After clashing with video program suppliers for almost the entire month of January, Altice USA Chairman and CEO Dennis Mathew took to the friendly “air” of his company’s Connecticut-based “News 12” 24-hour cable news platform to declare that his cable company is now going to “take a stand” on rising consumer pay TV prices, related to agreements with programmers.
“We need to evolve the business model and the pricing,” Mathew said in a segment that served as a rather obvious parent-company messaging platform. “We continue to have this antiquated model where we’re forcing people to pay for content that they don’t want.”
Mathew’s declaration could be a bad sign for fans of the surging Knicks and other New York/New Jersey pro sports teams, with regional sports channel operator MSG Networks blacked out on Altice USA’s Optimum-branded cable TV service since Jan. 1. The impasse has affected more than 1 million subscribers in the New York Tristate area, with fans of the NHL’s New York Rangers and Islanders, and New Jersey Devils, also losing access to their teams’ non-nationally televised games.
In several January news updates, the most recent one filed on Friday, the New York Post describes a tense negotiation between the cable operator and the RSN. MSG reportedly started negotiations with a position that it would concede a move of its channels to the most expensive Optimum tier, the $140-a-month “Everything” package. Also notable: Local games for all of the affected New York-area teams now stream over-the-top via the recently launched Gotham Sports App.
These factors likely aren’t helping the negotiating position of MSG Chairman James Dolan, who of course ran Optimum before selling the cable company founded by his late father to European cable baron Patrick Drahi and his Altice empire for $17.7 billion in 2016.
In any event, Altice USA did settle another simultaneously occurring program licensing dispute earlier this month that kept 63 Nexstar Media Group television stations in 42 Optimum markets dark on the Altice USA cable system for 18 days. Indeed, a number of these Nexstar-owned local network affiliates were airing NFL Playoff games throughout January, and both Altice USA and Nexstar certainly had plenty of public pressure not to keep Tristate-area viewers from their pro football.
But alas for the MSG and the Knicks, they don’t quite add up to an NFL fix.
In his subsequent News 12 segment, Mathew tried to message a hard line. “We believe we have to be leaders in the [pay TV] industry and disrupt this model,” he said. “Customers should not have to pay for content they don’t watch.”
Reaching for an analogy, Mathew compared typical pay TV program licensing negotiations to a hypothetical scenario, whereby a “supplier,” in this case Coca-Cola, demands that a “distributor,” think Costco, force its soda beverages on segments of customers who don’t want to buy them in order to have the privilege of stocking and selling Coca-Cola products. Further extending his hypothetical situation, Mathew described Coca-Cola as being further out-of-line by making Costco also push other made-up Coke-branded products like spices and rice cakes. The intent was to liken the made-up situation to that of programmers’ real-world alleged practices of forcing operators like Altice to package less-popular networks in their pay TV lineups for the right to include arguably more popular ones like sports, and distribute them to a minimum threshold of subscribers, despite declining linear viewership and regardless of consumer appetite. Distributors have suggested this leads to bloated, expensive pay TV packages that consumers don’t necessarily want, particularly with more streaming options available, leading to further erosion of linear pay TV.
“It’s not 1994 anymore. And it’s not 2004, either. The way people consume video has evolved dramatically, yet the business model hasn’t changed,” Mathew said. “We want to take a stand. We want to provide our customers with value and choice.”
Altice, which reports Q4 earnings on Feb. 13, finished the third quarter with just 2.33 million remaining pay TV customers. The cable company’s video offering has been decaying for years, along with everyone else’s in linear pay TV. And like other cable operators, rekindling growth for the core broadband service portfolio has been an issue. But Altice USA’s real problem is debt — the operator is currently holding private talks with creditors on the best way to manage $25 billion of it.
With these issues in mind, MSG management should note that Mathew and his team have let other RSNs just walk away. Last summer, for example, Optimum dropped the erstwhile Bally Sports. That decision didn’t affect nearly as many local-area teams. But the channels, now carrying the FanDuel brand following a lengthy bankruptcy reorganization, haven’t returned to Optimum.
According to equity research company Lightshed Partners, the Optimum impasse will result in bankruptcy for MSG Networks if management can’t get it resolved. In this early January note to investors, Lightshed isn’t confident they can get it done.