Cable operators would still rather sleepwalk pay-TV than stop it

For many small residential broadband operators struggling to scrape any profit out of pay TV, it’s still easier to phone it in than cut the cord outright.

The number of multichannel video providers that have left the TV field to focus on broadband has yet to get out of the dozens, S&P Global Market Intelligence’s Kagan research group found when it attempted to track TV-provider exits via ceased copyright filings.

“We found that 20 traditional multichannel operators had stopped filing with the Copyright Office between 2016 and the first half of 2019,” emailed Tony Lenoir, a senior research analyst. Kagan saw 18 of them no longer advertising traditional pay TV.

The list Lenoir shared consists of some of the smallest firms in the business, most with names that call out origins as telephone providers and some identified as cooperatives or municipally owned.

None seem to have began life as cable operators; that end of the MVPD universe seems more committed to traditional pay TV. Said Pam Gillies, a spokeswoman for the Washington-based National Cable Television Cooperative: “We don’t have many members that are going this path.”

(Kagan’s list does not include Google Fiber, another firm outside the usual pay-TV ecosystem; in February, it said it would dump its own TV service in favor of YouTube TV and FuboTV.)

“I’m surprised it hasn’t happened much more frequently,” said Alan Wolk, co-founder and lead analyst at TV[R]EV. “It costs them a lot of money to maintain these services, negotiate the fees, try and put together interfaces.”

The experience of two TV-existing firms may suggest why. Both recounted extensive hand-holding to get customers comfortable with over-the-top TV services.

"We put together a marketing and education plan,” said Bill Bottiggi, general manager at Braintree Electric Light Department, of that Braintree, Mass., municipally-owned utility’s fall 2019 TV shutdown. “We held educational sessions here at our office where customers would come in.”

BELD had about 2,300 TV-and-internet subscribers and some 300 TV-only subscribers alongside roughly 1,200 internet-only subscribers, Bottiggi said. The company’s initial projections had the company left with only 1,800 internet subscribers—it competes with Comcast and Verizon Fios—but instead it had about 2,400 broadband customers.

BELD decided to drop a business line it had offered since 2000 not just due to rising programming costs—“all the revenue that came in from cable TV was really just flowing right back out to programmers,” Bottiggi said—but because of hardware bills coming due.

“The vast majority of the equipment was all getting towards end of life,” he said.

At Oregon Farmers Mutual Telephone Co., where pay TV went off that Oregon, Mo., firm’s menu in 2017, a purchase by an outside firm with no background in video led to that decision.

“We had never really dealt with the TV side of things, and we just we looked at what it would cost to keep it going versus what it was making,” said Tammy Souza, vice president of finance and services at Lewisville, Ark.-based Townes Telecommunications.

Souza said Townes went as far as giving Roku sticks to customers.

“We knew it was going to hinder some of our customers,” Souza said of this business decision. “In our business office, we set up a TV and basically showed them how to maneuver with the Roku stick.”

She didn’t have subscriber numbers to share but said customers have taken it well: “Nobody’s really come back to our business office saying, you know, we hate what you did.”

Both BELD and Townes provided this help without any support from the streaming services to which they pointed customers.

Wolk called that a missed opportunity for smaller operators looking to get out of TV: “I’m surprised that they just don’t strike a deal with the various streaming services.”

A third small utility faces the same trends of cord cutting and escalating programming costs but won’t toss TV yet.

“We are the only operator in our community of 38,000 people,” said Michael Hale, general manager of Shrewsbury Electric and Cable Operations. “We can’t just exit the video business.”

That utility, owned by the town of Shrewsbury, Mass., still has about 1,100 video-only subscribers out of “14,000 and change” for broadband, Hale said. It’s instead opted to put TV into maintenance mode.

““We replace as little as we have to keep it afloat,” he said. And it’s passing on all programming-cost hikes: “We don’t have margins on the video business.”

Ian Olgeirson, an analyst with S&P Global’s Kagan group, said he expects more small providers to consider tossing TV as the coronavirus pandemic continues to eat away at the economy.

“We are likely to see an increasing number of small and even mid-sized operators, already struggling with the difficult video business, pushed over the edge by the pandemic’s economic aftermath,” he said in an email.

For those considering that step, Souza, with Townes, warned about the possible federal and state filings involved. “There are a lot of regulatory issues that you have to deal with,” she said. “It might be worth it to reach out to a consultant.”

BELD’s Bottiggi emphasized what he called “the educational piece” in coaxing customers to move to OTT: “That was significant, I think, in making customers comfortable that they could switch to a streaming environment.”