PROGRAMMING COSTS. Our cable programming costs have increased in recent
years and are expected to continue to increase due to factors including:
- system acquisitions,
- additional programming being provided to customers,
- increased cost to produce or purchase cable programming,
- inflationary increases, and
- other factors affecting the cable television industry generally.
The combined programming cost of Charter Holdings, CCA Group and CharterComm
Holdings were equal to approximately 21% of revenues in 1998. In every year we
have operated, our costs to acquire programming have exceeded customary
inflationary and cost-of-living type increases. Sports programming costs have
increased significantly over the past several years. In addition, contracts to
purchase sports programming sometimes contain built-in cost increases for
programming added during the term of the contract which we may or may not have
the option to add to our service offerings.
Under rate regulation of the Federal Communications Commission, cable
operators may increase their rates to customers to cover increased costs for
programming, subject to certain limitations. See "Regulation and Legislation."
We now contract through TeleSynergy for more approximately 50% of our
programming. We believe our partnership in TeleSynergy limits increases in our
programming costs relative to what the increases would otherwise be, although
given our increased size and purchasing ability following our merger with Marcus
Holdings, the effect may not be material. This is because some programming
suppliers offer advantageous pricing terms to cable operators whose number of
customers exceeds threshholds established by such programming suppliers. Our
increase in size following our merger with Marcus Holdings should provide
increased bargaining power resulting in an ability to limit increases in
programming costs. Management believes it will, as a general matter, be able to
pass increases in its programming costs through to customers, although there can
be no assurance that it will be possible.
Pursuant to the FCC's rules, we have set rates for cable-related equipment,
such as converter boxes and remote control devices, and installation services
based upon actual costs plus a 11.25% rate of return and have unbundled these
charges from the charges for the provision of cable service.
Rates charged to customers vary based on the market served and service
selected, and are typically adjusted on an annual basis. As of March 31, 1999,
the average monthly fee was $11.16 for basic service and $18.90 for expanded
basic service. Regulation of the expanded basic service was eliminated by
federal law as of March 31, 1999 and such rates are now based on market
conditions. A one-time installation fee, which may be waived in part during
certain promotional periods, is charged to new customers. We believe our rate
practices are in accordance with Federal Communications Commission Guidelines
and are consistent with those prevailing in the industry generally. See
"Regulation and Legislation."