Bundles, M&A, Increasing Regulation Expected To Dominate INTX

Rising programming costs, cable mergers and acquisitions and increased FCC regulation of their business are expected to be the focus of discussion for cable operators, attorneys and vendors at this week’s INTX (Internet and Television Expo) show hosted by NCTA in Chicago. The pressure of the FCC's Title II Communications Act regulation of broadband service, its push to classify online video services as multichannel video programming distributors, and increasing competition and programming costs highlighted by Verizon’s mini-bundle offering (see 1504220058) are combining to force cable operators to think hard about how to keep their business viable, said industry lawyers in interviews last week.

“There’s dismay at the needless reversal of policies that have brought in investment and innovation, a great readiness to use new technologies to meet current market needs, and a continuing concern over video costs," said Davis Wright cable attorney Paul Glist. Cable has reached “an inflection point” with high video costs, stiff regulation and increased competition, said BakerHostetler cable attorney Gary Lutzker. “Something has got to change” to let cable operators make money off their product and compete, Lutzker said. A Media Bureau spokeswoman declined to comment.

Verizon’s dispute with ESPN over mini-bundles highlights the programmer responsibility for the bundle, Glist said. Some cable attorneys said they aren’t sure if Verizon’s attempt to offer smaller bundles would be successful, but the attention it draws to the issue of programmer bundling requirements could be beneficial for cable and would likely be a major topic of discussion at INTX. That could lead to renewed interest in a Mediacom petition asking the FCC to restrict programmer’s ability to require bundling in content deals, said some attorneys. Cable operators “want high quality programming -- that costs money,” said Glist. "The cable industry recognizes that we need to try different models for distribution,” Glist said.

Between the Title II net neutrality order, a failure to forebear from its privacy regulations and the potential broadening of the MVPD definition, the FCC is seen as pushing into spaces it didn’t previously regulate, said industry lawyers. That’s leading them to having to rethink what they thought they knew about how their industry is regulated. This is “a reversal” from how these aspects of the industry were regulated, Glist said.

The rejection of Comcast's planned buy of Time Warner Cable and the M&A flurry predicted to fill the void created by the abandoned deal (see 1504240066) are likely to be another area of discussion at INTX, said industry lawyers. “Who’s eating who,” a cable attorney called it. Though the eventual result of all the deals is unclear, operators and vendors are following the moves closely and trying to determine how it will affect the industry, said a consumer electronics official who deals with cable companies. Charter Communications is expected to do well in that exchange, which could lead to extra attention being paid to that company at INTX, said an industry official. “Charter will be the belle of the ball.”

Other industry attorneys said the M&A situation and net neutrality won’t much occupy the industry at INTX, because both situations happened and can’t be changed. Title II regulation hasn’t started yet and is likely to be in the courts for some time, while the post-M&A dealmaking is playing out very publicly, an attorney said.

Although it's seen as traditional before the cable show for the FCC to take some sort of positive action for cable that the chairman can highlight in his speech, every industry official interviewed said they aren’t expecting one this year. The Media Bureau recently completed the comment cycle on a rulemaking on making effective competition for cable a rebuttable presumption that has received wide industry support and has a STELA Reauthorization Act-mandated deadline approaching this summer.

FCC Chairman Tom Wheeler “doesn’t see the marketplace the way cable operators see the marketplace,” Glist said. Wheeler’s focus on online video, potentially shifting the definition of MVPD and regarding cable as an incumbent squeezing out new entrants means cable expects little from him, cable attorneys said.