Posted December 17, 2015

AMC Walking Dead

AMC Takes Aim at Skinny Bundles in Cable Carriage Fight
Cable network wants payments for all cable subscribers, not just subscribers to its channels

A fight is brewing between small cable operators and AMC, which airs “The Walking Dead.” PHOTO: GENE PAGE/AMC

Dec. 15, 2015 4:41 p.m. ET

As if TV carriage negotiations haven’t become contentious enough, a new wrinkle is adding to the complexity: the rise of skinny bundles and “cord-shaving.”

In a brewing spat, AMC Networks Inc. is demanding that the National Cable Television Cooperative, a consortium of small cable providers, pay on behalf of all its subscribers—whether or not they actually receive AMC and its sister channels in their cable packages. If the two sides don’t reach an agreement by the end of the year, those channels could go dark on the systems of 750 small operators representing about 4 million customers.

Standard industry practice has been for cable companies to pay channels based on the number of customers who sign up for packages that include them. Big channels like ESPN have had the leverage to stipulate in their contracts that they have to be in the most widely-distributed bundles or reach a high percentage of the customer base. But cable executives say it’s unprecedented for a programmer to be guaranteed payments for 100% of the subscriber base.

The small cable companies have already taken the matter to the Federal Communications Commission. In a Friday conference call with FCC officials including media bureau chief William Lake, NCTC and some of its member operators said AMC’s proposal “seems designed to protect [AMC] from losses due to cord shaving”–the phenomenon of people downgrading their cable packages to cheaper, skinnier bundles.

They added that it “hinders smaller operators’ ability to serve customers that want a low-priced “skinny” package of programming that can be combined with [online video] content they may purchase elsewhere,” according to a filing with the FCC.

In an interview, NCTC Chief Executive Rich Fickle called AMC’s demand “a financial guarantee against skinny bundles.”

On top of that insurance, AMC is still demanding that all its networks reach a high proportion of subscribers so that it doesn’t lose out on viewership and ad revenue, Mr. Fickle said. That is a burden on small operators, many of whom don’t have a lot of excess bandwidth capacity on their pipes and want to use what they do have to improve broadband speeds.

In addition to its flagship AMC channel, WE tv, IFC and SundanceTV, AMC Networks also now negotiates on behalf of BBC America and BBC World News, thanks to a nearly 50% stake in BBC America it took last year.

Still, dropping AMC’s networks poses big risks for the cable operators, given the popularity of shows like “The Walking Dead.” As with any such fight, it’s possible the two sides will work out carriage terms before the deadline.

The kind of deal AMC is seeking would help it safeguard its future as the TV business undergoes dramatic changes and investors pay closer attention to cord-cutting and cord-shaving. The company is demanding a ten-year deal with the NCTC, longer than typical carriage deals. It also wants all its networks, even the less-popular ones, to be placed in the most widely-distributed package.

And it’s asking the cable operators to pay more than $2 per customer per month for all its channels, which NCTC’s Mr. Fickle says is twice the market rate it receives from other operators.

In a statement, AMC Networks said it has “extraordinarily high regard” for NCTC and its members and has long supported them. “We will continue to endeavor to do everything we can to make them successful,” the company said. AMC declined to comment on the price terms it is seeking.

A person close to AMC said that the company is coming off of an eight-year deal with the NCTC during which time AMC has invested a lot in marquee original shows. The company is looking to raise the NCTC’s rate to reflect that, the person said.

Given the rising pressures on the cable TV business, the small cable companies that make up the NCTC are increasingly playing hardball. More than 60 of them last year decided to drop Viacom Inc.’s networks such as MTV and Nickelodeon. Later, mid-sized operator Suddenlink Communications followed suit.

Shenandoah Telecommunications Co. said under the deal proposed, it would have to pay $1.4 million a year to AMC with annual step-ups, compared to the roughly $500,000 it pays the programmer today. The company said that could lead to even higher cable bills for Shentel’s 60,000 video customers in areas including Virginia, West Virginia and Maryland, snowballing into more cord-cutting. “Consumers get mad at the cable companies because that’s who they pay their bill to,” said Chris Kyle, Shentel’s vice president of industry relations and regulatory. “It’s a no-win situation for small cable companies.”

Ritter Communications, which serves 13,500 customers in Arkansas and Tennessee, says that for some of its systems, it would actually have to reduce broadband speeds to accommodate AMC’s demands for greater carriage. “We would be acting 180 degrees in opposition to market forces,” Ritter President Alan Morse said. Shentel and Ritter say they plan to offer rebates to customers in the event of a drop.