Cable & Multichannel Business Operations
Getting Started Franchising
Cable systems must be franchised through local authority
Access to right of ways Early monopoly status (now defunct) Terms and conditions for operating
Early free-for-alls 1984 Cable Act constraints
Max fee: 5% of gross Renewals
1996 Act opens for competition
From CATV to Cable From mid 1970s, cable began
offering significant new channels Transformed business, refocussed
operations Multichannel Service Provider Compete with off-air, then DBS New revenue sources with ads
Growth & rise of Multi System Operators (MSOs)
Old Business Model
M a in te na n ce In s ta lla tion
E n g in e ering
C o m m . R e l.
B u s ine ss O p e ra tio ns
G e n e ra l M gr
Cable adds … Programming
What channels to add, tiering Local origination / Local access
Marketing / Promotion Combat churn on pay channels Sell new packages Coordinate with channel promotions Customer service
Cable Adds … Advertising
New channels offer local ad inserts Decisions on offering? Sales staff
As price & penetration grows, need greater reliability / repair Outsource installations?
Cable Org Chart
T yp ica l L o ca l C a b le S ys tem
C S R s A cc tg & B illing
A d m in
P ro du c tion
L o ca l
P ro g ram m ing
P ro m o tio ns
S a le s R e ps A d E xe cs
S a le s & M k tg
In s ta lle rs
L in e / S erv ice
H ea de nd
E n g in e ering
G e n e ra l M gr
Cable & MSOs Rise of MSOs
Growth in scale and scope, as move to suburbs, cities
Growth in profitability as value-added service
Inherent scale and scope efficiencies Cross-ownership with channels Advertising efficiencies for adjacent
systems
Cable MSO Org Chart
L eg a l F in an ce
R e g l M g rs.
D ire c to rs
S a le s & M k tg
R e g l M g rs
O p e ra tio ns
R & D /P la n n ing
C o rp . E ng in ee ring H u m an R e so u rces P u b lic A ffa irs
C O O
C h a irm a n/C E O
Cable MSO Concentration
1990 1995 2000(w/DBS)
2000(w/o DBS)
Top Share
24.0% 25.9% 19.1% 22.5%
Top 2 36.7% 42.1% 34.0% 40.1%
Top 4 45.6% 54.6% 52.7% 58.7%
Top 10 61.6% 73.2% 83.9% ~90%
Concentration Issues Diversity Issue
What’s important? Conduit or channels? Is bigger necessarily bad?
Most locales are monopoly anyway Control over prices
Power with programmers Power with advertisers Power with financing Internet implications
Special Issues - Debt & Predatory Practices Regulation – Ownership caps?
Cable Org Chart
T yp ica l L o ca l C a b le S ys tem
C S R s A cc tg & B illing
A d m in
P ro du c tion
L o ca l
P ro g ram m ing
P ro m o tio ns
S a le s R e ps A d E xe cs
S a le s & M k tg
In s ta lle rs
L in e / S erv ice
H ea de nd
E n g in e ering
G e n e ra l M gr
Cable Positions General Administration
General Manager Office Manager Personnel Customer Service Representatives
(CSRs) Dispatcher Staff
Programming Local Production
Cable Positions Sales & Marketing
Marketing Director Promotions Sales Manager (sale of system services)
Sales Reps Advertising Manager
Acct. Execs (Ad Sales) Traffic Manager
Cable Positions Engineering
Chief Tech Line Maintenance Service Bench
Installers Construction/Upgrade
Trends in Cable Growth in coverage and penetration
levels Growth in audience for cable
channels, along with growth in number of cable networks
Investment in fiber, conversion to digital
Rise of competition from DBS (others?)
Trends in Audience
Trends in Audience
From Cable to Broadband Digital
The current transition is from Multichannel video (TV plus) to broadband digital, offering Basic TV Additional Channels Interactive Services
Data/ISPs Telephony Interactive TV
Cable Revenue Sources(revenues in $million)
1996 1998 2000(est)
Avg. Basic Subs
62.8 (mil) 65.4 67.7
Basic Tiers 18395 21830 24445
Pay Tiers 4955 5084 5177
Local Ads 1662 1850 3128
PPV 647 627 1522
Home Shop 145 187 202
Adv. Serv 91 452 4238
Eqpt/Install 2055 2631 3029
Total 27950 32661 41741
Rev per sub 445 499 617
Cable Subscription Revs
0
5000
10000
15000
20000
25000
30000
1980 1985 1990 1995 2000
BasicPayTotal
Cable Advertising Revenues(revenues in $million)
0
2000
4000
6000
8000
10000
12000
1980 1985 1990 1995 2000
Local SpotCable NetRegl Sports
Cable Revenue Sources Subscription Revenues
Basic, Tiers Pay PPV Digital Audio Services
Advertising Local spot ads
Regional / National buys Local sources
Cable Revenue Sources Additional Sources
Equipment Sales and Service Installation/Service Fees Home Shopping Advanced Services
Telemetry (utilities, security, etc.) Paging/CAP (backhaul cells) Leased Access Fees Cable Modems / ISPs Telephony Commercial Production Etc.
Cable Expenses Operating Expenses -day to day
operations, “variable costs” Capital Expenses - long term
investment in infrastructure, “fixed costs”
Profits (if any)
Cable Operating Expenses Programming - 30-35%
Fees to networks (+64% since 1996) Copyright fees (~4% gross) local programming
Personnel - 20-25% Capital (depreciation) 15-20% Administrative15-20% Marketing 5-10%
Cable Operating Expenses Franchise Fees - 5% Pole Attachment - 3% Non-income Taxes & Fees - 2%
Capital Expenses Equipment Purchases
Infrastructure Customer premises equipment
Infrastructure Investment Reception equipment Transmission system Added service capacity
Debt Service
Capital Expenses Basic construction $30-35,000 per
mile Rebuilds somewhat less
Profits Different measures, based on
what’s included Cash Flow (doesn’t include debt
service) Operating Profit (does)
Average Profit Margins
Cash Flow OperatingProfits
1980s 35-40% 12-15%
1990s 40-45% 5-10%
2001 35-45% Losses- 10%
Cable Operating Expenses Franchise Fees (3-5% of gross revenues) Plant operating expenses (electricity,
maintenance, etc.) Programming Expenses Marketing & Promotion costs Customer Service costs Advertising costs General & Administrative Costs / Taxes
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