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Summary:

The latest evidence that the pay TV market is starting to unravel came yesterday as DirecTV executives said the satellite TV provider could drop low-rated cable networks as a way to lower programming fees. That means less niche programming and less value for its subscribers.

Source: Flickr / Cantoni

The slow-motion unraveling of the pay TV business model is well underway, as distributors are being forced to pick and choose which networks are worth carrying and which aren’t. The latest evidence of this shift comes as executives from DirecTV said during their investor day Thursday that the satellite TV provider might not pay for less popular cable networks when their deals when their deals come up for renewal.

According to The Hollywood Reporter, DirecTV executives said programming fee increases were causing it to look long and hard at its network lineup to determine which channels are worth renewing and which aren’t. DirecTV Executive VP of Content Strategy and Development Derek Chang said during a presentation that distributors don’t have “a bottomless pool of money,” which means that, rather than renegotiate deals with unpopular channels, it might simply drop some cable networks from its lineup.

DirecTV already made the controversial move of dropping Comcast-owned cable network G4 from its channel lineup in November, saying the tech channel was one of its lowest-rated networks. But it could soon see other networks disappear as their carriage deals come up for renewal.

DirecTV isn’t the only distributor choosing to cut niche networks rather than pay ever-increasing carriage fees; earlier this year, IPTV provider AT&T dropped the Hallmark Channel and the Hallmark Movie Channel from its U-verse lineup after it failed to strike a deal with parent Crown Media. AT&T also played hardball in its negotiations with Scripps Networks over channels like Food Network and HGTV, blacking out those networks and suggesting viewers tune in to comparable programming from Bravo and TLC instead before eventually reaching a new deal.

The decision by pay TV providers to drop low-rated networks is happening as distributors are coming under pressure to pay ever-increasing fees to programmers. In most cases, those costs get passed on to the consumer in the form of higher cable bills. But with cable bills rising about 8 percent over the past year, it’s clear that continually raising rates is unsustainable. Rather than pay increasing fees, some consumers have begun canceling their cable or satellite subscriptions altogether, as the number of people who pay for TV has dropped for two consecutive quarters.

Some providers, like Time Warner Cable, are introducing lower-cost cable plans to combat the threat of cord cutting. Others, like DirecTV and AT&T, are seeking to combat higher programming costs by cutting networks from their lineups. In either case, however, the direction of the industry seems clear: consumers that hang on to cable are going to get less value from their pay TV subscriptions, as distributors fight higher costs. That’s bad news for everyone, but particularly for niche and low-rated cable programmers, who could soon see themselves squeezed out of cable bundles over the coming years.

Photo courtesy of Flickr user Brian Cantoni.

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  1. Perhaps this is another step in the evolving process of Cable companies listening to consumer needs. In dropping low-rated niche networks and offering affordable plans, they are making adjustments based on market conditions. Could this mean a la carte cable packages in the next five years?

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    1. Possibly. I’m not sure that networks will go totally a la carte — ie, allowing users to pick only the five or six channels that are important to them. But I could definitely see a world where subscribers get a basic broadcast package and then can choose between different a la carte vertical offerings, based on interest. I imagine it would be sort of like what they already do for premium cable channels: you could have a ‘cooking’ package and a ‘home improvement’ package, a sports package with espn and regional sports cable nets, etc.

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  2. This is actually awesome news. Cable programmers who can’t be seen on DirecTV, and eventually other outlets, should likely find refuge within the web. Imagine if a channel, like HGTV for instance, can’t make it on Cable because of low ratings, but then finds an audience on the Internet… it’d be able to charge something (say a dollar per month) to keep the channel going.

    Yes, this isn’t going to work tomorrow, but I think this is the start of something brilliant.

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    1. Not for me, it isn’t. I want one aggregator to provide all of the shows/channels/networks I want to watch. I am not going to waste time going to a bunch of different sites because the content providers all have different distribution ideas. I want to come home, sit back on the sofa, and press one button to get some mindless entertainment. If that option goes away, then I just stop watching. I don’t have (and won’t pay for) a DVR, so if I miss a show, oh well. I can find new things to do with my life that still won’t involve a computer.

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      1. Sorry, I should have been more specific.

        This is awesome for me, and bad for pretty much everyone else in the world.

        rb

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  3. [...] to make available as part of their channel lineups. IPTV provider AT&T and satellite TV firm DirecTV have both shown a willingness to let channels drop from their lineups if they are [...]

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  4. [...] Cable — deciding to roll out lower-priced plans, while others — like AT&T and DirecTV — are doing away with less popular [...]

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