Knology Passes Retrans Charges To Cable Customers

Rodger-JohnsonTop-15 cable operator Knology said it would begin charging customers extra to make up for rising costs to carry local broadcast stations. Callling it an industry practice, the company said the fee will begin in March.

CEO Rodger Johnson said recent negotiations on retrans consent brought a $4 million increase, prompting Knology to “incorporate a retrans flow-through surcharge … to offset these fees and that’s pretty consistent with what other folks in the industry are doing.”

The retrans charge will appear as a separate line item on a customer’s bill. The price will vary by market, although Knology declined to provide an approximation of the amount. 

Johnson, speaking on an earnings call Thursday, did say Knology was able to trim $4 million off proposed retrans increases in negotiations.

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“Everybody’s doing the same thing,” said President-CFO Todd Holt. “We negotiated as hard as we could, but we have to deal with the retrans costs, and we’re passing them through to the customers.” 

Some operators might dispute they are passing on retrans costs to customers -- although if not listed directly, they could simply be baked into general price bumps.

Knology has systems in seven states, stretching from Florida to Kansas to South Dakota, serving over 255,000 video customers. The National Cable & Telecommunications Association places it in the top-15 among cable operators by subscribers. 

Charter Communications began a monthly retrans surcharge in the $1 range in October 2010, where bills started including a "broadcast TV surcharge" line item in the "taxes and fees" section. The launch was first reported by Broadcasting & Cable.

Several months later, Charter said it had not seen much pushback from customers and that it was simply passing along the costs, not looking to directly gain a few extra dollars itself.

At Knology, CEO Johnson was asked a broader question about what may be the breaking point when cable bills get too high and customers walk away. He said the company monitors that closely, but it is hard to gauge. Suggestions about an inflection point have also been around for 15 years, he said.

Still, with ESPN charging soaring affiliate fees to help pay for events such as “Monday Night Football” and opportunities to find over-the-top cheaper options, the questions have intensified. Knology is one of the many operators that offer its broadband customers ESPN3 for free -- a service that supplies almost all the live events ESPN carries. 

 ESPN3 does not include “SportsCenter," “Pardon the Interruption” and other popular shows.

“For the entertainment dollar that people are going to invest … cable television is still very, very powerful and as much as you hear about ESPN price increases, sports is a big factor in a lot of peoples’ decisions about what they buy,” Johnson said. 

Johnson said that customers who have canceled recently are primarily video-only customers hit particularly hard by the economy. Cheaper packages with limited channels and likely no ESPN might not have wide appeal within the Knology base.

In the fourth quarter of 2011, Knology reported an $11.6 million profit after a loss the year before on $129.3 million in revenue.

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