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posted: 3/24/2013 6:20 AM

Cable companies push to break up forced bundles

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  • Verizon and Cablevision are publicly pressing media companies that own the programming to stop pushing them to distribute unwanted channels and instead offer cable bundles based on what viewers actually watch.

      Verizon and Cablevision are publicly pressing media companies that own the programming to stop pushing them to distribute unwanted channels and instead offer cable bundles based on what viewers actually watch.
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The Washington Post

Cable viewers have long complained about paying ever-higher bills for hundreds of channels they don't want to watch. Now, in a twist, some cable companies are beginning to agree.

Verizon and Cablevision are publicly pressing media companies that own the programming to stop pushing them to distribute unwanted channels and instead offer cable bundles based on what viewers actually watch.

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If successful, the efforts could lead to cheaper options for consumers and a sea change in how the television industry has done business -- and protected its profits -- for more than two decades.

Such change has become necessary, Cablevision and other cable companies argue, as more Americans cut their cable cord in favor of cheaper Web-based video provided by Netflix, Apple and Amazon.com. Today, 5 million households get their television solely from the Internet, up from 2 million in 2007, according to Nielsen.

But Hollywood and media companies have said that breaking up the bundles would lead to the demise of smaller niche programming that does not have mass-market appeal.

Analysts say it is too early to tell whether the spat between cable firms and their media partners will lead to lower bills or the long-sought goal of consumer advocates: a la carte TV. Even the federal government has failed in its efforts to persuade the television industry to charge viewers only for what they watch.

The dispute is being closely watched because it has broad implications for consumers, as well as for the way television is funded and created.

"This is the beginning," said Gene Kimmelman, a former senior antitrust official at the Justice Department. "If the conflict between cable distributors and content owners persists and prices keep rising, there will be enormous market pressure to begin unbundling offerings, give consumers more choices and, from my perspective, ultimately let consumers control what they buy and how much they pay."

Late last month, Cablevision took its case to a federal court in New York, suing Viacom -- owner of Comedy Central, MTV and Nickelodeon, among other programming -- for forcing the cable company to buy and distribute 14 channels that are hardly watched (including VH1 Classic and Logo). The penalty for not carrying those channels is more than a $1 billion. The suit was cheered by a host of other cable providers, including Time Warner and DirecTV.

"This anti-consumer abuse of market power is a key reason cable bills continue to rise and programming choice remains limited," Cablevision said in a news release.

Verizon, the nation's sixth-largest cable television provider, says it has the technology to measure exactly what people are watching. While it is not part of the lawsuit, the company said it is trying to negotiate new contracts that would allow it to pick and choose which channels it wants to distribute through its FiOS service.

"The fact that these cable companies are coming out publicly about their disputes with programmers [is] in itself significant," said David Kaut, an analyst at investment research firm Stifel Nicolaus. "These developments hold some potential for disrupting current cable TV bundling, and more generally, I suspect the drip, drip, drip of broadband Internet video developments will put market pressure on the bundle over time."

Verizon would not say how the new approach would ultimately affect consumer bills.

"The idea of trying to tie content costs to people who watch it makes sense, and that is the gist of this," said Bob Elek, a spokesman for Verizon, whose FiOS service reaches 4.7 million customers.

In a statement, Viacom said, "Cablevision is crying foul over a standard business practice that expands choice and lowers cost for consumers -- a practice they use extensively to sell their own services."

Viacom and other media companies have argued that bundling allows creative minds to start new programming with less risk. The approach seeded channels such as the Food Network and Bravo, which eventually produced the "Real Housewives" series.

The offerings on television now seem endless. On average, consumers watch five to 10 channels regularly, said Jeffrey Kagan, an independent telecommunications analyst. But a cable service can easily pump more than 1,000 channels into the living room. Meanwhile, bills have tripled in cost over the past decade.

Streaming-video services offer more-limited programs at a lower cost and have a growing appeal for younger audiences. In the last three months of 2012, Netflix, the leading streaming-video provider, added 2 million subscribers, bringing its total to 27.5 million. Meanwhile, Comcast, the nation's largest cable operator, saw the number of subscribers drop to 21.9 million at the end of 2012, compared with 22.3 million at the end of 2011.

Upstarts such as Aereo are offering live television through streaming Web connections. The practice has drawn the ire of companies such as News Corp., which owns Fox, and Walt Disney Co., which owns ABC. They and other media firms are suing the company in federal court, accusing it of copyright infringement.

New York-based Aereo, which was founded by IAC/InterActiveCorp founder Barry Diller, serves more than a dozen markets and won a first round of court battles.

"Aereo is very interesting and could be very disruptive because young people are not as wedded to the cable bundle and increasingly used to getting entertainment online," said Andrew Schwartzman, a telecom media lawyer.

But Schwartzman cautioned that consumers should not expect cable companies to loosen their grip on their pay models too quickly. And traditional television, for now, still has appeal.

"Just watch, two weeks from now, when the NCAA tournament heats up ... there will be another reminder of the pull traditional TV has and what a long way there is to go for changes in the industry," he said.

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