions. Satellite provider DirecTV got the top honors in one region, and, despite the performance credited to it by Multichannel, EchoStar’s Dish Network didn’t place first in a single region. Cox Communications had the highest score in the West, Bright House Networks in the South, and over-builder WOW! in the North Central region. And here’s another baffling declaration: "J.D. ranked DirecTV as the best pay TV company overall, with the direct-broadcast satellite provider receiving the top rankings in overall satisfaction; performance and reliability; cost of service; billing; image; offerings and promotions; and customer service." Actually, after poring through J.D. Power’s exhaustive 469-page report, we couldn’t find a single place where the firm declared an “overall” winner. Curious, indeed.

Cox Communications President Pat Esser’s headlining of the UBS conference call yesterday raised some eyebrows in the industry. The headline of a Multichannel News article, “Cox Holds Call; Not Going Public,” answered a question apparently on the minds of many investors when they saw Esser would be featured in securities firm’s periodic “Frontline” series of conference calls. Cox going public again? No, Esser emphasized. His reason for accepting analyst Aryeh Bourkoff’s invitation to participate in the conference call: “We haven’t done one of these in two years, but I thought so much was going on in the business and so many questions were being asked of us, this is a good way to get answers out into the market to do that.” Esser added, “We think that our success over the last decade, and particularly over the last couple of years, proves the power of our network and offerings, and validates the business strategy we’ve been following for more than a decade. So, even though we’re private, we think our recent results are a model for what Cable can achieve.”

In other coverage of Esser's address, the satellite industry’s SkyREPORT took note of Cox’s success in signing up former satellite TV customers in an article entitled “Cable Poaching Satellite Subs Like 1-2-3.” And CableFAX Daily opined that Cable’s publicly traded companies should be grateful to Esser:

An unexpected drop in wholesale prices undoubtedly helped drive cable operator stocks higher Tues—but MSOs might also want to send a thank-you note to Cox pres Pat Esser. Despite heading a private company, Esser held a conference call Tues with UBS analyst Aryeh Bourkoff to tout subscriber metrics and the power of the bundle.

Cable ranks highest in customer satisfaction in three of four regions in the J.D. Power and Associates 2006 Residential Cable/Satellite Study out today (click here for the press release). Cable companies Cox Communications, Bright House Networks and WOW! each took a region. DirecTV took the remaining one. One of the most interesting stats released by J.D. Power is that Cable’s average price is now lower than satellite TV, robbing the satellite companies of a message point they’ve touted aggressively for years. According to J.D. Power, cable customers spend an average of $58 a month, while satellite customers spend $61.

J.D. Power noted that satellite providers maintain a customer satisfaction gap over Cable, although it has narrowed. This is the first year the group has split the cable/satellite study by regions. Last year, WOW! ranked highest overall, ending satellite’s three consecutive years atop the survey. For Cox, the West region honor is the fifth J.D. Power award the company has received in 2006, following highest satisfaction honors in three regions in the telephone customer satisfaction study and highest customer satisfaction among small/midsize business data service providers nationwide.

The number of customers ditching satellite TV and choosing Cable has nearly doubled in the past two years, at least for Cox Communications. Company President Pat Esser will deliver that nugget in a teleconference today sponsored by UBS analyst Aryeh Bourkoff. This year, Esser will report, 11% of the company’s basic-cable connects are former satellite customers, up from 6% in 2004. The defecting satellite customers are big buyers of Cox’s full three-product bundle of cable, phone and high-speed Internet, with 40% of them choosing the triple play. Speaking of the bundle, Esser notes that delivering multiple products has greatly reduced Cox’s own customer defections. Cox’s bundled customers are 41% less likely to churn than single-product customers. Esser notes that Cox is America’s leading bundler, given that the company has delivered multiple services for a full decade, a distinction reinforced by the number of customers the company is taking away from both satellite and telephone companies.

Subscriber growth in the second quarter was below expectations for DirecTV. Reflecting tighter competition from Cable, DirecTV added 100,000 fewer customers in the second quarter than the same period in 2005. According to The Wall Street Journal, “DirecTV says one reason for the slowdown is that it has tightened credit policies to reduce the number of customers who defect or simply fail to pay. The company, and rival EchoStar Communications Corp., are also feeling pressure from cable companies that have lured customers by adding phone and Internet services.” EchoStar is also facing bad news that could erode its growth. The company may be forced to drop local network channels delivered to subscribers in other markets, a move that would affect slightly under a million of its 12.5 million customers.