The American Cable Association, a trade group which represents more than 800 small cable operators, has filed a brief with the Federal Communications Commission. In the filing the association asks the FCC to intervene in negotiations between the cable-affiliated programmers -- channels owned by large cable companies -- and the smaller providers which have to pay them for the rights to that programming.
Essentially, the brief argues that the major cable providers have too much leverage over their smaller rivals. Because the ACA-represented companies have little choice but to offer Comcast's channels, like Bravo, CNBC, and USA, or Time Warner Cable's regional sports networks to their customers, they are in an impossible negotiating position. That allows the big boys to dictate prices, which ultimately hampers the small timers' ability to compete.
The ACA wants the FCC to take action to stop this from happening.
Costs are rising
The ACA said in the brief that programming costs have more than doubled between 2006 and 2014, but "providers have not been able to pass along to their customers all of the increases in programming fees" because of competition from other multichannel video programming distributors and online providers, including Netflix and Amazon Prime.
Broadcasters sometimes try to force cable operators to pay higher rates by taking programming off the air or even blocking online access to content, the ACA wrote. More importantly, the brief alleges that costs are increasing faster for small providers than larger ones.
"According to data from SNL Kagan, per-subscriber programming costs across all MVPDs increased at an annual growth rate of 9.3% between 2006 and 2014. For smaller providers, the growth in programming costs has been much greater," the filing said.
Analysis by Cartesian, a consulting firm specializing in telecommunications and retained by ACA, shows that if current trends continue traditional MVPD margins will be reduced substantially each year and that this service, which has been the foundational service for triple-play providers, may become a losing proposition for small to medium-sized providers within the next five years -- by 2020 or even sooner should conditions deteriorate more rapidly than anticipated.
- Program Access Reforms: The Commission's program access rules should be updated to preserve and protect competition in video distribution markets, including by ensuring that an MVPD buying group, like the National Cable Television Cooperative, has the right to bring a complaint against a cable-affiliated programmer which imposes discriminatory rates, terms, and conditions.
Protecting Buying Groups Under Rules as Congress Intended: The NCTC represents more than 900 small and medium-sized broadband and video providers across the country and negotiates the bulk of their programming agreements. Legally the NCTC does not qualify as a buying group, and the ACA believes that the definition for buying groups should be changed to include NCTC.
- Protection from blackouts: Essentially, this means the ACA wants existing deals to stay in place even after they expire while any disputes over new contracts are adjudicated. This would take away the ability of the cable-affiliated programmer to pull programming.
Daniel Kline has no position in any stocks mentioned. He once owned a black and white television. The Motley Fool recommends Amazon.com and Netflix. The Motley Fool owns shares of Amazon.com and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.