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Smaller Cable Companies, Larger Programmers Have Long Benefited From Buying Groups Like NCTC

The American Cable Association urged the Federal Communications Commission to recognize in its new video competition report to Congress the important role of buying groups in lowering the costs of conducting business between national cable programmers and 900 small and medium-sized multichannel video programming distributors (MVPDs).

“Without a buying group like the National Cable Television Cooperative (NCTC), customers of small and medium-sized cable operators would pay higher fees for their television service. This buying group creates substantial efficiencies for programmers and hundreds of smaller cable operators, and the cost savings are passed through to consumers,” ACA President and CEO Matthew M. Polka said. “A report on video competition to Congress would be lacking if it failed to acknowledge the vital role of buying groups.”

ACA set forth its views in comments (click here to view full document) filed March 21 with the FCC in connection with the preparation of its new video competition report to Congress. ACA’s comments underscored some key facts and trends, including that nearly all independent cable operators and all programmers with the most widely distributed national cable networks rely on the NCTC to serve as a facilitator in the purchase of programming, helping to moderate transaction costs for its members and programmers alike. NCTC was organized by a dozen small and medium-sized MVPDs for the purpose of serving as a buying group and creating efficiencies in the acquisition of video programming. Today, the NCTC has 890 member companies and has been successfully negotiating programming agreements on behalf of its members for 30 years.

NCTC has master agreements with all of the Kagan Top-25 national cable networks and 46 of the Top 50. NCTC members’ subscribers have never collectively lost any networks. Members of NCTC do not rely on the NCTC to negotiate carriage of broadcast television stations and regional sports networks. Negotiations for regional networks and local stations are conducted by cable operators on their own.

Of NCTC’s 890 members, more than half serve 1,000 or fewer subscribers. The median size of an NCTC member is 1,500 subscribers. Of NCTC’s 25 largest members, the four largest do not currently license substantial amounts of programming through the buying group. However, the remaining 21 of this group do license substantial amounts of programming through the NCTC. NCTC members outside its 25 largest members generally rely even more heavily on NCTC to secure their programming.

NCTC plays a similar role with respect to service and equipment vendors, thus allowing its members to realize additional efficiencies in other areas. By recognizing the vital role of buying groups in assisting small and medium-sized MVPDs in its video competition report, the FCC can present a more realistic assessment of the state of the video distribution marketplace in 2013.

The importance of a buying group like NCTC is buttressed further by data and information provided in ACA’s comments that smaller cable operators are continuing to exit the market and close their systems owing to a few factors, rising programming costs chief among them. In its last report, the FCC noted that in the previous five years, nearly 800 cable systems serving more than 35,000 subscribers in mostly small and rural communities had closed, leaving those communities without any wireline MVPD. Based on new NCTC-supplied data, since 2008, NCTC members closed a total of 1,078 small and rural cable systems, the vast majority of which reflect systems that have ceased providing video service in their communities. At the time of their closing, these systems served about 50,000 subscribers.

“In order for the FCC to give Congress an accurate picture of the health of the video distribution markets, it is essential that it include in the 16th Report data revealing the overall decrease in the number of cable systems,” Polka said.

Lastly, ACA urged the FCC to report on the increasing trend of cable companies that either directly own or have attributable interests in video programming. A programmer affiliated with a cable operator has the incentive and ability to engage in unfair practices, such as charging its cable systems’ rivals much more for its networks than it charges itself and non-rival MVPDs.

ACA noted that the latest outbreak of vertical integration stated in early 2011 when Comcast acquired NBC Universal. The trend continued in early 2013 when Liberty Media purchased a controlling interest in Charter Communications. Because John Malone holds a substantial interest in Charter through his stake in Liberty Media, as well as interests in Discovery Communications and Starz, all of the companies are now effectively operated under his unified control.

ACA also noted that if Comcast, which already owns NBC Universal, is permitted to acquire Time Warner Cable, the second largest cable operator with 11.1 million video subscribers, vertical integration in the cable industry will grow even more.

“ACA is concerned that the revival of vertical integration – meaning the common ownership of cable systems and programming channels – will cause independent cable operators to pay more for programming, and these higher costs will mean higher costs for their customers,” Polka said.

About the American Cable Association
Based in Pittsburgh, the American Cable Association is a trade organization representing nearly 850 smaller and medium-sized, independent cable companies who provide broadband services for nearly 7 million cable subscribers primarily located in rural and smaller suburban markets across America. Through active participation in the regulatory and legislative process in Washington, D.C., ACA's members work together to advance the interests of their customers and ensure the future competitiveness and viability of their business. For more information, visit http://www.americancable.org/.

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