NCTA CEO Michael Powell Defends Rising Cable Costs, Talks Mergers and Net Neutrality (Q&A)

Courtesy of NCTA
Michael Powell

The former FCC chairman also explains how the Internet has changed content distribution in the first of a two-part interview with The Hollywood Reporter.

When the National Cable & Telecommunications Association convention lands in Los Angeles for the second time in 18 years beginning Tuesday, Michael Powell will deliver the opening keynote address. He’s been CEO of NCTA since March 2011, after serving as FCC chairman (2001-05). He gives few in-depth print interviews but his only limitation during a wide-ranging discussion with The Hollywood Reporter was that he couldn’t comment on the proposed merger of Comcast and Time Warner Cable, his two largest member companies, under NCTA policy. That didn’t stop him from commenting on the impact of consolidation and many other issues. This is the first of two parts of the edited interview.

We have seen a tremendous consolidation across all of show business, especially in cable TV. Some of your member companies have expanded into production and distribution across multiple platforms. When is big too big?

I disagree that it’s consolidation. I would call it what we used to call in the '90s “convergence.” Meaning it used to be that you had to build a very particular kind of pipe for very particular kind of application. A company would be in that business and it would use that technology to provide that kind of service. So, if you were AT&T, you use twisted copper wire to provide a two‑way voice service. And there was another industry called “cable” and others with other names.

But what the Internet has done is it’s converging how you distribute content. Almost anybody the businesses of distribution or content essentially can use any or all of those platforms to access consumers and that wasn’t possible before. So, is AT&T or Verizon a video competitor? Something they would have never been just a decade ago? Absolutely. Is wireless a competitor for certain things? Given the rise of the iPhone and You Tube. Absolutely. And so, yes, there’s some consolidation around it, but I think the bigger story is a growing sameness of the industry meaning there’s very little we can do that is completely distinct from what a phone company could do or a wireless company could do anymore. And that used to be different. 

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Frankly, as a former regulator, I would argue that the prior world was more concentrated because you would have one or two kings within the stovepipes. Now at least even the kings have more kings that they must compete with across the spectrum. I don’t think Congress really dreamed of this when it wrote the ’96 [communications] act and tried to knock down some of these barriers. So, it’s kind of a four‑dimensional chess story. I’s not as linear as it used to be. It’s not as one‑on‑one. It’s a little more complicated because everybody can kind of do some version of what everybody else does.

As a cable consumer, I have to ask if it is right that my cable bill has risen faster than the rate of inflation?

One, I think the cable industry ought to be sensitive to affordability and the packages and the content it develops. We have to be sensitive particularly in an ailing economy about making sure our prices are able to be widely accessed by American consumers of every demographic. Two, I find price rise comparisons very, very hard to evaluate because when someone tells me their cable bill is up over let’s say the last ten years that never factors in the increase in channels. 

So, for example, in 1995, the average number of channels the cable system offered were 25. In 2011, that number is a hundred. Yet people compare the price increases. You could argue they’re not even the same product and that’s before we add a DVR. That technology didn’t even exist a decade ago. So, there’s been a lot of changes. Then some people will say, "Well, but I don’t like all those channels." But then you say, ‘'Somebody does." People have different preferences of their favorites. If you looked at cable on a price‑per‑channel basis, which is the only way I can think of to account for increased channels, it’s actually declined against the rate of inflation. 

What you’re saying touches on those who believe consumers should be able to choose an ala carte menu of channels from their cable network. Instead we have rules requiring subscribers to buy the basic tier and for the most part packages of channels. Why can’t each consumer elect to buy only those channels they want?

The first thing to understand is it’s only better if consumers pay less. And there’s a lot of studies that say they’d actually pay more. It sounds like that doesn’t make sense, but, of course, it does because every channel on the cable dial is basically cross-subsidized by every other channel. So, if the ten you want when sold separately cost more than the hundred you bought, you might only have the ten you want, but you might be paying the same or more than when you had the hundred. That’s not necessarily a good result. 

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So, take something that everybody would concede is very pricey like ESPN and imagine it is sold separately. ESPN is probably the most powerful brand that could stand on its own. Meaning sell itself. Its price would probably have to go to something like $25‑$30 a month just to break even. And so, that would be a smaller audience at $30 a month. Then if you bought a handful more at something maybe half of that or less, you could quickly be up to your previous cable bill. The FCC studied this twice and reached that conclusion as did General Accounting Office and Congressional research. When I was [FCC] chairman, this got studied to death and it almost always came back as it looks like it would actually cost consumers more. 

I don’t mind the market trying to find more flexible offerings and giving consumers more power to make the choices they want. I hope the market and the technology actually really create that. But if you tell me should the government mandate that I would probably raise serious concerns because I think the government would be mandating a model that actually might be harmful to consumers. 

The second thing is I worry it would be harmful to diversity because while the Disney Channel, HBO and some big marquee channels probably could survive a la carte, I think there are a lot of small channels that have very emotionally attached viewership, but not enough of them to stand by itself. 

So, TV One -- doing black news content to by definition a niche smaller audience -- I know for a fact wouldn’t be able to survive as a standalone "buy me if you want me" network. The same people that would have the passion would buy it, but there wouldn’t be enough of them to keep the network afloat.

What is your position on net neutrality? And do you think that there should or will be a day when we see cable subscribers charged based on usage, whether it’s for broadband or for video?

Two things I would say, one just because you mentioned it. I wouldn’t say much more than this. But while I think people say it’s just a mischaracterization to say Netflix paid for higher quality, I think what Netflix paid was for cheaper distribution. Netflix has more than twelve routes to Comcast customers and all of those routes cost money. You have to pay a distributor in the background to reach an ISP. That’s true across the entire Internet. What Netflix wanted to do was lower its cost. And one has to assume that they struck a deal with Netflix. They’re paying less than what they have to pay – than they were previously paying. 

They wouldn’t have struck a deal with Comcast if they weren’t getting a cheaper rate than the one that’s freely available to them from all the other providers. So, I think they spun it as paying for content. And I think the real battle going on there is them cutting their distribution costs as much as they can. And they really wanted zero and they got something a little more than zero, but much less than what they were paying before. 

This interview was conducted shortly before the FCC circulated new net neutrality rules April 23. The NCTA on April 24 commented: “The cable industry supports an Open Internet and will continue to provide consumers unfettered access to legal content of their choosing. We look forward to participating in the discussion about the best path forward to ensuring that American consumers enjoy a vibrant and open Internet experience while the marketplace encourages continued investment and innovation in our networks.”

Part 2 of THR's interview with Powell will be posted Tuesday morning.