Saturday, April 14, 2012

City Council meeting

History of Harrison Cable – Started in early 1950’s by Bob Wheeler for the purpose of getting TV without an antenna. Bills were $3.50/month kept on note cards. First three channels on system were channel 3 and 10 in Springfield and channel 4 in Little Rock. The purpose of cable was to get remote channels, and for the Harrison area that meant the in-state Little Rock channel. Only strong Little Rock channel in the early days was KARK – KATV tower was located close to Pine Bluff and KTHV had a weaker signal and location. I was reminded by Bobby Wheeler that the towers in Grubbs Springs were for KARK. At 6:00 on April 15, 1954, KARK-TV Channel 4 went on the air and locally with its first television program.
Recent reasons given for taking KARK off the air included DMA (designated market area), duplication of programming on NBC affiliate in Springfield MO, retrans fee too high for KARK, and the need for more bandwidth by Cox for Internet and additional programming.
Problems with those various reasons – local cable has carried KARK for nearly 60 years, DMA (designated market area) applies more to satellite than cable, Paragould municipal cable has nearly an identical situation with TV from Memphis, TN and Little Rock, AR and still carries multiple channels from ABC, NBC, and CBS. Only in the situation of three ABC stations where there is a local station involved in nearby Jonesboro; is there a channel that gets priority over others.  According to their management, the stations in the secondary markets (70 mile range) get no priority for duplications.
No mention has been made of excessive retrans fees for KARK.
Duplicate program reasons – Stated in Cox letter to city dated November 18, 2011. KYTV carries NBC but has the right to preempt for local and regional events not related to Harrison’s interests. For example there was an extremely positive segment about FedEx on the NBC’s Brian Williams Rock Center News Magazine. Locally the 1700 FedEx Freight employees had received a memo about the program. Only to find out the program was preempted on KY3 for a Missouri State basketball game. Other situations have involved weather north of Springfield, and other sports event preemptions with no Harrison interest.
Actual reason based on communication I have received from Len Pitcock of Cox was more specifically for additional bandwidth – Result was the elimination of the highly popular statewide KARK analog programming with no reduction in rates, for Cox’s opportunity to add digital “garbage” programming that is yet to be determined at additional rates. Shouldn’t have happened without a clear explanation!
Why did Cox take risk? After Twin Lakes Cable sold to TCA they sold to Cox Communications in 1999 at a price of $4,000 per sub. Rates for cable TV were approximately $35/month average. Today’s national average is about 3 times that for TV ($105); additionally Cox offers telephone and Internet services that can add another $100 to bill for a total of $200+. Triple play customers are those with cable TV, Internet, and telephone. Cable systems have values ranging from $8,000 to $12,000 per sub. So the poorly calculated risk taken by Cox’s Atlanta based corporate marketing is that any losses will be offset by new unnamed TV channels or services where they make a larger gross margin with more bandwidth – including Internet and phone.

