County to rethink Comcast deal: Is the council charging enough?

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by Peter Lewis, Seattle Times

King County is re-examining terms of a proposed five-year contract with Comcast for cable TV and broadband service in light of news that it might be dramatically undervaluing rights to 17 channels it would return to the cable giant.

At stake in the negotiations are the terms governing service for 80,000 county cable subscribers, and potentially millions of additional dollars for county coffers.

For the past 18 months, Comcast and the county have been talking about a deal to extend until February 2010 the contract now set to expire in February 2005. Last Monday, the Metropolitan King County Council was set to approve the deal, which requires Comcast to pay the county $1.2 million. Instead, the council decided to put it on hold until Jan. 20.

Comcast spokesman Steve Kipp had no comment on the negotiations.

Council member Dow Constantine, whose committee handled the legislation, said he wants to take a closer look to see if the county can get a better deal. In large part, that's due to recently released information about a contract renewal involving Comcast and the city of San Jose, Calif.

Papers on file in that case, now pending before a hearing officer, include the declaration of Douglas Nolan, a Comcast construction manager. In a sworn statement dated Oct. 29, 2003, Nolan said:
"It is my understanding that Comcast has proposed to provide up to 10 analog PEG (public, education and government) channels to the city. I estimate that ten channels would have a value of approximately $216 million over a 10-year franchise term."

Similar to rent

At their core, cable contracts are very sophisticated land deals: The companies are essentially paying rent for access to the land where poles or underground conduits are located.

That rent is in the form of a franchise fee, usually 5 percent of gross revenues, plus the cable company provides PEG channels (where there's an identified community need and interest) and whatever other considerations local governments can extract.

Under the proposed franchise extension deal with King County, Comcast would regain control of five analog PEG channels and 12 digital channels. Analog channels take up more "space" than digital channels; one analog channel can be split into eight digital channels.

Under its existing contract, 10 analog PEG channels are allocated to the county, but only nine are in use. Programming includes Seattle, King County and state government channels, as well as education content from the University of Washington and community colleges, plus public-access TV.

'Phantom channels'

Constantine is confident that Comcast will deny that the San Jose case is relevant to King County. He notes, for example, that three of the analog PEG channels and all 12 digital channels that Comcast would get back are channels that have remained "dark" because the county has never demonstrated the need to activate them. He called them "phantom channels."

Still, there is no dispute that the county is returning one "lit" channel.

Extrapolating from Comcast's San Jose numbers, and making adjustments for the number of years in the contract and respective subscribers, the value of just one King County analog channel would work out to more than $5 million.

Not even the county's harshest cable-contract critics, including Mike Weisman of Reclaim the Media, an advocacy group, suggest that the county deserves dollar-for-dollar compensation relative to San Jose. Still, Weisman said he brought the San Jose case to the county's attention to point out "how far off they were" in evaluating the worth of the channels.

Tony Perez, director of Seattle's Office of Cable Communications, which helps negotiate and administer the city's cable contract with Comcast, said placing a value on PEG channels is an inexact science.

"I ask ... when I go to conferences, and the figures are all over the place," he said.

Affecting the channels' value here, Constantine said, is the shrinking number of cable-customer subscribers in unincorporated King County. That's by design, he added, because the county has been pushing for city annexations and incorporations to cut the county's overhead costs. That puts the county in a weaker bargaining position, he said.

At the same time, Constantine thinks it is "very worth pursuing" the circumstances in San Jose to see if the county can do better. Mike Alvine, a county staffer who sat at the bargaining table, called the San Jose news "a bombshell" that was unknown to the county until recently.

Both men called Comcast a very tough customer that is unafraid to use hardball tactics. For example, Comcast's negotiators let drop that a new regional vice president would be named next month, and the company might have to pull its current offer unless the county acted fast.

Benefits of the deal

Constantine contended there are some positive aspects to the proposed deal. For example, it would maintain Comcast's support of a fat "data pipe" that benefits county government and library systems. It also provides the county the right to split one of its existing analog channels into four digital channels.

That's an attractive aspect considering that about 40 percent of Comcast's county customers are digital subscribers, a percentage that is steadily increasing, Constantine said. Also, under the existing proposal, Comcast agreed to continue to carry TVW - the state government channel that airs on one of the county's PEG channels - as part of its commercial broadcast lineup, meaning no loss in programming for viewers.

Also, the $1.2 million that Comcast is offering is money the county desperately needs, Constantine said, to deal with social and human services. Faced with an ailing economy and recent tax-cut initiatives, King County has made $100 million of program cuts over the past three years in its general-fund budget.
But critics contend the county is mortgaging the future for a one-time plug for a budget problem.

"Once public space (on the cable system) is lost, it's rarely regained," said Alan Bushong, executive director of Salem, Oregon-based CCTV, a community-based, nonprofit group that manages PEG channels in Marion County, and who has 25 years' experience in the field.

Sue Buske, a Sacramento consultant who specializes in helping governments negotiate with cable companies, said city and county officials are generally at a disadvantage, because they negotiate only once every several years, while the cable companies are always at it.

Alvine, the council staffer in on the talks, said, "We have felt outgunned from the beginning."

Assuming 80,000 customers pay $50 a month for cable TV - not counting any additional sums for high-speed Internet or telephone service - Buske values the five-year extension to be worth about $240 million to Comcast.

That, she said, is the county's real leverage, because companies simply don't walk away from that kind of money. "It's just that you sometimes have to be willing to hang in there," she said.

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