Photograph by Andrew Harrer/Bloomberg

Barry Diller’s Aereo is perceived as a challenger to cable companies, but it may end up helping their bottom line.

If you’re thinking about canceling cable in favor of something cheaper, Aereo is a pretty attractive alternative at $8 to $12 a month. The online service, which is currently available in New York, plans to expand to 22 other U.S. cities this year and add cable channels to its full roster of high-definition broadcast networks.

Aereo, backed by media mogul Barry Diller, manages to undercut the cable companies’ prices so severely in part because it doesn’t pay retransmission fees. Comcast, DirecTV, Time Warner Cable and other pay-TV providers compensate broadcasters, such as ABC, CBS, Fox and NBC, and their local affiliate stations for their content. (Bloomberg LP, which owns Bloomberg.com, is an Aereo partner and offers its cable channel on the service.)

Pay-TV companies could look at Aereo’s budget-television offering as a threat. But the shrewd ones could use it as leverage.

The next time, say, Dish tries to renegotiate its contracts, the company can threaten broadcasters with the prospect of paying them nothing by partnering with Aereo. Dish has held talks with Aereo, according to the Wall Street Journal. Dish will need its own Internet service to make this happen, something that may not be far off. Many pay-TV operators are likely to roll out such services over the next few years, Rich Greenfield, an analyst at research firm BTIG, said in a note to clients.

Dish Chairman Charlie Ergen isn’t afraid to stick it to the broadcasters. (His company is already being targeted in court for the commercial-skipping AutoHop feature and for the integration with Sling Media in new set-top boxes.) But Comcast is a slightly different animal now that it owns NBC Universal, which is on the receiving end of the lucrative retrans checks.

Retransmission fees, which were almost nonexistent during the 1990s, have grown astronomically in recent years. According to data from research firm SNL Kagan, broadcasters collected $2.36 billion in retrans fees in 2012, and that revenue could double to more than $6 billion by 2018. People who install antennas in their homes to tune into over-the-air TV do not pay the fees.

Aereo has avoided this expense by claiming it’s not illegally retransmitting because its customers are actually renting their own tiny antennas. We found out yesterday that the courts, so far, agree. Broadcasters say Aereo has found a loophole, and the result will devalue programming.

If Aereo ultimately prevails in the courts, expect the major pay-TV providers to use it as leverage to lower retransmission fees industry-wide — perhaps dramatically — or threaten to partner with Aereo and pay nothing.

Original post is Aereo’s Web TV Service May Be Cable Companies’ Ace in the Hole by Tech Deals.

Photograph by Kelly Ryerson

The lawsuit is the latest flare-up in what’s become an increasingly acrimonious relationship over affiliate fees.

Why can’t we be friends?

You may have read yesterday that Cablevision is suing Viacom for forcing it to take lower-rated channels along with its most popular networks, a practice the pay-TV company claims is illegal.

Cable operators and networks weren’t always so adversarial. After all, they’re in a mutually beneficial business. Every cable subscriber means money not only for the operators, but for the networks as well.

That’s the way the business works: If you sign up for Cablevision’s cable TV service, you’re now also a customer, indirectly, of Viacom. For each subscriber Cablevision signs up to watch Viacom’s cable networks, it pays the media company an affiliate fee.

So even though you pay your cable bill to Cablevision, some of that money is also flowing to Viacom if you get channels such as MTV, Comedy Central and Nickelodeon. And, yes, money also flows to Viacom for its less popular channels such as VH1 Soul, MTV Hits and Nicktoons.

SNL Kagan

Basic cable network affiliate fee revenue

Cablevision’s lawsuit is the latest fissure in what’s become an increasingly acrimonious relationship over affiliate fees, which have gone through the roof. Programming fees are set to rise at least 10 percent this year for the largest pay-TV operators, Comcast and DirecTV. Companies like Cablevision won’t raise prices on their customers that fast because they fear subscribers will cancel their service.

Of course, Viacom loses, too, when cable-TV subscribers quit. But Viacom can still make money from those who cut the cord through over-the-top options, such as Netflix and Amazon, which stream content over the Internet.

This leaves Cablevision in a tough spot. To make up the difference from customers who cancel video service, the cable operator will need to keep raising prices on its Internet service. Cablevision already announced it was raising broadband prices in 2013 by $5 a month per customer. But more price increases won’t easily make up the $88 dollars an average customer pays per month for Cablevision’s video service, according to Telsey Advisory Group.

So what happened? What caused affiliate fees to skyrocket and push pay-TV operators to the brink?

Retransmission consent fees: The 1992 United States Cable Television Consumer Protection and Competition Act allowed broadcasters to ask for money from pay-TV operators in exchange for carrying their programming. This meant that CBS, NBC, ABC and Fox could start charging for their local affiliates, owned by companies like Gannett and Sinclair Broadcast Group, and national networks. These channels used to be free. In 2012, they cost pay-TV operators $2.4 billion, according to data compiled by Bloomberg. If operators are now paying billions for retrans fees, their belts become a little tighter with all of the other cable networks in the industry.

