Videoage International October 2017

20 October 2017 V I D E O A G E Cover Story: Rocco Commisso 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 threemonths 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 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. Commissowas 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 companyPfizerand in1978, forhis secondchapter, 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 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 sportsmagazinesand Italianpublications. 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 SecondDivision 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 (Continued from Cover) (Continued on Page 22) Commisso is also the owner of the Cosmos soccer team Commisso with VideoAge ’s Dom Serafini