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Year-End 2016: How Major Cable Networks’ Contract Negotiations Could Impact the Way TV Channels Are Packaged

January 13th, 2017   ||    by Brooke Phillips

The success of AMC’s The Walking Dead is very much alive and well in 2017. Fans of this series may remember a time, however, when it seemed as though a stake would be driven through their hearts, as one of the biggest television providers in the country threatened to pull the plug on all things AMC-branded.

In 2012, a major contract dispute occurred between AMC and Dish Network. Overnight, Dish replaced AMC, WE TV, and IFC with networks many subscribers hadn’t even heard of. In the midst of a major contract dispute, AMC leveraged its networks’ popularity to appeal to the masses (all 14 million of them) and garner a favorable position which eventually led to successful negotiations between the network and affiliate.

Terms and Conditions of 2016

Although it wasn’t as widely publicized, the same network brand caused quite an uproar at the end of 2015, as its contract with the National Cable Television Cooperative (NCTC) expired. Although there were plenty of angry subscribers and worried MSOs (multiple-system operators), one major difference stood out between the two aforementioned disputes: The DISH Network situation affected millions of customers who could come together and lament as one mass subscriber base, whereas the NCTC affiliates’ subscribers felt like they were left out on their own.

While the DISH dispute ended favorably for all three entities involved (the network, the MSO, and the customers), the NCTC dispute left many customers without their favorite networks, as the brand’s new rates were simply more than many small affiliates could afford.

The end of 2016 saw a new wave of pertinent contract expirations. As it turns out, for many MSOs, 2016 was the year of the expiring Fox Cable agreement. Fox Cable owns a large number of networks, including national feeds such as FX, an assortment of regional sports networks and a couple hybrid networks like Big Ten Network. The umbrella brand also owns a solid number of retrans networks across the country. Needless to say, Fox Cable is a major player in the cable game, and when its contracts are up, people pay attention.

The Future of Network Packaging

Enter skinny bundles, an MSO’s dream and worst nightmare, all in one. Networks want to be wanted, and customers are willing to show their appreciation for their favorite networks by way of monthly payments. The delicate dance of packaging is usually what stands in the way of successful market penetration. To accommodate customers’ ever-increasing expectations and appease the cord-cutting generation, cable providers have begun to market skinny bundles.

  • Pros– Skinny bundles allow customers to choose a genre of networks that interest them without feeling overcharged for tens or hundreds of networks they’ll never watch. For the affiliates, this also means license fees are essentially only due for customers who are truly viewing the network. Ad sales are more likely to be fruitful when diligent efforts are done to key in on target audiences, as advertisers will be hitting a very specific market of people.
  • Cons– Cons – Simply put, skinny bundles can wreak havoc on cable billing systems, and double-counting is a serious possibility if the billing systems aren’t built out correctly. The other issue is a big one — everybody wants to be the most highly-penetrated network on TV. Skinny bundles remove MSOs’ and networks’ abilities to calculate penetration with a traditional Total Basic (basic cable tier) or Expanded Basic (cable programming service tier) denominator. As contract negotiations get underway, networks have begun bucking the bundling system, making it difficult for providers to package channels in a manner that best suits their subscribers.

The end of 2016 might have just been the beginning of network repackaging as we know it. With skinny bundles finding their ways to line-ups everywhere, expiring contracts are lending themselves to unique carriage requirements and contract compliance issues only an auditor could love. Alas, despite their best efforts to buck the system and adhere to traditional packaging, MSOs are finding it impossible to avoid the impending Skinny Bundle Conundrum.

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