Analysts fear rising programming costs will hurt distributors

BOSTON -- Rising programming costs are the biggest headache facing the cable industry, a group of industry analysts said Monday.

“That is a very genuine and legitimate concern that imperils the entire ecosystem,” said Craig Moffett, vice president and senior analyst with Sanford C. Bernstein Co. Moffett was speaking on a panel at the National Cable & Telecommunications Assn. convention in Boston.

Moffett said prices for programming have gotten so high that it is getting tougher for smaller distributors to cover their costs, and warned that further consolidation could be a result. Smaller cable operators, he explained, lack the scale of a Comcast Corp. or Time Warner Cable -- two of the industry’s largest distributors -- to have any leverage in negotiations.

Although no specific channels were mentioned as being too expensive, sports in general was mentioned as the primary culprit.

“Sports is about half of all programming costs,” Moffett said.

Moffett’s concerns were echoed by Marcy Ryvicker of Wells Fargo and Douglas Mitchelson of Deutsche Bank.

Ryvicker went so far as to suggest that cable should just become a “dumb pipe” delivering broadband-based services to consumers but steering clear of programming. Even if customers can’t afford the programming, she said, “people will still use the pipe.”

The panelists also expressed doubt about Netflix’s push into original programming and whether the company will become more of a competitor to cable. Referring to Netflix’s new political drama”House of Cards,” Moffett cracked, “at least they chose the right name.”

Interestingly, the panel was moderated by Time Warner Cable Chief Financial Officer Irene Esteves. Normally, an analyst might interview cable executives about the challenges facing the industry, but in this case the executive was looking for answers from the analyst. Well, that’s one way to make sure there are no tough questions.

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