Editor's Letter: Pity the Little Guys?

Cable World,  May 23, 2005  

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By John P. Ourand

Small-to-midsize cable operators had to take notice when John Malone explained why he wasn't looking to buy any U.S. cable systems. It seems Malone can't figure out how these cable operators can make money.

Malone has a well-deserved reputation as one of cable's most perceptive executives. On an investor call in May, he said he'd be "creamed" if he reentered the business as a small-to-midsize player.

Clearly, some midsize operators agree with Malone. Insight, Bresnan and Susquehanna, for example, have arrangements with Comcast that allow them to get the bigger MSO's discounted rates on programming and vendor deals. This isn't an option for everyone, however. Rumors abound that Comcast is looking to untangle some of these types of relationships. (Comcast inherited many of those deals when it bought the AT&T Broadband/TCI systems. The man mainly responsible for them: John Malone.)

Then there are cable companies like Jerry Kent's Cequel, which isn't content to stay small; it keeps looking to buy systems and get bigger.

It's no secret that DBS is making huge inroads in smaller markets. In some remote areas, DBS has more subscribers than cable, according to stats from Leichtman Research. In a telephone survey conducted earlier this year, 42% of people who live in rural areas said they subscribe to DBS; 37% said they subscribe to cable.

Smaller market MSOs insist they have a good business plan, even if it's not on the scale Malone prefers.

Because of that smaller scale (which means higher programming and equipment costs), independent operators say they basically have given up trying to make money from video. They still need to offer a video product similar to that offered by their DBS competitors. But they are more interested in providing high-margin voice and data services. That's where they are making their money.

To battle the national DBS brands, independent operators are playing the local card every chance they get. Cable has the local channels. Cable has the local offices. Cable system employees are members of the local community.

"Where they serve is where they live," says Matt Polka, president of the American Cable Association, which represents many of the smaller, independent operators. "The local connection makes a difference."

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It's ironic that two days before cable gathered to support the fight against one incurable disease (at Cable Positive's annual AIDS dinner), two of the industry's finest succumbed to another incurable disease. The Cable Center's chief fund-raiser Beverly O'Brien and former TNT/TBS PR director Walter Ward both succumbed to cancer on Mother's Day. Both execs were professionals and well-respected members of the cable community.

[Copyright 2005 Access Intelligence, LLC. All rights reserved.]

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