Only is more than 50, almost 55, maybe 56 now which leaves a pretty small portion that has to pay for electricity, trucks, people, gas, benefits, wages, you know, repair and so forth. So if i were trying to operate a 45,000subscriber cable tv system in todays world, it would be pretty hard to do just with Cable Television service. Host and, in fact, you were quoted recently in a news article saying as far as television verse is us internet is concerned, its the internet. Guest absolutely. Host thats the future. Guest yes. Oh, absolutely. Were making our plans now to be a, to build a gigabit fiber overlay over our entire system. It will take years to do and cost many millions of dollars, but thats really where the future lies. The television ecosystem seems to be so badly i wont say broken, but distorted, its on a, i think its sort of on an autopilot course toward being unaffordable in small towns like ours. Not by me, but by the consumers. Host so what does that mean for consumers who want to have cable tv in ohio . Guest well, actually, i think the crisis of unaffordability thats coming has to become nationwide with. It will hit smaller markets like ours first, one, because its a little more expresencive for us to provide expensive to provide the service, but also because our consumers have less income. If you look if you compare a massillon, ohio, to a dallas or los angeles, Median Household Income might be 30,000 compared to 55,000. Its more difficult for people in smaller communities to just afford Cable Television. I think we need to solve it with consumers will solve it themselves. They will stop subscribing to the expensive sat9 rightdelivered Programming Networks and rely more and more on a combination of broadcast television that we can deliver in a bundle and supplement that with what they want from the internet. Host you talked, mr. Gessner, about some of your costs. What makes up those costs . Is it the cost of buying television from lifetime, whatever other channel . Is it the cost of providing the local stations . Guest its a mix. The program content, as i said, is about 55, 57 per customer, per month, and thats a combination of broadcast television as well as the satellite networks. The bulk of the dollars are for satellite networks, the broadcast television is a smaller dollar amount, its probably growing the fastest because they started at lowest, and its on a parabolic curve going upward. The tough element to deal with there toughest element to deal with is Regional Sports. We have three Regional Sports networks x in a very short order, they will be 10 per customer, per month. Its the largest single cost, Regional Sports. Host and how bad because of ohio states proximity to massillon . Guest in terms of rates, probably 35 . But the indians have a the Cleveland Indians have a channel, the cavaliers have a channel, so so those three, all owned by fox, are probably the most problematic because theyre three really expensive channels, but they come together into one company,. Host matt polk ca is also with us, president of the american cable association. You just had your annual meeting here in washington, d. C. , mr. Polka. What did you just hear in our little conversation . Guest its a typical story of our members. 800 members in all 50 states serving 7. 5 million customers. Within our 800member companies, we have half of our members that have a thousand customers or fewer. 80 of those have 5,000 or fewer. Were made up of traditional Cable Operators like bob whos the chairman of our corporation, we have companies that were originally telephone providers. So we have a spectrum of Small Businesses providing advance communications in rural areas all across the country which is why we come to washington, to tell our unique story, and why weve been doing it for 23 years. Host as i asked mr. Gessner, do you face the same issues they face at the ncta, the comcasts, the cox face . Guest we do. Host do you agree . Guest we do. Bobs familys been involved in cable for many years. Many of our members literally were the companies that founded cable in their area out of necessity. We still provide that service today, so we are very involved and very invested in the cable industry. But as independent operators, what weve learned over the last 23 years is washington pretty much operates on a onesizefitsall basis. Lets craft regulations or laws that fit across the board. But in our smaller markets and unique areas, theres just a difference. Because in many cases, in bobs community and others, you get down to 20 moments per mile homes per mile. And then with competition today, you might be down to 15 or 12 or 10 customers per mile where it costs the same amount to provide that service over a much smaller area and a longer rate of return. So weve always said regulations apply disproportionately to our members, and thats why we need to fight. Whats really at stake here is our customers broadband future, and thats why we were here at summit 23, to tell that story in washington. Host all right. One of the issues that was discussed, skinny bundles, a la carte issues. Are you in favor of being able to allow the customer to pick and choose which channels he or she wants . Guest absolutely. And i have been for years. I dont believe that a la carte could ever work because ands this is just my belief my belief is those content9 Companies Like a turner which owns eight different channels, i think youd have a very difficult time forcing them to break up their own bundle. But i dont see any reason why we could not have a process that i would call a la bundle. The consumer wants one or more of the turner channels, they have to buy all of them. Those would be terms set by turner. And the same thing goes with viacom and esp n disney, so forth. Host and if they did not want sports channels, would their costs, as you indicated, go down quite a bit . Guest its really a its very complicated. Most consumers