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Cox seeks caps on programming discounts for Big Four

Wed, 09/26/2012 - 3:26pm
Brian Santo

Cox Communications is asking the FCC to impose caps on the discounts that programmers give to the largest multichannel video programming distributers (MVPDs), according to a report in the Los Angeles Times.

Larger MVPDs have always had the leverage to negotiate programming fees lower than those charged to smaller companies – sometimes far lower. This has been an ongoing source of disgruntlement for many smaller companies, that chafe at being charged far more for programming. Many smaller service providers report that video is a breakeven proposition, at best, due in part to rising programming fees.

Comcast, DirecTV, Dish Network and Time Warner Cable, in that order, are the four largest MVPDs in terms of video subscribers. By that measure, Cox Communications is the fifth largest. With approximately 4.6 million video subscribers, Cox is roughly one-third the size of TWC and Dish and roughly one-fourth the size of DirecTV and Comcast.

That such a complaint is being made by the fifth-largest MVPD underscores the incredible gap in negotiating leverage between the top four MVPDs and everyone else.

For its story, the Los Angeles Times cites a document Cox filed with the FCC that argues that the volume discounts the biggest MVPDs are able to negotiate puts an unfair burden on mid-size and smaller operators and their subscribers because programmers try to make up for the lost revenue by charging smaller distributors more.

Cox said the discounts can be as much as 30 percent off the standard rate for a channel, according to the Los Angeles Times. Although such discounts are not necessarily illegal, Cox argues that the Communications Act "does not permit discrimination against smaller MVPDs or volume discounts unrelated to the actual benefit of selling in volume."

Cox wants the FCC to put a cap on the size of a discount that a big pay-TV distributor can get from a programmer. If a pay-TV distributor receives a discount in excess of the cap, it should be "required to demonstrate that the discount is tied to actual benefits realized by the programmer," Cox said in its FCC filing.

"As programming costs are shifted disproportionately to mid-size and small MVPDs, their customers are disadvantaged, as higher costs make it more challenging for these MVPDs to develop the innovative services at competitive prices necessary to meet the offerings provided by the largest providers," Cox told the FCC last week.

Soaring programming costs is an acute issue for cable operators that over the years have consistently come under pressure from consumers for increasing their monthly fees. These increases are often tied directly to rising programming costs, however.

As a Cox spokesperson explained to CED in an email: "Significant increases in the cost of programming are the main driver of rising consumer cable and satellite TV bills. Customers of small- or medium-size cable providers, like Cox, should not have to pay more than customers of large cable and satellite providers for the same programming. We are concerned that small- to mid-size cable providers are getting squeezed with unfair volume discount pricing and may be carrying a disproportionate share of the programming cost burden for the largest cable and satellite providers. The volume discounts currently being given to the largest cable and satellite providers may not be justified by legitimate economic factors under the current model (costs to provide), could harm competition and consumers, and may be discriminatory. We’ve asked the FCC to take a closer look at this."

The spokesperson went on to explain further that Cox is not asking to get the same rates its bigger brethren can negotiate, often referred to as “most favored nation” rates, but that the volume discounts given are done so under a model that is consistent and fair for all providers and appropriately distributes the burden of programming costs across carriers.

"There is a pervasive concern that the largest MVPDs receive volume discounts of up to 30 percent off the rates available to mid-size and smaller MVPDs," the spokesperson concluded.

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