Written By OTELCO Vice President of Marketing, Sales and Customer Service, Trevor Jones
Small Cable TV providers fight an annual battle on behalf of our customers against network owners and content providers over the cost of television content, and especially over the price we pay to deliver local channels as part of our cable service.
I say we fight this battle on your behalf because small companies like OTELCO generally do not make a profit margin on TV service. We simply pass the cost of content and operations on to customers without markup. The larger cable operators get around this by owning all or part of the content that they broadcast. For instance, Comcast owns NBC Universal and Sky. In addition, AT&T, the owner of DirecTV, owns dozens of cable channels, including such big names as HBO, CNN, and Cartoon Network.
From a business perspective, we provide this service as a convenience to our Internet and phone customers in the hope that more of those customers will also choose Internet or telephone service from us. Many aren’t ready to make a complete switch to online streaming services like Netflix and Hulu, and others would rather get all of their services from a single provider, rather than using Satellite TV.
How The Negotiation Process Works
OTELCO uses a combination of direct negotiation and negotiation through a cooperative of small Cable providers to negotiate our content agreements. Usually, we start the negotiation process with content providers in early Autumn, and it continues well into December, sometimes right up until our agreements expire on December 31. Our goal in the negotiation process is to reduce the impact of rate increases on our customers.
The national “Cable TV Channels” and some of the larger groups of affiliated local stations are negotiated on our behalf by the National Cable Television Cooperative, or “NCTC.” By banding together with other small companies, our partnership through the NCTC allows us to have more leverage in the negotiation process. This generally produces more favorable results for those larger channels.
Unfortunately, being a national organization, NCTC doesn’t have agreements in place with every local network affiliate, and OTELCO negotiates with many of these smaller content providers directly. We typically go back and forth with these providers multiple times in an effort to get the best rate we can without an interruption in service. On rare occasions, negotiations continue past the deadline, and sometimes a station will “go dark” for a period of time as each party tries to get the best deal it can.
When negotiations are complete, OTELCO will have a three-year contract with the content provider. Unfortunately, that doesn’t get us or our customers out of a rate increase the next year, but we will be able to plan and budget for increases until the new contract expires. Every year, we have at least a handful of contracts being renegotiated.
How Content Negotiations Affect Your Cable TV Bill
This year in Alabama we’re seeing significant increases in retransmission rates for local channels, as well as significant rate hikes from certain national providers. Retransmission fees (the fees we pay to carry TV you could get for free with an antenna) are up 11% over last year, while the cost of the other channels in our digital family plan is up 6%, and will probably increase further due to a challenging negotiation process underway between NCTC and FOX News Group.
What does this mean to consumers? Well, without a profit margin, OTELCO has no ability to absorb the increases, so in January rates will increase by $5.00 for Digital Family and $2.00 for Digital Broadcast. The Digital Family increase includes a budget for inevitable increases from FOX News Group, but if the final deal comes in higher than our budget estimates, another increase will be required later in the year.