What can be done - First step would be a formal request from the city to Cox requesting that KARK be put back on local system, since their reasons for removal were inadequate and unacceptable.
There is need of an analyses of payments received from Cox for franchise fees since they bought system from TCA in 1999. Comparison of metrics annually over the 13 year period to determine consistency of franchise fees. This will require at minimum the annual itemized invoices and payments, and at maximum a detailed audit; depending on the willingness of Cox to provide requested information covered in Sec 4.08.06.
After a recent meeting with Mayor Crockett and Jeff Pratt the only information made available to me was a copy of Cox franchise fee check for $71,339.75; based on an invoice Cox had generated. My personal cable franchise fee is $2.67/mo or $32.04 annually. If you divide $71,339.75 by 32.04 you get 2,227 subs with 5,271 HH or 42% penetration. Sounds low to me. Penetration during the early days was 95% (per Bobby Wheeler).There was no copy of invoice readily available, and description on check stated it was for 2011 Franchise Fees (not partial amount, etc.). Sec 4.08.06 of franchise agreement states Cox will pay annually 3% of gross subscriber revenues to city, so $71,339.75 translates to $2,377,991.67 gross TV only revenues subject to franchise fees. An average TV bill would be $1,068 annually or $89/month below national average of $105. In private business, when someone uses your property and then writes his own invoice and check, most would like a detailed, itemized explanation; particularly when numbers are considered low.  Using today’s estimated subscriber count the evaluation of the local system has gone from nearly $9 million to a range between $18 and 22 million during a period when their local commitment has gone just the opposite, from a business which had high local commitment to one with nearly zero.
Renewal of franchise agreement will be very important. Issues include some major changes coming to TV. Plans for fiber to home or premise. Will Internet TV or IPTV be subject to franchise fee?  Google TV, Apple TV, Amazon, Walmart Vudu, Microsoft Xbox, and Netflix will have a major impact over the next 5 years as well. Google and Apple are aggressively removing set top boxes – NY Post 3/7/2012
Items to be subject to franchise fee and review of current franchise fee rate since national limit is 5% or an additional 2% or $47,559.83 in 2011 for general fund.
A franchise fee is a fee collected and paid directly to the city, village or township in which you live for use of public rights of ways and the community's expenses associated with the regulation and administration of cable TV services
Recommendation would be to for council to approve and set aside the additional 2% fee for the purposes of effectively managing the relationship with Cox Communications and the franchise renewal. People subscribing to Cox Cable should be willing to pay the additional fee for the local administration and representation of their cable TV, Internet, and telephone interests.

Cable franchises are the agreement or ordinance setting forth the terms on which a cable company is given permission to provide cable service in a municipality. By state and federal law a cable company has to have such a franchise to use the public rights of way for its lines and to provide service.
Franchises cover several types of issues, such as:
  • Strategy and cost reduction for using mobile devices such as iPad,iPhone,etc for TV remotes and the Cloud for content storage(movies,etc.) to replace set top box requirements
  • Strategy for using behavioral marketing from social media to target ads and reduce cost of content. With time shifted programming from DVR/Cloud this should be a priority. (see  LinkedIn Herb Lair and Twitter herb5247)
  • ESPN suite currently costs $7/mo of cable bill and will soon go to $10/mo which generates $1 billion a month from subscriptions. All cable TV basic service has been required to carry ESPN which means that the casual or non-sports subscribers which make up 70% of the subscribers are subsidizing the sports addicts who make up only 30% of the subscribers.  Cox has a new level TV Economy at $34.95, without ESPN, that has been given minimum public awareness. Cable has been slow to act on this and may still wilt to ESPN pressure.
  • What services are to be provided
  • Where the cable company has to provide service
  • The fees and other compensation the company provides the municipality and the public
  • Protections for use of the rights of way
  • Extensive customer service protections (such as answering the phone on time)
  • Channels for use by the municipality, schools and the public and financial support for such channels.
  • Franchise fees effectively having the "five percent" federal franchise fee applied to as broad a definition of revenues as is legally possible.
  • Improvements for municipal, school, and public access channels by having fiber optic feeds from them to the cable company (improves quality of signal). Also, adding the ability to broadcast live from remote locations.
  • The cable company providing at no charge an "I-NET" which is a fiber optic network connecting municipal buildings for video, voice, data and other applications.
  • State of the art emergency alert systems where the municipality can use the cable system to instantly notify its residents of emergencies.

Committee against Cox Communications franchise renewal until all the following issues are satisfactorily answered or resolved.

