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Smaller cable companies are in a tight corner

Mitchell Hartman Oct 1, 2014
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Viacom, the giant media company that produces channels including Comedy Central, Nickelodeon and MTV, has been dropped from the TV menu of one of the nation’s smaller cable companies.

Suddenlink Communications, based in St. Louis, says Viacom’s stations cost too much, and that it can’t pass that cost on to its cable customers.

Industry watchers say this is evidence of a growing trend. Smaller cable providers are opting out of expensive carriage deals with major content providers and risking the ire of customers deprived of popular channels. Some small cable companies are getting out of the TV business altogether and offering only broadband internet and phone services.

Suddenlink serves approximately 1.2 million customers in North Carolina, Arizona, Texas, Louisiana and other Southern states. Company spokesman Pete Abel says Viacom was demanding nearly 50 percent more in carriage fees in their renewal contract this fall. Abel says Suddenlink came back with a counterproposal: The company would “un-bundle” Viacom’s channels “which our customers could then pick, choose and pay for, at their discretion.”

“So far, neither Viacom nor any of the companies we have made that suggestion to have agreed to do that,” Abel says.

Viacom sent a written statement to Marketplace:

“After five months of negotiations, Suddenlink abruptly stopped negotiating with Viacom one week ago.”

Viacom says it accepted Suddenlink’s final contract proposal for one year, but Suddenlink walked away from that offer.

Whoever is to blame for the blackout of Viacom channels on Suddenlink, the phenomenon of small cable companies changing or dropping programming represents a paradigm shift in the industry, says entertainment equity analyst Tuna Amobi at S&P Capital IQ.

“We’ve always said that something has to give, given the escalation in programming costs, which is translating into cable bills outpacing inflation by orders of magnitude,” Amobi said.

Amobi predicts more consumers will “cut the cord” in the future.

Last year, the pay-TV industry lost customers for the first time ever, shedding 167,000 subscribers, according to research by MoffettNathanson cited in the Wall Street Journal. Media analysts say this trend is partly driven by the big media companies themselves—whether content providers like Viacom, or cable service providers like Comcast—which insist on bundling big packages of preselected channels to consumers, and then increasing bills to cover the cost.

“Across the entire U.S., the advent of over-the-top services like Hulu, Netflix and Amazon is where the paradigm shift of cord-cutting is occurring,” said Amobi. “This trend is going to continue and ultimately exert even more pressure, in terms of consumers dropping the high-priced cable bundles in favor of cheaper alternatives.”

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