The Cable TV industry, particularly in the U.S., has so many challenges that only a few can be listed in this report in order to avoid making the story too pedantic. However, Rocco B. Commisso, an Italian immigrant who built from scratch Mediacom Communications, America’s fifth-largest cable TV operator, sees only opportunities.
Since celebrating Mediacom’s 20th anniversary last year, Commisso has been a regular fixture in many sympathetic Italian newspapers, cable TV trades and sports publications. But now is the first time he’s ventured into what he might call the “lion’s den,” by being featured in VideoAge, a magazine seen as representing the interests of content suppliers, a sector with which he’s often at odds.
“You have misconceptions about cable; we’re not a monopoly [satellite television represents more of a competition in rural areas where Mediacom operates, than in metropolitan areas] and we’re the only industry that makes house calls without charging,” he told a VideoAge reporter.
Yes, Commisso read the article in the August 7, 2017 issue of The New Yorker, which pointed out how “Cable providers are among the most despised businesses in the [U.S.], regularly coming in below airlines, banks, and drug companies in public-opinion polls. Rather than fuel vigorous competition and lower prices, the rise in consolidation of these giant companies has meant that Americans are paying inflated costs for poor service,” the magazine stated.
He’s also aware of dramatic multiple news reports (here summarized) such as: “One in seven Americans is a cord cutter and an additional nine percent have never had a cable or satellite TV. In the first three months of 2017, cable and satellite services lost 762,000 subscribers. There are 45 million cordless American consumers and it is estimated that by 2025, half of all TV viewers under age 32 will not pay for TV in the current model.”
Even though Commisso holds a degree in industrial engineering and an MBA (he joined the cable business from banking at Chase and Royal Bank of Canada), he sees finance as his area of strength, so he wondered why, if the sector is in such bad shape, “cable stocks are trading on Wall Street at higher multiples than any other media companies? Telcos are trading at six to seven multiples, broadcasters at nine to 10 multiples, while cable TV is trading at 11 to 12 times its EBITA multiples.”
It should be added that Mediacom has one of U.S. cable’s lowest churn rates, and as far as high cable subscription fees are concerned, he explained, “Wholesale video costs quadrupled in the past 15 years. Today, of the $85 per sub average we get, $54 goes directly to the owners of the roughly 300 video channels we carry. And of those, 50 percent goes to sports networks. For our 800,000 video subs, we paid $520 million for video in 2016. Now, the fastest-growing cost is the retrans fee we pay to the local broadcasters. In effect, for content suppliers, we are nothing but a collection service. Price, due to high costs of video, is the number one complaint.”
However, he has been quoted as saying “Video is only 50 percent of my business today, where it was 95 percent 15 years ago, but I can’t let it go. I can’t get rid of 50 percent of my revenue.”
In an attempt to lower sub fees in 2003, Commisso took on ESPN, petitioning the FCC, the U.S. regulatory agency, to place the sports network on a separate tier to offset what was then ESPN’s 20 percent annual rate increase. Reportedly, ESPN couldn’t accept being on a premium or separate tier because it had to be able to reach as large an audience as possible to get the ad dollars it needed.
Commisso did not win that battle, but set the stage for U.S. cable TV giant Cox Communications to reach an agreement with ESPN for just a seven percent annual increase, which became the industry’s standard.
Commisso is also a critic of the retransmission consent fee and government interventions, and was one of the founders of the American Television Alliance, a group of cable satellite and phone companies advocating for retrans reforms.
But, even though the U.S. government worries Rocco (as he likes to be called), at the same time he’s looking for some protection: “The government regulated the distributor, but not the supplier,” he likes to say.
Nevertheless, he would not entertain the idea of launching commercial-free premium versions of existing ad-supported channels to leverage the best cable TV networks to generate more revenues for all concerned. “They are not in our plans,” he said simply.