think, well, gee, i have 80 channels, and it costs 80, so it must be a dollar a channel. That, obviously, is not going to work. What really complicates it is the requirements established by the Programming Networks themselves that dont allow us to break up that bundle. You know, for example, you know, a fox and all of their, all of their networks will require that they be carried on the most widely distributed level of service. And so does everybody else. So really what we end up with is this bundle of bundles that everybody has to take x. As an operator, i would love to disago redate that bundle and disaggregate that bundle and sell it to people as they wish. Of course, most consumers dont recognize that if that happens, the price of the individual channels or even the bundle of channels is going to skyrocket because those companies have to meet their targets for revenue, or they cant pay for the content. So, you know, everybody use withs espn as the example. Espn now is a 6amonth percustomer channel. If you made it available a la carte and have the people took it, it would be 12 a month. If a quarter of the people took it, it would be 24 a month. Thats just the way its going to work. And then you throw in the problem of advertising revenue which is a big source of their revenue, you know . Fewer homes, fewer potential eyeballs means higher rates, and, again, more expensive. Host whats the acas position on bundling . Guest we believe that its important for consumers. Consumers want choice. We see to it today with our broadband plan. Consumers are using their iphones, their cell phones, their ipads, their tablets, their laptops. Theyre enjoying choice, and theyre coming to us saying can you give us more choice on Cable Television. I think choice, the desire of consumers to want more choice is really going to move towards greater choice maybe even a la carte, because consumers are going to demand it. Simply because theyre used to it now, they like to watch the programs, they like to watch when they want to watch it on the device they want to watch it. So theyre going to force us to think about how we can make a difference. Which is why what the fcc has noticed recently with a notice of inquiry on programming issues is so vitally important to us and to our members. The fcc for the first time is asking questions about how are these programs carried, how are they bundles, what are the requirements that operators have to deal with, how can independent programmers have more of an impact in getting their programming on the channels despite the big bundles . And were happy to be part of that discussion. Host please. Guest i was going to say, i should have said this right up front. Consumer choice and the request to be able to purchase what you want and pay for what you is ask is probably the number one consumer comment or question about television. They say, you know, i cant afford to pay this much, i dont watch most of these channels, why cant i just buy what i want, pay for what i want and take the rest of the stuff away from me . And as Cable Operators and locke operators who local operators who really are concerned about our consumers, wed be fine to deliver that. But we just simply cannot do it because of the restrictive contracts that are required by the content providers. Host now, but if i were an espn and you said, no, were not going to carry we cant afford espn anymore, id say, you know what . Some of the big guys can, so im going to say goodbye to those 40,000 customers and not worry about you. Host peter, there have been cases already with where over the past couple of years theyve dropped programming. Theyve done pretty well. They havent had the competition i think was thought of because consumers get it. They get the fact that right now because of these restrictions that bobs talking about, they have to buy a big bundle of programming at a very high and increasing rate when what they want is smaller bundles, greater choice, greater flexibility. Which is why you have members today within aca actually trying to give consumers more choice, trying to launch skinny bundles. At the same time, its the largest content programming companies that in many cases are fighting that opportunity that our members are trying to give to consumers. So it is a huge issue out there. And it really only comes back to what we as smaller providers are trying to do, which is to give our customers what they want. Listen, weve worked with them for many years, theyve enjoyed the bundle. Weve talked about how we, as smaller providers, have launched independent programmers for many, many years. Many of them today are part of the large conglomerates. But weve been part of that ecosystem, and we have always wanted to give our customers what they want. Today theyre saying the bundles too big, its too expensive, we want more choice, and were trying to give it to them. Host a couple months ago Michael Powell of the ncta was on this program, and we talked about settop boxes, and he said his members would love to get are rid of their settop boxes. Guest sure. Host said its a big frustration. Do you agree with that as an operator . Guest yes. Host why . Guest theres been a great deal of discussion about settop boxes recently because of the fccs proceeding, and i think it starts with the basic misunderstanding of whats included in a settop box. Its not just a 250 mini computer that were pieing and putting buying and putting in somebodys home, but there are data costs associated with it, there is a user interface cost that we pay for every month, and then comes the service element. A call center thatll answer your calls and explain how to use your remote control, technicians that will come to your home and plug it into the wall and put new batteries in your remote control. All of those costs just add up so fast. And then, of course, after five or six years, youre going to replace that box. So, you know, the settop box charges that we