Committee against Cox Communications franchise renewal until all the following issues are satisfactorily answered or resolved.
1.       Provide a franchise report detailing gross revenue. Report should be at the Convergys level (Convergys provides customer care and billing for Cox Communications) with details on households, basic and premium services, breakout of packages and subscribers on each plan, commercial accounts, apartments, multiple dwelling units, bulk rates, etc. Any reports generated internally by Cox Communications, including spreadsheets are not acceptable. Currently, Cox generates its own invoice and sends a check. Based on rough calculations there could be up to approximately 1200 subscribers and an unknown number of bulk commercial accounts at risk in the franchise fee calculation, or a 30-50% underpayment. Calculations by the Mayor (attached) put Harrison at one of the lowest averages in the country at $58.28.  While Lair’s estimate is closer to $89, based on plans offered to local community. If unwilling to provide this information to City because of reluctance to make data public, there should be a designated third party, Herb Lair, with a non-disclosure agreement to make analyses at the expense of Cox Communications.
2.       Change notification of add or reduction of services to be sent via monthly statements at the same time city is notified. This could be either a message on statement or as an insert. This should be done as soon as possible even if it requires an amendment. KARK was removed by the total discretion of Cox, even though it was one of the first three channels on original cable system. The reason for cable in Harrison approximately sixty years ago. Also there have been several documented local Missouri interests’ programming (sports primarily) on KYTV in Springfield, MO that has preempted regular NBC programming.  Also notification of a request by committee to add KARK back to local cable in franchise renewal agreement.
3.       External audits for prior years at Cox expense. The number of audits will depend on results of randomly checking at least four year intervals since 1999, when Cox purchased Harrison system from TCA.
4.        Mayor Crockett and Councilman Joe Crockett recusing from any city action involving telecommunications and specifically any communications with Cox on franchise renewal.
5.       Statement by City and Cox that no FCC and/or Federal laws have been broken to date on franchise renewal.
6.       Statement by City that local Cox Cable TV subscriber interests or Harrison residents is being placed above those of Cox Communications.
7.       Determination by City if it can regulate local cable rates because of a recent lack of competition FCC ruling in Boston?

Supporting data -
Update – Cox franchise renewal

Talked with local banker last night. Appears he got a call from Mayor Crocket. Since that was a result of e-mail sent to Len Pitcock below, not to the Mayor, it appears Pitcock is ignoring the fact that Mayor should be recused, and Pitcock only involving him more. Any documented case made with obvious intent to intimidate local professionals will only make Cox’s case worse, particularly in the area of public opinion and mainstream and social media.

Franchise renewal impact - if any FCC/Federal law violated - Mayor not recusing himself in all negotiations going forward (pt c below and Linkedin), or any violations of other favors or kickbacks that may be uncovered. Failure to pay any franchise fees or benefits in the franchise agreement, based on a relationship between city and Cox.
Termination if grantee is adjudged to have committed fraud or deceit to grantor could result in losing franchise

Lots of national laws of dealing with public entities which I'm sure Cox is aware of - that company must adhere to maintain franchise -- most common ones

(a) a prohibition against making or offering to make certain gifts.
(b) a prohibition against kickbacks.
c) a prohibition against a person engaged in a procurement from employing or offering to employ a public employee. .
(d) a prohibition against providing a recommendation to the City from assisting another party or seeking to obtain an economic benefit beyond payment under the contract.
(e) a restriction on the use of confidential information obtained in performing a contract.
(f) a prohibition against contingent fees. 

Herb Lair

รง= President of Cox Communications
Sent: 4/4/2012 8:53:13 A.M. Central Daylight Time
Subj: Cox franchise renewal update - no renewal momentum


FYI - Harrison, AR cable

Noticed KY 3 is preempting NBC's most popular night on TV this Thursday again for sports programming - Cardinal Baseball - you might check all the NBC preemptions since removal of KARK - it's been excessive. I'm getting major feedback from those who are unhappy.

Since I have not gotten response from franchise summary report request, (along with Channel 4 KARK removal) there is growing momentum to not renew the Cox franchise in Harrison.

I am getting strong reaction - all looking for alternatives to Cox.

My contacts from state and national media have expressed interest.

(Got call from local banker yesterday interested in alternatives to Cox short and long-term).Note change since banker was contacted.

