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from: Reuters

Tue, Jan 12 2010

By Yinka Adegoke - Analysis

NEW YORK (Reuters) - Cable companies, burdened by the cost of programing, are starting to seriously consider something they have long resisted: letting television subscribers pay for just those channels they want to watch.

For years consumer advocates, regulators and politicians have argued that cable TV providers should allow consumers to choose their own TV channels or buy smaller packages, rather than bundle around 100 fixed channels at prices usually starting around $50 a month.

The cable industry has traditionally pushed back against the so called 'a la carte' proposal, arguing such plans would be uneconomical and harm niche cable networks included in the packages.

But the attitude of cable operators is starting to change.

Faced with rising programing costs, they are now asking if they should drop some networks from basic bundles in a bid to keep down the prices they charge customers. They are also raising the possibility of letting customers decide what channels they want.

"They're trying to think out of the box to make sure they have the right-sized bundle at the right price," Collins Stewart analyst Thomas Eagan.

Cablevision Systems Corp Chief Executive Jim Dolan last week told an investor conference that the traditional TV bundle had become outdated and "inefficient".

"It was set up originally because of a technology that we needed to bundle things in order to offer them," said Dolan. "We really don't need to do that anymore."

Cablevision is locked in a bitter dispute with Scripps Networks Interactive, which switched off Food Network and HGTV after the New York cable operator refused to agree to pay more for the right to carry those networks.

Programing costs have been front of mind for the entire cable industry in recent weeks. Time Warner Cable Inc and News Corp's Fox Networks came close to blacking out channels to 13 million homes on New Year's eve as they wrangled over fees. There have also been disputes between Mediacom and Sinclair Broadcast.

Cross Research analyst Bryan Kraft said in a good year program costs can rise by around 5 to 6 percent -- in a bad year he said they go up by twice by that rate. This compares to average cable customer bill increases of 3 to 5 percent.

Added to that, national broadcasters like CBS Corp, Fox, Walt Disney Co's ABC and General Electric Co's NBC have started demanding to be paid cash by the cable operators for the right to carry their free-to-air signals. Some analysts estimate it will add $5 billion to the costs of cable and satellite TV providers.

"It's only going to get worse for cable operators," said Eagan.

Glenn Britt, chief executive of Time Warner Cable, told investors last month the prospect of rising program costs might result in cable companies offering "smaller packages".

"Consumers are saying they would like to feel they had more choice," said Britt. "Collectively we should be responsive to that."

Cable distributors say it is the smaller cable networks that will get dropped from the most widely distributed bundle packages. They are argue this will ultimately hurt programing companies who might have to close down such networks, thereby reducing programing diversity.

"We are very happy to compete in a market where networks are paid commensurate with the value they bring," Scripps President John Lansing said in an interview.

Scripps executives, who are also in extended programing negotiations with Time Warner Cable, point to Nielsen Research data which shows Food Network and HGTV were the fastest growing Top 20 cable networks last year, up 20 percent and 14 percent in ratings respectively.

"I think the market place will weed out the networks that don't deliver audience that the cable company needs to support its business," said Lansing.

Cross Research's Kraft said once fees are agreed for a contract term there is little room for the cable company to ask for a reduction in fees -- even if the cable network fails to attract viewers.

Lansing said companies like his should not be punished for that. "My quarrel is that an over-performing network like ours should have to bear the brunt of the payments going to underperforming networks that are unreasonable," said Lansing.

(Reporting by Yinka Adegoke; Editing by Paul Thomasch and Tim Dobbyn)