Tuesday, December 4, 2012

Time Warner Cable Cure To Lower Costs, Drop Networks

With cable network programming fees rising, and subscribers leaving, some due to the high monthly fees, Time Warner Cable has a solution.  The public decree, to drop cable networks that are no longer performing.  "AMC Networks Inc. (AMCX)’s IFC and WE TV are among the networks at risk of being dropped by Time Warner Cable (TWC) Inc. now that Chief Executive Officer Glenn Britt is taking a harder line on renewing channels with low ratings." According to Britt, programming fees are rising almost twice faster than the fees that the cable operator is charging, and so the profit margin is declining.

Perhaps there are too many linear channels these days, but the fact is that most networks are not standalone; they are part of a family of networks owned by big media companies.  NBC/Comcast may own USA, but they also own Style.  Scripps may own HGTV, but they also own Fine Living, AMC Nets owns AMC, but they also own WE and IFC, and Viacom owns MTV, but they also own Spike.  And Britt knows that these companies love to use the leverage of their best networks to gain distribution of their others; it is in fact a common practice.

And while consumers complain whenever any channel is dropped, typically as they are out of contract and up for renewal, a much smaller number actually drop their cable service as a result.  Dish Network successfully kept all of the AMC Networks off the air until an agreement regarding Voom gave the family of channels distribution again.  Consumers have learned to do without channels, finding alternative ways to watch their shows.

Should Time Warner Cable follow through with their threat to drop networks, they should market the drop in subscriber fees that the consumer will benefit from.  That unfortunately is less likely to happen. The truth is, these lesser, lower rated networks are not what is causing fees to rise so high; rather, it is the higher rated entertainment and sports networks that command the highest rates.  The loss of a couple pennies per month here and there from the dropping of lower rated services will not improve the business model.  And Time Warner Cable is not about to drop higher rated channels like ESPN, USA, HGTV, TNT, Nickelodeon, and others.  They may command higher rates, but they also deliver higher viewer satisfaction.  And consumers may be quicker to depart.

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