have now cover the cost of the box, but its really not a highly profitable part of our business, and it is, its very complex. Consumers dont want to learn how to use their home electronic equipment, so they call us, and so we have this constant churn of phone calls and Service Calls to support those boxings. If there was an easy consumer interface through an application on a smart tv or a tablet or computer that consumers like and enjoy, great. We dont need to keep making the millions and millions of dollars of Capital Investment in new customer equipment every year. Host matt polka, the fcc on their recent vote onsettop boxes says it is to increase competition. Guest we are in complete agreement with the industry, with ncta and other operators and settop manufacturers, saying that this is a problem in search of a solution. Or i always get a solution in search of a problem. [laughter] guest there you go. Guest a solution in search of a problem. Chairman wheelers talked about this rulemaking as unlocking the box. Its actually, in our view, opening a pandoras box because this rulemaking is so vague, in our view, to create a standard which is yet to be determined about what Box Technology should be in the home, what gateway devices, what headend reconfigurations, what new types of technological mandates will be imposed on Cable Operators that we have no idea the capital costs that will be imposed on a company like bobs that will actually take away broadband investment which the fcc ironically says is some of the most important things they want our members to do. So we do not believe that this is a sensible rulemaking that needs to move forward and, frankly, when i look at the impact on our members, it will, once again, have that disproportionate impact on smaller providers. And thats why weve said this is not a good idea. Host why cant somebody have an app that does the same thing guest absolutely. Guest they can, they do. If you go to ncta which is just right around the corner here, they have a very nice display or exhibit of i think there must be four or five different commerciallyavailable settop boxes, whatever you want to call them, that run apps. So so theyre roku box, apple tv, tivo box, game consoles, smart tvs, bluray players, chrome cast. All of those represent a new way of watching television on connected devices. But there is not a governmentmandated standard by which to do that. And thats the part that becomes difficult for us. There was a governmentmandated standard until last year when congress wisely said do away with it, its not working. And this just seems to be a continuation of an effort to say lets have a governmentmandated Technology Platform that consumers are already chosen not to purchase. Guest rather than unlocking the box, we agree with what commissioner pai said about consumers who said they dont even want a box. The fact is that our members are providing choice through competitive settop boxes, through apps, through giving consumers choices about which box to purchase and really being part of, again, coming back to the customer, being part of that relationship with the customer to determine what is it that they want most x how can we provide it. And the fact of the matter is, if this rulemaking does go forward, well spend years, well spend hundreds of millions be not billions of dollars, how much did the cable industry invest in the old cable card regime which congress two years ago said we need to get rid of it because it hasnt worked, it hasnt created that competitive settop box market. It would be back to where we were a couple of years ago. Congress said lets get rid of the cable card. Fcc, if you want to do a study going forward, thats fine, but it didnt tell the fcc to start a new rulemaking. Even so, with the rulemaking we as an industry have come to the commission and have said we have other proposals that we would like you to consider in addition to this settop box proposal. However, thats not part of the rulemaking. Its really the oneway settop box rulemaking that we have from the commission thats talking about gateway dices and these vague devices and these vague standards which would impose hundreds of millions be not billions of dollars. And we think its time for chairman wheeler to embrace the issues that we as an industry and something he encouraged at the beginning of his chairmanship where he said i hope i can have industry collaboration. Were here to collaborate if the fcc would just listen. Bob, whos your competition . Guest wow. Today, directv, dish network, a little bit of time warner as well as at t uverse in a fairly large portion of my service area. We also have centurylink and frontier as internet be and phone competitors and, of course, at t also fits into that. We have some, i guess, some larger backbone type providers for truly big pipe internet be as well. Host what about the chrome tvs, the apple tvs, the rokus, the netflix . Do you consider them competition . Guest no, i consider them to be more complementary. As i said, im a broadband company. I want to make a great broadband product that consumers know they can use to acquire and ive tried to make a very careful distinction between tv and video. Tv is the oldfashioned, Linear Television networks that people have known traditionally. But then theres video which is a much more robust, Dynamic Library concept. But i want consumers to know that my broadband has the best infrastructure, the best network on which they can choose to find the television or the video that they want. So if somebody says i like broadcast t from now tv from now, netflix for other content, more power to them. In fact, we would love to work with netflix to incorporate an app onto our settop boxes or other consumer devices, but we cant attract their attention. Host are all of those companies regulated in the same fashion . Guest for the most part. When we talk about video issues, when we talk about Internet Service