Cable Channels Like Current and Ovation Feeling Heat

January 7th, 2013

There are two kinds of cable channels in the United States: those operated by major media companies that have dozens of other channels, and those that are on their own.

The outlets in the second group, the independent channels, are feeling threatened these days. Some of the distributors they depend on — Time Warner Cable, DirecTV, Verizon FiOS — are talking about dropping underperforming channels from their lineups, or at least paying them less. Al Gore’s low-rated Current TV, for example, was at risk of being dropped when it decided to sell to Al Jazeera last week and was, in fact, dropped by Time Warner on New Year’s Day.

Distributors have talked for years about belt-tightening, but two things are different now: potential Web competitors are creeping up and programming costs are soaring, particularly for sports channels and broadcasters.

“We are having to take a very hard look at our lineup, not unlike a network that takes a hard look at its lineup when deciding what shows it will put on the air,” said Melinda Witmer, who oversees Time Warner Cable’s negotiations with channel owners. She predicted more changes in the future that would “enable us to buy the stuff that we’ve really got to have, and let go of stuff that’s not really moving the dial.”

In practice, independently owned channels are more imperiled than those owned by media conglomerates like the Walt Disney Company and Viacom. “Many lesser networks owned by the large content companies are tied to carriage of their more valuable services,” said Dan York, who oversees programming deals for DirecTV.

VH1 Classic and ESPNU aren’t going away anytime soon. But on New Year’s Day, Verizon FiOS withdrew Youtoo TV, a fledgling channel that features videos submitted by viewers, and Time Warner Cable dropped Ovation, which bills itself as an arts and culture channel. Ovation “is viewed by less than 1 percent of our customers on any given day,” the distributor said in December when it announced the change, adding, “They’ve had ample opportunity to improve the ratings and the content, and have failed to deliver.”

Even if obscure channels like Ovation receive only a nickel a month for every customer, those nickels still add up to tens of millions of dollars in costs incurred by distributors and, indirectly, their subscribers. Of the 10 distributors that together account for 90 percent of TV subscriptions in the United States, Time Warner Cable is taking the most aggressive public stance against low-rated channels like Ovation. Programming costs in general are “out of whack,” the distributor’s chief executive, Glenn Britt, told investors last month, citing a 30 percent increase in the subscriber fees paid to channel owners since 2008.

Mr. Britt has been outspoken about limiting price increases to retain customers who otherwise might eliminate cable. When Time Warner Cable warned that it might drop Current last month, it also singled out low-rated channels like Hallmark, IFC, Lifetime, NHL Network, the Style Network and WE tv.

But to date, none except for Current and Ovation have been dropped by Time Warner. And new channels continue to be given a chance: Time Warner Cable started to carry BBC World News and RLTV, formerly called Retirement Living TV, in the last few months. Some programmers say that’s proof that the distributors are just making empty gestures to Wall Street, talking tough about programming costs but not following through.

Chad Gutstein, the chief operating officer of Ovation, said he did not know why his channel was dropped, “but I do know this: What they say they’re doing, they’re clearly not doing.”

“They’re actually doing things to increase their programming cost growth, to drive those costs up for all the other distributors in the marketplace,” Mr. Gutstein said, by starting an expensive regional sports channel in Southern California, for instance.

But channels with exclusive sports rights are crucial, even though they may make profitable distributors feel impoverished. “Any given one may not have a huge amount of viewership relative to a national service, but if you lose that team, you’re losing subscribers,” said Ms. Witmer of Time Warner Cable.

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