Thursday, September 09, 2010

Are cable and IPTV operators going to "back into" a la carte?

NewTeeVee ran an article last week about AT&T's decision to drop Crown Media Holding's Hallmark Channel and Hallmark Movie Channel from its 2.5 million U-verse IPTV households in the U.S., effective September 1st. As of this writing (September 9th,) the channels haven't been reinstated. NewTeeVee said that a JPMorgan research report from last April found that there are only 50 cable networks in the U.S. for which 10% or more of cable subscribers would switch service providers in order to watch them. The Hallmark channels aren't within that group of 50 essential networks.

Cable, satellite and IPTV systems have the capacity to carry hundreds of channels, and system operators have been racing each other to offer the most networks. New and small cable networks can get carriage on cable systems by giving their programming to cable operators at no cost or paying to have their programming carried (called "reverse compensation".) However, most of those networks get little viewership, and the service providers are essentially wasting bandwidth by carrying them.

Cable operators have successfully fought the FCC for years to prevent the imposition of rules that would require them to allow viewers to choose, and pay for, only the channels they want to watch (often called "a la carte".) However, as they begin to drop lesser-watched channels in order to save on retransmission fees, the operators of those networks will put political pressure on the FCC to protect them.

Cable and IPTV operators could turn this situation to their advantage (satellite operators have less flexibility, due to their technology.) As cable operators move to switched digital video and IP transport, they will have the ability to send any channel (or set of channels) to any subscriber. (IPTV operators like AT&T and Verizon can do this today.) These operators could offer to make small networks available on an a la carte basis in return for revenue sharing (for example, 70% of the fee would go to the cable operator and 30% to the network.) There would be some upfront costs to the network for making their content available to subscribers.

The "top 50" essential networks wouldn't be subject to a la carte, so those network operators would be unlikely to fight the move with the FCC or U.S. Congress. Some customers might actually save money by buying a few channels a la carte.  The cable and IPTV operators could position the move as sensitivity to consumer demand. They would also have more latitude to remove unpopular channels, giving them more flexibility to offer HD and 3D channels, and more bandwidth for high-speed Internet services.

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