NEW YORK – Faced with escalating programming costs, diminished bargaining power, and higher competition for ad revenue, smaller U.S. cable operators will feel the impact of programming costs more acutely than their larger peers, according to a new report from Moody?s Investors Service.
American content providers both large and small are looking to offset the impact of media fragmentation and increasing competition for advertising revenue with higher subscriber fees.
?The smaller companies have less bargaining power and will therefore likely face steeper increases, limiting their upside growth potential,? says analyst Karen Berckmann in a report entitled Smaller Cable Operators Face Growing Pressure as Programming Costs Escalate.
Moody?s says smaller U.S. companies facing steeper programming costs include Harron, RCN and WaveDivision Holdings LLC, Berckmann says. Each has less than 400,000 video subscribers. Mid-size operators such as Charter Communications Inc. and Cequel Communications Holdings I, LLC, which have more than a million subscribers, will fare better.
Charter has the most to gain relative to other operators as it regains its bargaining power post-bankruptcy and cuts better pricing deals than it was able to do earlier. Comcast Corp. and Time Warner Cable Inc., which have about 22 million and about 12 million subscribers, respectively, have the most significant scale benefits.
The gap between small and large operators will likely widen over the next couple of years as retransmission fees comprise a growing portion of content costs, according to the report. Also, Berckmann says, ?The bargaining disadvantage of smaller operators could worsen as broadcasters continue to consolidate.? That in turn could provide the impetus for more consolidation among smaller cable companies.
Pay TV operators have limited ability to pass on the higher costs, but offering more value to customers through expanding TV Everywhere options could boost retention.
While Moody says it does not expect significant changes programming contracts to include things a la carte options or changes to consumer programming packages over the next couple of years, eventually operators will face pressure to modify the current linear distribution model and offer smaller, more affordable programming packages.
The report is available for Moody's research subscribers at http://www.moodys.com/research/US-Cable-Industry-Smaller-Cable-Operators-Face-Growing-Pressure-as–PBC_153365.