Also appears the Cox hiring of Councilman and Mayor's failure to recuse himself could create problems in limiting financial compensation for Cox system, if a decision to not renew is made. Federal law violations are at risk.  < for Cox and Mayor relationship


Herb Lair

Posed question on Linkedin Group -- I didn't mention city or company - one of the first responses ironically came from a former senior Cox executive, whom had renewed franchises under close legal and media scrutiny in places like NOLA - Google New Orleans and Cox for a starter - again his comments are based on how Cox and FCC requires handling of franchise renewals. 
Question is who at Cox corporate or regional signed off on Pitcock's actions, or was it an individual action not monitored?
Joe Crockett Harrison Councilman, son of Jeff Crockett, Mayor of Harrison was hired by Cox Communications in January, 2012
At that time and currently Len Pitcock was acting manager of Cox Communications in Harrison AR
Also lobbyist (below) who handle franchise renewal negotiations that coincidentally is coming up in Harrison in 2013.
Len Pitcock
Director of Government Affairs
Cox Communications
This came from Cox former executive with a lot of experience in franchise renewals
Greg Bicket
Retired President at Cox Target Media/Valpak

·         former President at Cox Target Media/Valpak
·         Senior Vice President, at Cox Communications New Orleans <========== Key
·         Senior Vice President at Cox Communications New England
·         University of Phoenix
·         University of Illinois at Urbana-Champaign

LinkedIn Groups
To your
What's legal and ethical in cable franchise renewals?
Recent observation - a City Councilman, who is also son of the Mayor was hired in January 2012 by cable MSO handling cable, Internet, and telephone for the same city
At that time and currently the acting manager of the local cable system also functions as lobbyist who is involved in franchise renewal negotiations that coincidentally is coming up in 2013.
Any problems with that? Pass the smell test? Three questions, this isn't, yes and no.
Greg Bicket, Cox retired executive response ---

Of course the Mayor and his son should recuse themselves from any actions, votes, decisions regarding this and importantly, any other telecommunications firms doing business with the city.

Arm's length dealing is impossible in this situation--the employee should extricate himself from both sides of this situation by asking his company to be assigned other duties while this negotiation takes place in addition to recusing himself on the decision/vote.

Part of my comment in HDT on following article
Also city has to be asleep at the wheel if they are operating under a franchise contract written 25-30 years ago
The contract needs to be updated - contained in e-mail sent to Mayor (below) - reasons for my requests for amendments city seems to ignore
Either totally out of touch or there are unresolved questions about Cox and relationship with city? All recorded stances by Mayor has been biased in favor of Cox and not for benefit of city and subscribers.
I've never seen that before in my 35 years in cable business

No city control over cable channels; Viewer markets
Posted: Saturday, January 28, 2012 7:15 am
With some Little Rock television network affiliates either gone or set to be taken off the Cox Communications cable TV system in Harrison, Alderman Shannon Snow brought the matter up Thursday night in the Harrison City Council meeting.
Snow said some Arkansas Razorback fans were upset that they might lose state sports coverage.
Specifically, Snow asked if the city could take any action within the franchise agreement granted to Cox for cable service in the city.
Mayor Jeff Crockett said the franchise agreement is old, dating back to a time when there were only eight stations on the basic cable package and MTV was banned.
Trying to enforce that agreement now might mean reverting to those old days, Crockett said.
He told the Daily Times that it also had something to do with trying to determine viewership numbers because the stations offered basically duplicate programming.
Brian McDonough, general manager at KYTV, the NBC affiliate in Springfield, Mo., said his station was given permission to be the main affiliate in the market and Harrison is part of the Springfield market.
Mike Vaughn, general manager at Little Rock NBC affiliate KARK, said he didn’t know KARK had been removed from the Cox system in Harrison until the last few days when he began receiving “literally hundreds” of calls and e-mails.
Vaughn said the Federal Communications Commission draws broadcasting markets. A cable system is required to carry a full-power station within its market, but not ones outside the market.

