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Cord cutters, beware: AT&T's DirecTV buy affects you, too

Jun 25, 2014 1:29 AM

James Careless

Having cut the cable cord, you may glance at the current landscape of big cable providers snapping up slightly-less-big-though-still-large rivals and decide that these megadeals have nothing to do with you. After all, you're getting your entertainment from other sources--over-the-air antennas, online streaming services, and the like. What's it matter to you if AT&T buys up DirecTV or Comcast absorbs Time Warner Cable?

Quite a bit, as it turns out. Because it seems like one of the primary motivators for big cable providers getting even bigger is to make cord cutting an unattractive proposition.

That's not how the cable providers themselves might spin it. Indeed, in a regulatory filing earlier this month for its $48.5 billion DirecTV buy, AT&T contends that it will be better equipped to compete with Comcast once DirecTV is part of the fold, which means benefits to its subscribers. "Millions of consumers will benefit from new and improved bundles of broadband, video, and--due to AT&T's advanced network and nationwide customer base in mobile communications--wireless services," AT&T says in the executive summary of its regulatory filing. (You can read the full filing if you've got a lot of time on your hands and an insatiable thirst for regulatory paperwork.) AT&T repeated its promises Tuesday in a congressional hearing into the purchase, telling lawmakers that the deal will mean more competitive pricing among cable TV providers.

Programming behind a paywall

But read between the lines of AT&T's promises of "creating more value for programming partners and taking advantage of broader expertise in video, broadband, and wireless," and it's not hard to see a scenario where cord cutters get squeezed out.

Take sports. Buying DirecTV gives AT&T access to the satellite provider's popular NFL Sunday Ticket. Theoretically, AT&T could negotiate with the National Football League to extend this exclusive DirecTV service to the combined company's cable/fiber, wireless, telephone, and high-speed Internet subscribers--but to no one else. Those pie-in-the-sky dreams of someone like Google buying the rights to NFL games and making them available on the Internet? Forget about that happening. (At least cord cutters would still be able to stream broadcasts of NFL games from local network TV affiliates in some markets--assuming Aereo's ongoing legal battles are resolved in its favor.)

It's not just AT&T and DirecTV; a merged Comcast/TWC could control about 30 million cable subscribers, giving the merged company tremendous clout when it comes time to negotiate with TV content producers. And that's the big concern here: merged giants like AT&T/DirecTV and Comcast/TWC would be in an enhanced position to negotiate exclusives, preventing cord-cutters from seeing their favorite content online, especially live sports.

A bundle of trouble

And while programming may be at the front of the mind for cord cutters, there's also the matter of Internet access. A combined Comcast/Time Warner Cable, for example, is well positioned to offer even more preferential terms to people who bundle cable and Internet service into a single package, while penalizing cord cutters who just want broadband.

That poses a problem for anyone who doesn't subscribe to cable, says John Fetto, senior analyst of marketing & research at Experian Marketing Services. "The web is absolutely a serious venue for cord-cutters to access content," Fetto said. "Indeed, nearly a fifth of households that use Netflix or Hulu are cord-cutters."

And that's going to motivate mega-providers like the combined AT&T/DirecTV and an expanded Comcast to push multi-service bundling even further. The goal? Keep subscribers paying for content they don't want in order to get access to what they do.

"Although a la carte programming on the Web is possible, I don't think it is realistic from a business standpoint," says analyst Ian Olgeirson of media and communications research firm SNL Kagan. "It is not in the best interests of either the distribution network operators or the content owners to really break down their bundles and sell much smaller packages to consumers."

From the perspective of AT&T and Comcast, cord cutting is bad for business. And that's why their current business practices are aimed at frustrating it.

And they've got good reason for doing so. Fetto notes that only 6.5 percent of U.S. households are cord cutters, meaning they have high speed Internet, but no subscription to cable or satellite TV. Still, there's been a 44 percent relative increase in the share of households that are cord-cutters since 2010. "Interestingly, we're seeing that millennial households are almost twice as likely to be cord-cutters," Fetto notes, "which could potentially be a challenge to the current revenue models of cable and satellite companies if those households never become cable subscribers at all."

What's a cord cutter to do?

Despite the current wave of content distributor tactics, there are ways for cord-cutters to get much of the programming they desire without submitting to Big Cable/Fiber/Satellite. But the fact remains that the content distributors understand the ramifications of cord cutting to their bottom lines, and are thus motivated to do everything they can to make cord cutting as unattractive as possible.

To be fair, not all of the content distributors' tactics are negative. For instance, Dish Network is said to be putting together a basic over-the-top service that, for $20 to $30 a month, would give cord cutters access to some Disney-owned networks online, including ABC and ESPN.

Other price breaks might slow the cord-cutting trend. "Bringing the price of the combined cable and broadband packages down would likely help," Fetto says. "Another thing that may help would be for cable/satellite carriers to make it easier for customers to consume their content across multiple devices and from anywhere. The Internet makes consuming video on-the-go and across devices easier, but it can take a cord cutter considerable effort to find the video content they want to continue viewing online."

In the meantime, cord cutters would be well-advised to watch out for further mergers and to track the progress of the AT&T/DirecTV and Comcast/TWC deals. Just because you've walked away from a cable provider doesn't mean their influence over how you access programming has come to an end.

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