Cable Television Renewals in An IP Era

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Brian T. Grogan presentation to International Municipal Lawyers Association 2013 Annual Conference, September 29, 2013.
Marketplace Challenges: Decreasing subscriber base; Cable "gross revenues" nearly flat; Will 2015 franchise fees = $3.2B?

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Cable Television Renewals in An IP Era

  1. 1. 1 International Municipal Lawyers Association 2013 Annual Conference San Francisco, California Telecommunication & Franchise Section Workshop CABLE TELEVISION RENEWALS IN AN IP ERA Brian T. Grogan, Esq., Moss & Barnett 4800 Wells Fargo Center, 90 South Seventh Street Minneapolis, MN 55402 612-877-5340 (phone) / 612-877-5999 (fax) Brian.Grogan@lawmoss.com ©2013 International Municipal Lawyers Association. This is an informational and educational report distributed by the International Municipal Lawyers Association during its 2013 Annual Conference, held September 29-October 2, 2013 in San Francisco, CA. IMLA assumes no responsibility for the policies or positions presented in the report or for the presentation of its contents.
  2. 2. Cable Marketplace • Homes Passed 130.7 M • Basic Cable Subscribers 57.3 M • Basic Cable Penetration 44.4% • Homes Passed by Internet 125.4 M • High Speed Internet subs 50.3 M • Cable Phone subs 26.7 M • 2011 cable operator revenue – Video revenue = $57 B – Broadband/telephone revenue = $41B • No programming costs for non-video services Source: SNL Kagan – NCTA website (visited August 2013) 2
  3. 3. Marketplace Challenges • Decreasing Subscriber Base – Over the top (OTT) competition – Satellite and telephone competition – Franchise Fees paid by cable $3.2 B (2011 est.) • Cable “gross revenues” Nearly Flat – Subscribers decreasing – Rates increasing – Is the “cable pie” getting smaller? • Will 2015 franchise fees = $3.2 B 3
  4. 4. Chromecast OTT Video Device $35 4
  5. 5. OTT Devices • Chromecast • Apple TV, • Boxee Box (with Live TV dongle), • Xbox 360 (with Kinect), • Nintendo Wii, • Roku XDS, • Seagate GoFlex TV, • Sony PS3, • Logitech Revue, • Sony SMP-N200, • TiVo Premiere, • ViewSonic NexTV, • WD TV Live, • OnLive • All DVD players 5
  6. 6. OTT Platforms 6
  7. 7. OTT Platforms • Netflix, • Hulu Plus, • HBO GO, • iTunes, • VUDU, • Zune Video, • Amazon Prime Streaming, • DISH/Blockbuster • Sony PlayStation Network, • Google TV, • MLB.TV, • EPIX, UFC, • ESPN, • YouTube, • EPIXHD, • OnLive and others. 7
  8. 8. Impact of OTT on Renewal • Limited ability to communicate with OTT subs • Reduced consideration – Franchise fees – PEG fees – INet • Same burden on ROWs – limited regulation • Does cable operator have argument: – Greater competition = less regulation – Don’t kill the goose – Per subscriber contribution will need to rise 8
  9. 9. Don’t leave money on the table • Example: Bundled Rates • Subscriber pays $150 for triple play services/equip. • Is LFA receiving full payment on cable services? • How is discount being applied? – Line backer fees – Service calls • Must address issue in renewed franchise – Allocate revenue on a “pro rata basis” – i.e. equal allocation of the package discount • Spend time in renewal – on details of all compensation terms 9
  10. 10. Sample Bundled Rate Provision • Where the Grantee or any affiliate bundles, integrates, ties, or combines Cable Services with Nonvideo services creating a bundled package, so that subscribers pay a single fee for more than one class of service or receive a discount on Cable Services, gross revenues shall be determined based on an equal allocation of the package discount, that is, the total price of the individual classes of service at advertised rates compared to the package price, among all classes of service comprising the package. Based on California Digital Infrastructure and Video Competition Act 10
  11. 11. Other Offsets From Fees • PEG fees offset from franchise fees? – Operator may seek language to allow “offset” – Based upon 47 USC 542 “Capital v. operational” – Watch out for: • “as permitted under federal law” or • “So long as payment of PEG fees does not serve to reduce the amount of franchise fees paid to City” • Advertising fees – Net v. Gross revenues – Commissions paid first 11
  12. 12. PEG v. Commercial Channels • LFAs want PEG treated the same as any other commercial channel – No degradation of signal – Same technical quality and functionality – SD and HD capability – Channel located in proper neighborhood – Carriage fees calculated uniformly – On Demand and video anywhere capability – Ease of access via navigation platform • Why will operator not meet these requirements? 12
  13. 13. Maintain City Code Regulations • Should LFAs maintain separate “cable” ordinance? – Conflicts – how resolved – Separate/ different rules for ROW users? – Can issues be addressed in City Code • City Code – ROW provisions » Permitting (conditions) » Fees » Insurance, bonds • Customer service, consumer protection • Approach may vary based on size and staff of LFA 13
  14. 14. Franchise Enforcement Tools • Operators are resisting reporting obligations – They argue confidentiality, trade secret – Too great a burden – cost – Outdated in competitive market • Without records/reports how can LFA enforce? • Operators resist letters of credit – They want bond or even less – They want lengthy and complicated procedure • Goal may be to frustrate effective enforcement • Do not overlook these issues in renewal 14
  15. 15. Conclusion • Cable industry is changing – Video growth is limited – Non-video may be the future profit center • Local regulation still imperative – ROW control – Local content - PEG – Subscriber protection – Contract oversight and enforcement • Without LFA no regulation to benefit subscriber • Without strong franchise – no hope of regulation 15
  16. 16. 16 Thank You! Brian T. Grogan, Esq. Moss & Barnett 4800 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402-4129 Phone: 612-877-5340 Facsimile: 612-877-5999 E-mail: Brian.Grogan@lawmoss.com Web site: www.lawmoss.com

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