Why do cable subscribers end up with so many channels they have no interest in watching? Blame ESPN, says a small Cedar Falls, Iowa, cable provider.
Recently, the municipally-owned Cedar Falls Utilities renewed a long-term contract to broadcast Disney’s ESPN channels to its town of 40,000 residents. But this time, it said it was also forced to take on two Disney-owned channels it didn’t want — SEC Network and Fusion.
It’s deals like this that result in bloated cable bundles of hundreds of channels few people ever watch, CFU said. For customers who routinely ask: Why can't I pick channels like a la carte items off a menu? "Now you know," wrote Betty Zeman, a marketing manager at Cedar Falls Utilities, in a recent blog.
“When we renewed our ESPN carriage this month, two big strings were attached. As a condition of renewal we were required to add two new networks. There was no room for discussion and no negotiation,” Zeman wrote.
The blog post provided a rare glimpse into secretive deals between cable providers and television networks that help dictate the entire entertainment ecosystem. It also underscores a debate on the economics of cable bundles — one that has been the focus of U.S. regulators for years, so far with no government intervention. In Canada, regulators this week are contemplating rules that would force cable networks to break apart the bundles they offer consumers.
ESPN said it doesn't force additional channels on its cable partners. "As in all our deals, we do not engage in the practice of tying or forcing carriage of our networks,” Amy Phillips, a spokeswoman for ESPN, said in a statement. She explained that Cedar Falls Utilites, like 800 other small cable providers, negotiates with Disney through the National Cable Television Cooperative. Its recent seven-year deal was optional for CFU.
“The portfolio of the Walt Disney Company is hugely popular and delivers tremendous value,” Phillips said. “In recognition of that, the NCTC negotiated a deal that maximizes the wholesale benefits for its members in service to their customers, which CFU elected to join.”
But CFU’s Zeman said smaller providers like them have a hard time negotiating for their small markets. The SEC Network, which focuses on the Southeastern Conference for football, and the millennials-focused Fusion network may not appeal to many in the Cedar Falls audience, she said.
"You can imagine the interest northeast Iowa has for the SEC Network," Zeman said in an interview.
The lynchpin for the cable bundle is ESPN, analysts say. It is by far the most valuable - -- and expensive -- of the hundreds of cable channels packaged to consumers, Zeman wrote in her blog post, titled "Why we Love ESPN. And Why We Don't."
The idea of unbundling cable channels may sound good, but the reality is that if ESPN viewers were to pay for ESPN alone, it would cost about $30 a month, according to a report last year by Needham Insights research firm. Programmers say consumers are better off with bundles. The cost of producing shows are so high, and so the expense and risk of launching a new channel like Disney’s Fusion network are offset by their most popular networks — ABC and ESPN.
ESPN has become a network of networks of its own. It runs ESPN2, ESPN3, ESPN Classic, ESPNews and ESPNU and makes more than $7.2 billion a year just from subscription fees. It has exclusive rights to the NFL's Monday Night Football and to the U.S. Open tennis tournament. On television, sports is king because it commands the largest live audiences. But sports leagues also charge skyrocketing costs for the rights to broadcast their games. Those costs are passed down to cable companies, which then pass them to consumers, analysts say.
Cedar Falls' complaints with programmers are echoed by the cable provider CableVision, which has been in a years-long legal battle with Viacom. CableVision has alleged that Viacom violates antitrust laws by forcing it to buy several channels in order to carry Nickelodeon, Comedy Central and MTV.
“And so the bundle gets bigger, even though that’s the last thing viewers or cable providers want," Zeman wrote.