ACTION! Primer on Cable Regulation in an Evolving IP World National Association of Telecommunications Officers and Advisors 2013 Annual Conference Orlando, FL September 16-19, 2013 Brian Grogan, Esq. 1
Introduction Understand the marketplace Impact of competitors on renewal Don t leave money on the table Bundled rates and other offsets from fees Treat PEG like commercial channels Transition of PEG to HD and VOD Maintain City Code regulations ROW codes, ordinances, permits fees You can t enforce franchise without tools Records, bonds/locs, confidentiality 2
Homes Passed Cable Marketplace Basic Cable Subscribers 130.7 M 57.3 M Basic Cable Penetration 44.4% Homes Passed by Internet High Speed Internet subs 125.4 M 50.3 M Cable Phone subs 26.7 M 2011 cable operator revenue Video revenue = $57 M Broadband/telephone revenue = $41M No programming costs for non-video services Source: SNL Kagan NCTA website (visited August 2013) 3
Marketplace Challenges Decreasing Subscriber Base Over the top (OTT) competition Satellite and telephone competition Franchise Fees paid by cable $3.2 B (2011 est.) Cable gross revenues Nearly Flat Subscribers decreasing Rates increasing Is the cable pie getting smaller? Will 2015 franchise fees = $3.2 B 4
Chromecast OTT Video Device $35 5
OTT Devices Chromecast Apple TV, Boxee Box (with Live TV dongle), Xbox 360 (with Kinect), Nintendo Wii, Roku XDS, Seagate GoFlex TV, Sony PS3, Logitech Revue, Sony SMP-N200, TiVo Premiere, ViewSonic NexTV, WD TV Live, OnLive All DVD players 6
OTT Platforms 7
OTT Platforms Netflix, Hulu Plus, HBO GO, itunes, VUDU, Zune Video, Amazon Prime Streaming, DISH/Blockbuster Sony PlayStation Network, Google TV, MLB.TV, EPIX, UFC, ESPN, YouTube, EPIXHD, OnLive and others. 8
Impact of OTT on Renewal Limited ability to communicate with OTT subs Reduced consideration Franchise fees PEG fees INet Same burden on ROWs limited regulation Does cable operator have argument: Greater competition = less regulation Don t kill the goose Per subscriber contribution will need to rise 9
Don t leave money on the table Example: Bundled Rates Subscriber pays $150 for triple play services/equip. Is LFA receiving full payment on cable services? How is discount being applied? Line backer fees Service calls Must address issue in renewed franchise Allocate revenue on a pro rata basis i.e. equal allocation of the package discount Spend time in renewal on details of all compensation terms 10
Sample Bundled Rate Provision Where the Grantee or any affiliate bundles, integrates, ties, or combines Cable Services with Nonvideo services creating a bundled package, so that subscribers pay a single fee for more than one class of service or receive a discount on Cable Services, gross revenues shall be determined based on an equal allocation of the package discount, that is, the total price of the individual classes of service at advertised rates compared to the package price, among all classes of service comprising the package. Based on California Digital Infrastructure and Video Competition Act 11
Other offsets from fees PEG fees offset from franchise fees? Operator may seek language to allow offset Based upon 47 USC 542 Capital v. operational Watch out for: as permitted under federal law or unless prohibited by federal law Advertising fees Net v. Gross revenues Commissions paid first Operator may seek to limit franchise fees To revenue received from subscribers 12
PEG v. Commercial Channels LFAs want PEG treated the same as any other commercial channel No degradation of signal Same technical quality and functionality Channel located in proper neighborhood Carriage fees calculated uniformly On Demand and video anywhere capability Ease of access via navigation platform Why will operator not meet these requirements? 13
PEG Transition Capacity v. channel space 6 MHz v. dedicated channel slot Digital (SD) or high definition (HD) Simulcast SD and HD Basic and expanded tiers Timing, location, accessibility Equipment, cost Video on Demand technical issues, costs 14
Maintain City Code Regulations Should LFAs maintain separate cable ordinance? Conflicts how resolved Separate/ different rules for ROW users? Can issues be addressed in City Code City Code ROW provisions» Permitting (conditions)» Fees» Insurance, bonds Customer service, consumer protection Approach may vary based on size and staff of LFA 15
Franchise Enforcement Tools Operators are resisting reporting obligations They argue confidentiality, trade secret Too great a burden cost Outdated in competitive market Without records/reports how can LFA enforce? Operators resist letters of credit They want bond or even less They want lengthy and complicated procedure Goal may be to frustrate effective enforcement Do not overlook these issues in renewal 16
Conclusion Cable industry is changing Video growth is limited Non-video may be the future profit center Local regulation still imperative ROW control Local content - PEG Subscriber protection Contract oversight and enforcement Without LFA no regulation to benefit subscriber Without strong franchise no hope of regulation 17
Thank You! Brian T. Grogan, Esq. Moss & Barnett 4800 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402-4129 Phone: 612-877-5340 Facsimile: 612-877-5999 E-mail: Brian.Grogan@lawmoss.com Web site: www.lawmoss.com 18