Commisso’s other main concerns are volume discounts, bundling and set-top boxes (STB), especially the fact that the FCC wants to open up STBs to third-party vendors, such as Google, “allowing them to enter the video business in a backdoor way,” he explained.
However, despite his hard-nosed stance, he’s liked and respected by content suppliers. Ben Pyne, then-president of Disney Global Distribution, illustrated this to VideoAge with an anecdote: “Together with a colleague, I went to visit Rocco and his team to negotiate the fees and other legal language for various services at Disney-ABC TV Group. The morning session, which lasted for hours, was a very difficult one where Rocco seemed to yell at us for hours about how unreasonable we were being. At about 12:30 p.m., a full lunch was brought in and Rocco insisted that we take a break and share a pleasant meal together. During lunch it seemed as though nothing had happened between us all morning. After lunch, we continued the negotiations at the same high decibels. At one point though, he started shouting at members of his team over a mistake that they had made in a report sent to us. Seeing this unfold, I said to Rocco, ‘Stop, they are on your team, you should be shouting at me not them!’ At which point he started to laugh, we got to business and having broken the ice seemed to reach a deal in no time after that.”
But content suppliers are not Commisso’s only target. Since becoming the owner of a New York City football (soccer) team, Cosmos, earlier this year, he has been spatting with both Major League Soccer (MLS or First Division) and the U.S. Soccer Federation and finding friendly ears in English-language sports magazines and Italian publications.
His Cosmos team plays in the North American Soccer League (NASL), which until recently was considered the Second Division, and that didn’t sit well with Commisso. “This whole idea that you can only be a MLS team if you pay $150 million is un-American. My feeling is that soccer is a game, and you’ve got to earn your way to the top league by competing on the field, not in the boardrooms of the MLS,” he was quoted as saying in several sports and Italian publications. Now that the U.S. Soccer Federation revoked its Second Division status, in his view, soccer in the U.S. has taken another setback.
Of course, VideoAge paid him a visit not just to rehash known issues, but also to report on Commisso’s vision of the future for the cable sector, which is vital also for U.S. and international content suppliers.
“We need to go back to history in order to know where we’re going,” Commisso said in his Chester, N.Y.-based headquarters, a building he occupied in June of 2013 and which now houses 400 of his company’s 4,600 total employees scattered across 22 states.
“In 1992 regulators scared cable-TV operators with retransmission consent and by telling them how to run their business, so they started to get out of the sector,” he explained.
Commisso was referring to the Cable Act of 1992, when the U.S. government implemented strict rules pushing many cable operators to sell out.
He added: “I did not view that development as a threat, but an opportunity. To me a window opened to buy other people’s existing assets in small markets: first because many of these markets were already wired with cable and, second, because big companies were primarily interested in large markets, the small markets could be acquired on the cheap.”
The fourth chapter in the life of the then-46-year-old Commisso started in 1995 when Cablevision — a cable TV company based in Liberty, north of New York City —where he was the CFO, was sold to Time Warner for $2.8 billion.
His first chapter began as a soccer player in the Bronx, New York. The sport allowed him, a poor immigrant from the Calabria region of Italy, to win a scholarship at Columbia University and a try-out for the 1972 USA Olympic Team. His Ivy League MBA took him first to pharmaceutical company Pfizer and in 1978, for his second chapter, to banking, overseeing the entertainment and communications sectors.
He joined Cablevision in 1986 and, when it was sold, he founded Mediacom, working from his home.
“I started in 1996 by acquiring a 10,000-home cable system in Ridgecrest, California, at $1,700 per sub [against the industry average of $2,100]. By 1999 we had purchased half of our current systems, and in the year 2000 we went public.” To get on the NASDAQ exchange, Mediacom issued 150 million shares. The traded shares generated $380 million, which was used to pay down debt and pursue additional acquisitions. Following the IPO, Commisso owned all of the class-B supervoting shares which allowed him to retain control of the company.
