Economics are different for smaller cable operators

Jim BartholdEvery so often it's important to peek around the Sequoias and take a look at the forest. In the cable industry, this means looking behind Comcast's efforts to spend $30 billion to acquire NBC Universal, Time Warner Cable's fascinating experiments to widen audience appeal with both cheaper and ultra-expensive packages, or even Cox's attempt to become the first cable television operator that's also a mobile carrier.

It means looking at the plight of the smaller operators who, while not nearly as rich or powerful as the big guys, have to compete every day with the same telephone companies, satellite providers and, in a lot of instances, with other bigger cable operators who, even if they're not in market, cast a big shadow.

Despite the best efforts of hard-working organizations like the American Cable Association which, at least daily and sometimes several times a day, endeavors to explain the hurdles small operators face--including why they could be (will be, according to the ACA) adversely affected by the Comcast-NBCU merger if the deal is allowed to proceed unfettered and a variety of other important items, the small operators are inevitably overlooked.

I know. I did it. In recent stories about cable set-top boxes I alluded to the fact that cable operators don't lose money on set-tops. They use and reuse the units, taking them in and putting them back out in the field; sending them from one system to another in a version of recycling that never seems to run out. It's perhaps not as lucrative a trade as it was in the days of analog boxes which cost next-to-nothing to build, just slightly more for a cable operator to buy, and a goodly chunk of money every month for a subscriber to lease.

The economics are far different for a small service provider, an operator who asked to remain anonymous informed me in an e-mail.

"We wish they were a money-maker," the operator wrote.

Motorola set top boxWhen I asked for more details, I got them--also something that doesn't always happen with big operators--and they came from the source, not the PR person assigned to handle the press.

"We're a small service provider, about 9,200 cable subs," the reply came. "Our digital system is about six years old, but the original DVRs stored only 60 GB or so and had issues, so those were dumped or returned. Motorola DCTs are about $425 each, so if we ignore the cost of money, cost of repair and handling, and theft, and charge $10 a month, it takes about 3 and a half years (for payback)."

Second generation DVRs, the operator conceded are "getting close to that term but the remaining are still in payback mode."

Big operators, the FierceCable stories emphasized, are not especially interested in hitting retail with cable boxes. Cable box makers, ditto. Smaller operators--well, again, it's a different story.

"Believe me, if customers were comfortable paying for the STB upfront or if there was retail version, we would be happy to let them bear the capital cost and hardware maintenance. But we're in a credit society that want things now ... we subsidize it with our monthly fees."

It is, of course, a point well made and well taken. The big cable operators, because they're big, get all the attention. When they move, everyone watches and/or follows. And sometimes, for the smaller operators, it's painful. Maybe that's why the FCC should and probably will take a second look at what Comcast is up to: Not because a Comcast-NBC union will tip the programming balance but because it might, in fact, just add one more dollar--or as the ACA predicted, $2.4 billion more dollars--to the burden already borne by small operators.

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