Sports became cable’s glue: Whether it’s “Monday Night Football” or your local baseball team, you’re paying big bucks to watch sports on TV. Contracts for sports rights have jumped in price as demand to watch games remains high and live events become essential for why people need cable at all (instead of an online-only option like Netflix). That’s led ESPN, the top-rated sports network, to charge about $6 a month per subscriber, according to Kagan. Regional sports networks typically charge a few bucks per month, too. It’s caused DirecTV, Verizon FiOS and Cablevision to introduce additional monthly fees to customers in recent months to absorb the costs.

Cable programming improved: The most popular drama on TV right now is AMC’s “The Walking Dead.” That’s for all television — broadcast included. Guess what that’s going to prompt AMC Networks to do when its next rights contract is ready for renewal? It’ll charge your cable provider more, and your cable bill will rise. AMC is going to want to be compensated for shows that cost more to make and generate big ratings. Does it matter that AMC Networks also owns lower-rated networks such as IFC and WE TV, and Sundance Channel, which isn’t rated at all by Nielsen? Not if AMC can bundle those networks with its flagship station. They’ll get paid for them, too. And that’s what the Cablevision lawsuit is all about.

There are other reasons the relationship isn’t what it used to be:

• The introduction of online competition made content less exclusive.
• Programmers demanding additional payment for online rights lead to slow progress on what’s known as TV Everywhere.
• Diminished household formation from the recession meant fewer new homes with cable connections, which put pressure on operators’ profit margins.
• Cable TV has become a low-growth, mature industry.

But it’s the rising cost of cable TV that may transform the industry. Cablevision’s lawsuit can be seen as an attempt to slow down what could eventually lead to a huge drop in profit for pay-TV operators — and low-rated cable networks — everywhere.

Original post is Cablevision’s Viacom Lawsuit: How We Got Here by Tech Deals.

Cox Enterprises, the closely held company that includes the third-largest U.S. cable operator, as well as automotive services and radio and TV stations, is handing over $250 million to Rackley, who has built a track record founding and selling companies to buyers such as Qualcomm and Intuit.

With the money, Rackley said he hopes to start about five to 10 companies specializing in media and security, as well as mobile commerce and payments. The strategy includes patenting ideas and technology to guarantee full control, he said.

“This is so different than the typical corporate venture arm or venture fund in general,” Rackley said in an interview. “Cox Enterprises is investing in these businesses for the long term. There is no fund life associated with this. We’re not trying to get back to our limited partners to tell them we made these investments and exited these companies.”

While competitors such as Comcast and Google have entire divisions or funds dedicated to investing in companies that invent and integrate new technology, Cox is taking a different approach.

Instead of investing in an existing firm or fund, Rackley and his 15-person team plan to build startups from scratch using seed money. That’s aimed at giving Cox a close relationship with the enterprises.

“We already spend billions on new technology, research and development, but we can’t move as quickly as Tripp,” Jimmy Hayes, Cox Enterprises’ chief executive officer, said in an interview. “This way, we can partner with someone we know, we respect and we trust.”

Last year, Rackley introduced Experience, a company that lets sports fans upgrade their seats at games using mobile devices. Experience charges teams, including the Boston Celtics and the Atlanta Falcons, a transaction fee for every purchase made using their application.

Rackley says he focuses on ideas that aren’t on anyone’s radar in the next three years, and not so outlandish that they can’t grow to commercial scale within seven years. While the businesses Rackley builds may later become a part of Cox Enterprises, that’s not the objective of the investment strategy, Hayes said.

“I don’t want to do things that people are already thinking about,” Rackley said. “And I don’t want to do science experiments.”

Original post is Cox Enterprises Invests $250 Million With Board Member Rackley by Tech Deals.

Cisco started an advertising campaign last month using the slogan “Tomorrow Starts Here.” Take a look at a commercial from Cisco’s website.

It may sound like typical corporate jargon that doesn’t really mean anything, but East Carolina University isn’t too pleased.

The Greenville, North Carolina-based university is suing Cisco, seeking damages for the unauthorized use of the slogan, which ECU says it has federally registered.

“ECU has used the mark `Tomorrow Starts Here’ for over a decade, including in national advertisements and publications such as Forbes and Wired,” said Chancellor Steve Ballard in a statement.

ECU uses the slogan on its own website. The university claims Cisco’s use of the same phrase “infringes both ECU’s federally registered and common law trademark rights,” the statement said.

Cisco responded by saying it was surprised by the complaint.

“Cisco takes intellectual property rights very seriously, and we are confident that our new campaign does not create any confusion in the marketplace,” Karen Tillman, a spokeswoman for Cisco, wrote in an e-mailed statement.

Original post is Hey, Cisco — East Carolina University Wants Its Slogan Back by Tech Deals.