Who's To Blame for High Cable Rates?

Industry insiders disagree; GAO will weigh in this fall

At last week's Senate hearing examining the impact of media concentration on consumer cable rates, three cable-industry executives on various sides of the issue either directly or implicitly pushed Congress to rein in the villains.

Each insisted they weren't the bad guys.

YES Network CEO Leo Hindrey charged that MSOs were "irresponsible" in blaming his network, which shows Yankees games in the New York area, for gouging consumers because, he pointed out, more than half the available cable channels are owned by cable operators themselves. He called on lawmakers to require that cable operators provide programming services the same tiering and compensation terms, regardless of ownership.

Blaming the "phantom" of programming costs for higher rates is both "hypocritical" and "simply wrong," he said.

The heads of top MSOs Cox Communications and Cablevision Systems put the blame on programmers, particularly pricey sports channels ESPN and YES. "Sports programming is disproportionately driving up cable prices for every one," Cox CEO Jim Robbins told the Senate Commerce Committee. "I believe the only people making money in the sports business are sports programmers, like ESPN, and ball players—at the expense of the American consumer."

A week before, ESPN had told operators that rates for the powerhouse sports net will climb 20% in August.

Different sectors of the cable industry floated opposing legislative remedies to the problem of escalating cable prices, including a call by one MSO executive to retain the 35% cap on a broadcaster's TV-household reach. The National Cable & Telecommunications Association disassociated itself from calls for regulatory reform and questioned whether rates are actually climbing at a troubling pace.

What action lawmakers will take, if any, is a crap shoot. Commerce Committee Chairman John McCain (R-Ariz.) has long railed against cable rates and last week suggested that subscribers were being "gouged."

Lawmakers' willingness to move legislation may depend on recommendations of the General Accounting Office, which is studying whether cable rates are actually out of control or appropriately reflect the rising cost of obtaining sports channels as the FCC has long insisted. GAO says the report will be complete in October.

Robbins said he was "not asking for new regulations," despite only moments earlier floating ideas that would amount to a clampdown on broadcast nets and sports programmers.

He said the lawmakers could remedy the problem of escalating sports and other programming costs by forbidding programmers from forcing operators to put expensive networks on basic or expanded-basic tiers.

Instead, channels costing more than $1 per sub could be relegated to a separate mini-tier for subscribers who want that programming. He also called on lawmakers to examine broadcast networks' ability to "abuse" the retransmission-consent process by forcing MSOs to carry sibling cable channels on the expanded-basic tier, and he urged them to call on the FCC to retain the 35% cap.

Cable networks strenuously oppose mini-tiers and a similar idea—offering individual channels on an à la carte basis. The networks argue that many channels, not just ESPN, would be too pricey for consumers unless the costs are spread across all subscribers.

Cablevision Systems CEO Chuck Dolan, fresh from a public feud with YES, called on Congress to rein in programmers by eliminating "must-buy" practices that require subscribers to buy basic, then expanded basic before obtaining premium channels. He also said broadcast networks should be barred from tying rights to carry local O&Os to carriage of the nets' sibling cable channels.

YES "demanded nearly four times more than we had paid the year before for the same programming," he complained.

Cablevision has its own sports and programming investments: the New York Knicks and New York Rangers as well as regional channel MSG Network.

Besides YES, the operators' attack focused on Disney's ESPN, which will soon charge $2.40 per subscriber. In comparison, other channels carried on expanded tiers typically charge a buck or less.

No ESPN executive testified, but the company did participate via press release.

Robbins asserted that, thanks to ESPN and broadcast networks' retrans demands, his programming costs climbed 12% last year, to more than $1 billion. Local advertising on ESPN, the most expensive of the channels he buys, allowed him to recoup only 10% of Disney's price.

ESPN derided that number and said MSOs regain half of fee through local ad sales.