provider, broadband issues, the fccs open Internet Order imposing title ii regulations on our member companies, here again we have members through their own desire the government didnt need to tell them, deploy broadband. We have been connected to provide broadband, but here the government comes and tells us we need to regulate you like a utility. Which puts at risk literally billions in dollars at capital. Bob talked about gigabit. We have members, Small Companies across the country launching Gigabit Service not because they were told to, but because they wanted to with their consumers. So, yes, in many ways with the issues that matter for our future when we talk about broadband connectivity, giving consumers the capacity and speed we want, looking to our broadband future, we are in sync with all of our membership and fighting for that future. Guest ill ask you to clarify your question, you used a pronoun there, those companies. Which companies . The chrome casts and netflix or our infrastructure competitors of directv and dish . Host ill let you define that. Guest okay, because there is one if i have a grave concern about the internet, its that the Network Neutrality that the open Internet Order created didnt do its job. It really does not address the entire network. And i think many consumers have been fooled into thinking that Network Neutrality applies to the whole network, and it does not. When you think about the internet, there are two gates to the internet. Im one of them. Im an isp. People come to me to reach the internet. At the other end of the internet is another gate, and thats the gate that lets content on to the internet. And its that gateway thats controlled by the socalled virtuous edge providers. And those are people like netflix, viacom, cbs, google and so forth, all those edge providers. My gate is regulated by the open internet or by Network Neutrality. The gate thats controlled by the network by the edge providers is totally unregulated. They are free to block, throttle, redirect or demand paid prioritization. So its definitely a tilted playing field, and my concern is that edge providers are going to start to cablize the internet. That was the callization of the internet is a phrase coined by a New York Times reporter that envisions a time when edge providers come to the isp and demand payment, otherwise their content will be unavailable to those consumers. And thats already happened. Its happened in exchange for cash, and its happened as leverage in negotiations. And im just afraid that when a really big edge providers gets ahold of that concept like a facebook, that they can add dollars of cost to every single Internet Subscriber over which they have no control and for content in which they have no interest. Host bob gessner, weve talked about some of the issues you face with the fcc and with washington, but what about with the state of ohio and the city of massillon . Guest gosh. My local franchises, we have about two dozen local franchises, no problem. Were local. We have 165 local employees, you know . My familys been involved there for a 175 years, so we focus on those local communities, and we dont really have any issues there. The state of ohio is one of only a handful in the country that have statewide franchising. So the state of ohio is our franchising authority. We appeal to them for our local franchise. But because of a, i guess an abundance of competition with, especially in the Television Market with directv and dish and at t covering pretty much the whole state, the tate the state assumes that competition will dictate the winners and losers, so they dont feel the need to be intimately involved in what we do on a daytoday basis. We pay a franchise fee to our local communities, but the selection of the programming services, the setting of rates and the establishment of Service Policies is all up to the local company. Host matt polka, we have about a minute left. What is another major issue that was discussed at your meeting that you want to bring up . Guest retransmission consent. Host which is . Guest weve talked about this many times. The ability under law for broadcasters to demand payment or consideration in return for allowing us as Cable Operators to carry their broadcast signal. Its been an issue thats been around since 1992 that has continually and increasingly harmed consumers. There have been an historic amount of blackouts where broadcasters or have blacked out their signal because they couldnt reach an agreement with the cable operator. Historic amount of blackouts. The federal communications commission, to its credit, has undertaken a rulemaking to make greater balance so that consumers are not harmed by retransmission consent blackouts by broadcasters. We expect to see something over the next couple of months that would prohibit online blocking which bob talked about where a broadcaster could not block on line content as a result of a retransmission consent dispute. Couldnt pull a signal right before a marquee event such as the super bowl or the oscars or something high profile, march madness, for instance, and other sensible ideas to create greater balance and get consumers out of the middle of this negotiation. So thats a big one that we have talked about, and well continue to talk about it until we get the problem fixed. Host does retrans keep you up at night sometimes . Guest yes. Host why . Guest well, because we have absolutely no leverage when it comes to a broadcast television network. There is no leverage. A good friend of mine summed it up in this way, we pretend to negotiate. We go back and forth a few times, but eventually they just say this is it, take it or leave it. So it does keep me up at night. Not because of the cost or because of the associations, but because of the impact i know it will have on my customers when, you know, they wake up on january 1st and a television
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