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 (s DTV) 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 (s CMCSA) 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 (s T) dropped the Hallmark Channel (s crwn) 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 (s SNI) 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 (s TWC), 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.
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