Speaking to a Congressional subcommittee panel, media and telecommunications industry analyst Craig Moffett said federal regulators should look at controlling "soaring" program costs in order to spur investment in broadband.
"Absent reforms to restrain the runaway growth in programming costs, video will become unprofitable," MoffettNathanson's Moffett told a House Energy and Commerce Committee's Communications and Technology panel. Conversely, the analyst added, "new builds of broadband will become increasingly economically challenged and therefore will become less and less likely."
The panel was convened by subcommittee chairman Greg Walden (R-Ore.) to discuss the high cost of entry into the broadband sector and what the government can do to spur investment. Moffett spoke alongside Michael Slinger, director of Google Fiber, and Jonathan Adelstein, president and CEO of the PCIA, among others.
In his speech, Moffett outlined the enormous infrastructural investments made by cable and wireless companies to build broadband infrastructure. Investments in current infrastructure were made, Moffett explained, with the expectation that resulting pay-TV services would be profitable.
Exacerbating the situation, Moffett said broadcast retransmission fees are rising so fast that SNL Kagan recently revised a projection released in October stating that total retrans fees would hit $9.4 billion by 2020. The new projection is now $9.8 billion.
"As everyone understands, the cable video business is facing unprecedented pressure," Moffett told lawmakers. "Cord cutting has been talked about for years but is finally starting to show up in a meaningful way in the numbers. And soaring programming costs are eating away at video profit margins. From a cable operator's perspective, the video business and the broadband business are opposite sides of the same coin. It is, after all, all one infrastructure. Pressure on the video profit pool will therefore naturally trigger a pricing response in broadband, where cable operators will have greater pricing leverage."
As expected, the American Cable Association lauded the analyst's take.
"Time and again, the FCC has turned a deaf ear to the urgent need to act to stem these 'runaway' video programming costs," the ACA wrote in a statement. "In fact, just yesterday, chairman Wheeler, in announcing the conditions he proposed for the FCC to adopt in approving the AT&T-DirecTV merger, slammed the door on consumers and smaller providers seeking to prevent video costs from increasing as a result of the deal, despite having hard evidence that the deal would raise costs once again."
- read Craig Moffett's testimony
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