I wonder why rates will not go down. There are many reasons why cable rates cannot go down without congress getting involved and legislating changes, specifically legislating a-la-carte or the dismantling of tiers and bundles (regardless of all the claims of ‘competition’ in the video delivery field). They are:
Most Favored Nations - Most favored nations clauses (MFN’s) are clauses in contracts that in essence say that no one will be given more favorable terms than the terms that are negotiated between the two parties. A large MSO can in essence say to a cable network that no one smaller than them will get better rates on a per subscriber basis than they will get. They also state that no one can get better terms (in basically any way you could define it). Most favored nations clauses are cross platform; MTV Networks deals with DirecTV are governed by the MFN clause it has with Comcast, so DirecTV rates will never be lower than Comcast’s. The same holds true with deals with Verizon’s and AT&T. So with MFN’s, a new player in the market is forced to sign agreements with the same restrictive language as the incumbents, so their programming tiers and rate structures are very similar, and thus their rates are similar. In this way, the contracts that evolved when cable operators were true monopolies now govern the new entrants, so of course, their rates are very similar.
MFN Clauses In Programmer Agreements - An established cable network insists that an MSO signs an agreement that includes language that states in effect that their service must be in the same tier of service as all the other top cable networks. In other words, if ESPN and TNT are in the expanded basic cable package, MTV must be as well. That is why everyone’s expanded basic cable tier looks the same. And since they are cross platform, (Cable, Telco and Satellite) AT&T’s expanded basic package will look just like Comcast’s and also cost the same. That is also why everyone’s expanded basic cable tier is so expensive as these are the highest cost per subscriber cable networks. In order to compete, a provider must carry the most popular networks (imagine Verizon trying to compete without ESPN) and the most popular networks will not sign an agreement allowing them to be put on a specialized tier, or offered a-la-carte, so there is no real possibility for price differentiation.
Retransmission Consent - The communications act allowed broadcasters to choose if they wanted their stations to have “must carry” status, or instead negotiate “retransmission consent” from the cable operators. The network affiliates, secure in the knowledge that a cable operator would never drop them, all chose retransmission consent, and then negotiated their terms of carriage. Cable operators pledged never to pay a broadcaster for their signal as they were simply extending their reach and making the broadcaster more profitable anyway, and instead, what emerged were the broadcasters asking for the carriage of other stations. This is how CNBC was started, and also how MSNBC was created. Networks basically used the leverage of retransmission consent force carriage of new cable channels, which they could charge for.
Consolidation of Ownership - Because an MSO, or Verizon, or DirecTV can not compete with each other without ESPN, Disney says, if you want ESPN, you must carry and pay us for ESPN2 and Classic Sports Network. Five years later when their contract is once again up for renewal, Disney demands carriage of College Sports Television and Soapnet. The same holds true for Viacom with MTV networks. Why else do all those different MTV channels exist? And so now even the digital tier becomes bloated and expensive.
Disclaimer: I have not examined and am not quoting from Comcast, Disney, MTV, or Turner contracts, but this is how the game is played.
- Posted by a ‘Former Cable Network Programmer’ for USTV Media