This week NCTC (the National Cable Television Cooperative) is holding its annual convention dedicated to video programming, The Independent Show in Indianapolis, and there’s a big crowd. Despite programmers demanding increasing content fees and broadcasters demanding much steeper retransmission consent fees — and despite cable operators and other video distributors seeing shrinking, if not vanishing, margins — most video distributors continue to believe they need to stay in the business. So, what appears to be a viable strategy for cable operators and other local providers distributing video to consumers?
Even with the rise of over-the-top video, most consumers still watch cable and broadcast programming — and most consumers still buy at least the double play of broadband and video. Whatever the value of the video business itself, most local providers believe they need to stay in the video business because it helps them keep their broadband customers. And broadband is a profitable product, especially for providers with all-fiber and DOCSIS 3.0 networks. In addition, local providers want to leverage their networks to provide other existing and new services to consumers — and the cost of customer retention is much lower than the cost of customer acquisition. In other words, video still has significant value for providers, but where it once was the core of the local distribution revenue/margin stream, it has become or is becoming the increment. To reflect this business reality, providers are re-balancing their capital spending, which used to be dominated by video. Many are focused on working, for instance, with Arris or TiVo to give their customers a seamless traditional and over-the-top video experience over navigation devices.
Of course, that does not mean that local providers are not standing up to programmers and fighting rate increases or onerous conditions (such as minimum penetration requirements), which constrain providers’ ability to meet their customers’ needs and which would further erode their compressed margins. But, even as these efforts are underway — and may even be bearing some fruit — programmers are responding either by upping their game, i.e producing a better product, merging to achieve economies or both. (The Discovery-Scripps discussions are only one manifestation.) This is a highly dynamic market, and vigilance is essential — which brings us back to The Independent Show. NCTC is the video purchaser for a large group of cable and other video distributors, and programmers are here to market their wares and show this group that their product is still very valuable. But, unlike decades ago, when the programmers and distributors seemed to be invariably on the same side of the table, now, in this much different environment, their relationship is much more complicated and even strained — and it is certain to continue to evolve.