Cable worried about poverty, not Netflix

Cable worried about poverty, not Netflix, by Yinka Adegoke, Reuters, Jun 14 2011

CHICAGO (Reuters) – For all the talk about competitive threats from the likes of Netflix Inc or Apple Inc, it is rising poverty among households that TV executives say is their biggest source of concern.

Executives from News Corp, Comcast Corp and Time Warner Inc, speaking at the annual Cable Show industry event, made clear the industry needed a stronger housing market and better jobs picture to win new customers and keep existing ones.

“We have to be sensitive in making sure we have a product that consumers can afford,” said Pat Esser, president of privately held Cox Communications, speaking at the industry’s biggest yearly event.

Investors and analysts, with a few exceptions, can often be heard worrying more about how the cable industry will cope with cheaper entertainment packages from rivals such as Netflix, Inc or Google Inc.

Time Warner Cable Chief Executive Glenn Britt, however, was one of the executives focusing on the hazards of a bad economy.

“There clearly is a growing underclass of people who clearly can’t afford it,” he said. “It would serve us well to worry about that group.”

Even with the economy on shaky footing, Viacom CEO Phillipe Dauman and Time Warner CEO Jeff Bewkes remained particularly bullish about cable’s prospects.

Dauman said it was “remarkable” that cable was one of the last things that customers cut off during the recession and was a testament to the value that cable offered.

Bernstein Research analyst Craig Moffett, one of the analysts who has written extensively about the poverty issue, said the cable business was a “rigged game” that allowed programing fee hikes to be passed on by operators to consumers with impunity.

“That has been a wonderfully attractive model for a generation, but the danger, of course, is that eventually the video product will be priced into irrelevance for lower income consumers,” said Moffett. “I don’t know when it will happen, but I suspect we’re already perilously close.”

Still, questions about Netflix and other newcomers couldn’t be escaped at this year’s conference. Netflix has more than 20 million customers, making it the second largest video subscription service in the United States.

The majority of Netflix’s online programing has been older TV and film library content. More recently it has also made a move into original programing by reaching a $100 million agreement with David Finch to produce a TV series.

“They got involved in one show but that’s really not their fundamental business,” said Dauman. “It’s not that easy to get into the content business.”

The other key issue facing the industry is for programmers and distributors to work closer together to make shows available on a variety of platforms, such as tablets computers or game consoles.

The cable industry been working on an initiative called TV Everywhere to make shows available online outside the home for no extra charge once the user has been verified as a paying subscriber — a process known as authentication.

But TV Everywhere impact has not been as immediate as hoped by industry insiders.

“We’ve talked about authentication for two years and we’re still talking,” said News Corp Deputy Chairman Chase Carey.

“Our rights are our backbone. It can’t just be the Wild West … you have to do a structure within which you do business,” he added.

(Reporting by Yinka Adegoke; editing by Paul Thomasch, Bernard Orr)

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