Most smaller video entertainment providers have one common problem: program licensing costs. Since networks offer volume discounts, the largest service providers effectively have lower costs, in terms of content licensing. In 2011, after Frontier had acquired some former Verizon properties that had been selling FiOS (News - Alert) TV, the monthly cost of Frontier's standard, 220-channel package was re-priced from $65 a month to $95 a month, a 46 percent increase. Frontier said the higher programming fees it had to pay, compared to Verizon (News - Alert), was the issue. To be sure, video subscription prices climb almost every year. But Frontier's sudden price bump probably owes much to the differences in content licensing rights. Not everybody accepted that argument, but there is no question that Verizon gets better rates than smaller contestants are able to get. As a rough estimate, programming represents 40 percent of the cost of providing a video entertainment service. But that is the typical percentage for the largest cable TV operators. Smaller providers will pay more. Precisely how much more is tough to say.
Granted, organizations, such as the National Cable Television Cooperative, aggregate buyers to build volume pricing potential. At the moment, NCTC seems to represent 10 million subscribers, a number large enough to earn significant discounts (all programming contracts include clauses that prevent customers from disclosing actual pricing).
But some suggest a smaller operator could find programming representing 50 percent of gross revenue.
So, you might have been wondering why Frontier Communications has been considering licensing the AT&T (News - Alert) U-verse service. After all, there is nothing about the AT&T U-verse architecture which is proprietary, in terms of the network. What is different, though, is that U-verse already is a substantial provider of video programming, so AT&T can license its content at lower costs than Frontier, a much-smaller provider, can. So the attraction of U-verse licensing is that Frontier can piggyback on AT&T’s volume discounts for programming.
Edited by Brooke Neuman