GENERAL. We believe that offering a wide variety of conveniently
scheduled programming is an important factor influencing a customer's decision
to subscribe to and retain our cable services. We devote considerable resources
to obtaining access to a wide range of programming that we believe will appeal
to both existing and potential customers of basic and premium services. We rely
on extensive market research, customer demographics and local programming
preferences to determine channel offerings in each of our markets. See "-- Sales
PROGRAMMING SOURCES. We obtain basic and premium programming from a
number of suppliers, usually pursuant to a written contract. As of June 30,
1999, we obtain approximately 64% of our programming through contracts entered
into directly with a programming supplier. We obtain the rest of our programming
through TeleSynergy, Inc., which offers its partners contract benefits in buying
programming by virtue of volume discounts available to a larger buying base.
Programming tends to be made available to us for a flat fee per customer.
However, some channels are available without cost to us. In connection with the
launch of a new channel, we may receive a distribution fee to support the
channel launch, a portion of which is applied to marketing expenses associated
with the channel launch. The amounts we receive in distribution fees are not
Our programming contracts generally continue for a fixed period of time,
usually from three to ten years. Although longer contract terms are available,
we prefer to limit contracts to three years so that we retain flexibility to
change programming and include new channels as they become available. Some
program suppliers offer marketing support or volume discount pricing structures.
Some of our programming agreements with premium service suppliers offer cost
incentives under which premium service unit prices decline as certain premium
service growth thresholds are met.
For home shopping channels, we may receive a percentage of the amount spent
in home shopping purchases by our customers on channels we carry. In 1998, these
revenues totalled approximately $220,000.
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; and
- inflationary increases.
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