Canada will serve as model in U.S. cable battle, says Cogeco CEO Audet

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TORONTO - The head of Cogeco Cable says Canada will serve as a model to the U.S. cable industry as more viewers demand freedom of choice in their cable packages.

Chief executive Louis Audet expects U.S. cable operators will choose to follow a similar trajectory as dissatisfaction rises over the forced bundling of TV channels, and how much it costs subscribers.

"I think we will set the stage, so to speak, because we are further ahead in discussing how things should be done," he said at a media event held by the company on Tuesday.

"The U.S. will have to follow the model that we will adopt in Canada — I think there's no other choice. Eventually there will be a customer revolt."

Much of subscriber discontent revolves around the rising price of U.S. cable packages, and how much viewers are forking out for channels they don't watch.

Last month, Ottawa outlined plans that would mandate Canadian broadcasters to unbundle some of their TV offerings, a notable step towards forcing cable and satellite TV providers to offer "pick-and-pay" services.

The future is especially important for Cogeco Cable (TSA:CCA) because it has a stake in the game. Last year, the company bought the U.S. Atlantic Broadband cable company for US$1.36 billion.

Atlantic Broadband operates primarily in Florida, Maryland and Delaware, South Carolina and Central Pennsylvania and is the 12th largest American cable company, offering Internet and home phone service.

The acquisition put Cogeco in the middle of what's quickly becoming a volatile industry in the U.S. where disputes over pricing between networks and cable operators have caused numerous outages over the past two years.

The issue has compounded as U.S. cable operators foot the soaring costs of sports channels like ESPN, which carry some of the most popular programming on television acquired through multi-billion dollar deals with sports leagues.

Those costs are siphoned down to American cable subscribers, regardless of whether they watch sports, although surcharges applied to every user's monthly bill.

Cogeco has tried to be as transparent as possible for its U.S. consumers, Audet said.

"Our invoices in the United States today have a distinctive line that says 'sports surcharge,'" he said.

"(The surcharge) was growing so fast that we said we don't want our customers to think we're nickel and diming."

However, transparency can only calm subscribers so much, as other popular channels push U.S. cable companies to pony up money for their successful lines of programming.

Then there are major U.S. networks that charge operators retransmission fees from local stations, even while overall viewership continues to decline.

Time Warner Cable has been the hardest hit so far, after a summertime dispute with CBS over how much it paid to carry the network's signals led to a month-long blackout in several cities.

Time Warner reported that it lost 306,000 TV subscribers and had to issue $15 million worth of credit to pay-TV subscribers for Showtime, a CBS company, during its most recent quarter.

But it isn't the only conflict that has arisen recently.

In 2012, cable channel AMC grappled with U.S. carrier Dish Network over how much the satellite provider would pay to carry its programming, which includes hit shows like "The Walking Dead."

After months of conflict, Dish and AMC reached a new distribution agreement, but Dish also decided to bump the channel into the hinterlands of its TV line-up.

AMC has threatened to kill the signal for its channel in Canada as well, mounting a highly-publicized campaign directed at Rogers (TSX:RCI.B) customers earlier this year.

Fellow Canadian telecom provider Telus (TSX:T) recently launched a lawsuit against AMC over the channel's threats to pull its content if higher fees weren't negotiated.

"The cost of programming challenge is there, it's there to stay, whether in the United States or in Canada," Audet said.

"The response, in time, will have to be the selling of smaller packages."

On Tuesday, Cogeco also announced that Peer1 Hosting co-CEO Fabio Banducci is resigning next month, a year after the computer services company negotiated a $526-million friendly takeover by Cogeco Cable.

His co-CEO, Gary Sherlock, will become Peer1 president and chief executive on Dec. 18.

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