He further explained: “In 2001, with the acquisition of AT&T cable systems, we doubled our size to 1.6 million video subscribers in 1,500 U.S. communities.”
The AT&T acquisition of 800,000 subs cost him $2.1 billion or $2,600 per sub, which was the going rate, breaking his streak of purchasing cable assets at below the industry average. For the AT&T transaction, Commisso had to raise $2.4 billion, “more than I needed. I over-financed myself so I did not have to do the next deal to survive,” he said.
He continued: “In the beginning of 2002 we began to buy our stock. We bought 24 million shares in the open market from 2002 to 2008, and then bought back another 28 million shares owned by Morris Communications in 2009. This set the stage for taking the company private in 2011.” Today, Mediacom is America’s second-largest family-owned MSO, after Cox Communications.
Interestingly, Commisso views Mediacom as an MSO, rather than an MVPD, and Disney’s Pyne clarified: “MSO (Multi-system Operataor) was a cable-centric term. As satellite and Telcos came into the mix in the late 1990s and early 2000s, we had to develop a term that captured all distributors of networks, which led to the term of Multi-Channel Video Programming Distributor (MVPD), which covered a distributor whether that be DirecTV, Comcast, Bskyb or Verizon.
“Today, we enhanced the term to DMVPD, D standing for Digital (i.e., Hulu, Youtube TV). The distinction between OTT and DMVPD is that OTT is a service that delivers over the top (i.e., Netflix, Amazon, iflix), DMVPD connotes that the distributor also distributes linear channels as well as VoD and other services,” concluded Pyne.
Continued Commisso: “The second phase was the conversion to fiber optics, which we started in the late ’90s and completed in 2003. We now have 65,000 miles of fiber [104,600 Km].
“In the current phase, we’re monetizing our network-strategy by becoming a broadband provider and the figures support this: In 2001 we had peaked at 1.6 million video customers, and only 100,000 data clients and zero phone subscribers. In 2017 our video has been reduced to 800,000 subs, data has skyrocketed to 1.2 million and phone subs to 500,000.
“Of our $1.9 billion annual revenue, 50 percent comes from non-video business, including business customers, like dentists, which is expanding,” he said, pointing to an article where he was quoted as saying, “If wasn’t for data we wouldn’t be around [and] our price for 50 Mbps service is the same today as our 1.5 Mbps service was 15 years ago.”
And, Commisso added, “We don’t view OTT as negative because users need our ultra fast broadband services in order to access it. Plus, the proliferation of OTT services will further benefit us because we’re the perfect aggregator via our TiVo services.”
In a burst of pride, after heralding the virtues and future potential of the cable TV business, he questioned the wisdom and foresight of publishers like The New York Times, The Washington Post, Gannett and others, who 30 years ago decided to sell their cable businesses.
However, his biggest challenge may not be the future of cable TV, but that of U.S. soccer, his life’s passion since he immigrated to the U.S. at age 12 in 1961. He even got Columbia University to name its soccer stadium after him: the Rocco B. Commisso Soccer Stadium (even though his Cosmos play at the MCU Park in Brooklyn).
“The NFL [the National (American) Football League] takes in $1.9 billion in television revenues annually for 16 games broadcast on Monday nights. For hundreds of games, including the telecasts of the national men’s and women’s teams, the MLS and the U.S. Soccer Federation bring home only $90 million. This is a system that needs to be changed and my idea of promotion and relegation could transform U.S. soccer for the better,” Commisso said, considering that over 24.4 million people play soccer in the United States.
“As for further cable TV consolidation, the bulk of the deals have already been done: there is not much left. Most of the 700 small cable companies still in the business are too small to be a target, but we certainly are big enough to be an attractive target.”
Which leaves open the possibility that Commisso would sell out his cable interest and concentrate on his Cosmos, thus closing the circle: Soccer gave him a start and allowed him to succeed in life, and with soccer he may very well celebrate retirement.
(By Dom Serafini)
Audio Version (a DV Works service)