Editor’s Note: Talk Business and Politics’ Northeast Arkansas correspondent Michael Wilkey recently spoke with Ritter Communications President Alan Morse about the changes in the cable industry, telecommunications, and how the industry is faring in the current technology revolution.
The company, with offices in Jonesboro, Marked Tree and Millington, Tenn., started in 1906 as a telephone company but has expanded to internet and cable television serving customers in three states. The following is an edited transcript.
Q: With Ritter Communications, you started with the telephone, but in the past eight to 10 years, you have expanded into cable television. How would you say that has gone?
Alan Morse: We’re very happy with our cable business and the acquisitions we have made along the way. Having both the cable and to a lessening need, the products we have to offer, allow us to provide bundles to our customers, where they can buy all products – buy cable, telephone and high-speed Internet from us in a three-way bundle.
By doing that, we are able to offer them a better value. In addition, the technology that the cable signal transmits on, being a hybrid of fiber optic and coaxial cable is more current and more up-to-date technology than the old copper wire plant that the telephone system runs on. Therefore, the acquisition of the cable network allows us to provide high-speed data services to those customers that might not be able to use the old telephone copper plant.
Q: I know that with technology changes, if you go back even 10 to 15 years ago, in the cable industry, you had your basic system. But now, you have everything from digital to Tivo. Has that changed customer needs and wants? Are they still wanting the same value, same product? Are they wanting to be more technology driven?
Morse: All of those changes have been in reaction to customer demand. So, serving in rural markets like we do, we get the advantage of seeing sort of the advance warning of what’s coming from technologies that are first introduced in what you call the “Alpha” markets across the country – New York, Chicago, Los Angeles.
We can see how customers in those markets react, what the market is … and we have a way to predict what we might see in our market once those technologies become available. But the advent of digital television was a reaction to a regulatory change that the FCC made where they required all the broadcast channels to move from analog to digital a few years ago. Obviously, the advent of high-definition television was an outgrowth of people watching movies in their home, first on DVD and then on BluRay.
And TiVo is a reaction to consumers wanting to time-shift their consumption of video programming. So, rather than watching it in a linear fashion, the way the networks transmit it, they want to be able to watch it when it is convenient for them according to their schedule. TiVO … allows them to do just that. All these technology advances have been designed to help people consume video content in a way that is most desirable and convenient for them.
Q: Recently, Time Warner Cable is being sold to Charter Communications, Suddenlink as well is being sold to a company out of Europe. Where do you see the market in 10 years? Where do you see the cable industry, both near term and long term?
Morse: I think there are a couple of key industry trends that I want to touch on. First, the content that we transmit to our customers is content that has originated by other companies. For example, ABC/Disney is a content provider that provides ESPN, all of the Disney channels, the ABC channels, etc. Viacom is a company that provides Comedy Central. They provide Nickelodeon and a number of other channels. And there are a variety of those content providers.
In addition to the broadcast channels, the local channels where you get your local news provide the content we re-transmit to customers over our cable network. And we have to pay for that content. And those content costs continue to go up every year, pretty dramatically.
In fact, one vendor that we deal with, one content provider raised its rates to us by 43% over the last year. They asked for 100% and so, customers only see their cable bill. They don’t see the cost of us providing that content, which is going up exponentially.
With regard to the Time Warner Cable merger with Charter or the other mergers that are going on out there, I think there is an attempt on the part of the cable industry to do a couple of things. One of them is to scale up so that they can have more better leverage in those negotiations with content providers.
In some cases, we have also seen cable providers go out and acquire content providers. Comcast, for example, having done so, so that they have a virtually integrated business where they are originating content and also delivering content.
For smaller providers like Ritter, what we have to try to do is join a consortium. We belong to one … but we group with other providers of our size, some slightly larger, some smaller to go and negotiate those content prices on an annual or bi-annual basis; and get the best deal we can for our customers.
You also mentioned the advent of Internet video. And we’re seeing Internet video, or what is sometimes called “over the top” video, increase fairly dramatically.
Young people, in particular, are very accustomed to viewing video content over their Internet devices – whether a laptop, tablet or even a song. Starting through YouTube or Instagram, now increasingly now going directly to the content providers website. For example, going to Comedy Central’s website or Netflix, for example, to get video content directly.
So, net transitioning is happening. Thankfully, for us, it is not happening particularly rapidly.
It is something we are watching closely and considering whether or not we have to, whether it makes sense to provide over the top video programming on our Internet service, in addition to traditional linear cable programming. So, we are taking a look at that. We are watching it closely. And we are well aware it is an industry trend.
I have a 19-year-old daughter, who went off to college last fall. And like a good dad, I asked her what kind of television she wanted in her dorm room.
Her answer was, “Why would I need a television? Whatever I need to watch, I can watch on my iPad.”
So we are aware of those trends particularly among our young customers and we think that will continue although we continue to see a need for traditional cable programming into the future.”