On video all discussions about Cox has been to Mayor never gave a good reason for removing KARK, the issue with franchise amendment was not internal audits by Cox, as mentioned by Pitcock, but as you can see on City of Omaha with Cox (previously posted on facebook)- independent external audits. No mention of that. The matching of franchise fee with check paid to city needs a GAAP solution, again not an internal audit report. Document/invoice that itemizes franchise fee paid. There is an immediacy to amending current franchise agreement to resolve issues as well as prevent any surprises on new franchise agreement. Preventing any notification from Cox that goes into action, if there is no response from city. New agreement/amendment should have notification to subscribers of any changes directly via monthly bills - stuffer or printed on statement -  concurrently with city notification (putting something in a newspaper that many subscribers may not receive is inadequate in these times) , monthly franchise reports, penalties for underpayments and delinquent payments, all gross revenue items allowable by FCC,etc. not specifically removed by Cox.
I was told tonight by Cox there had been discussions with Mayor about an internal audit - obviously there is a need to reconcile number of subscribers, commercial accounts, bulk accounts to see how they match up to $71,339.75 by someone other than Cox - obviously City of Omaha had issues - reasons for all the audits paid by Cox - (guess to avoid penalties). -- strange all I was told about by city... was the check, after several requests for documentation?
After a recent meeting with Mayor Crockett and Jeff Pratt the only information made available to me was a copy of Cox franchise fee check for $71,339.75; based on an invoice Cox had generated. My personal cable franchise fee is $2.67/mo or $32.04 annually. If you divide $71,339.75 by 32.04 you get 2,227 subs with 5,271 HH in Harrison per 2010 census (3571 family and 1700 non-family) or 42% penetration. Sounds low to me. Penetration during the early days was 95% (per Bobby Wheeler).There was no copy of invoice readily available, and description on check stated it was for 2011 Franchise Fees (not partial amount, etc.). Sec 4.08.06 of franchise agreement states Cox will pay annually 3% of gross subscriber revenues to city, so $71,339.75 translates to $2,377,991.67 gross TV only revenues subject to franchise fees. An average TV bill would be $1,068 annually or $89/month below national average of $105. In private business, when someone uses your property and then writes his own invoice and check, most would like a detailed, itemized explanation; particularly when numbers are considered low.See More
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  • Note This was March 22nd, date of meeting - above e-mail with Pitcock on data
  • was Mar 16th Friday prior to meeting - FOIA
Herb, I received some documentation from Cox yesterday and if you would like a copy I would be happy to furnish. Cox claims aproximately 3400 subscibers in the Harrison market. My math tells me if $71,339.75 is 3% of gross then their gross ...taxable revenue is $2,377,991 divide that by 3400 subscribers gives you an actual bill fo TV only of $699.40 per year or $58.28 per month. I understand that this is far less than the national average but lets admit your and my cable bill is probably much higher than the average Harrison subscriber. You even admit that the national average is $105 per month. National average household income is $51,914 while the average household income for Harrison is $34,431 or 66.3% of national average. If the percentages run true (which they probably don't as the lower the income people are less likely to spend on cable) the average bill for Harrison would be $69.61. Basic service in Harrison is around $24. Using this information it would not seem unfeasable to me that the average Harrison subscriber pays $58.28. Not everyone in Harrison can afford to spend $105 on cable as you would suggest. I would suppose we have a very high percentage with minimum cable compared to national averages.See More
Thursday at 9:51pm · LikeUnlike
I'd like a copy - there are commercial, bulk, and other considerations that I didn't put in my numbers, just to simplify it, but are part of gross revenue - they should easily show the numbers at various plans, actually rural areas with limited entertainment will spend more for TV than affluent urban areas, numerous examples I personally have seen this on systems I have sold systems to - remote Alaska, military bases, etc. - I've written those reports for years - their marketing has to know that in order to up sell. Other part is reason to amend franchise agreement if they are excluding things normally included in newer agreements - point is amendments are a fact of life in technology driven business. Something Cox fails to mention, but leans on when they want to protect interestsSee More
Thursday at 10:03pm · LikeUnlike
Cox's essential starts at $58.79 then 68.99 then 78.99 then 122.99 - (I would doubt there are only a hand full with bills less than those plans , based on my experience - these are their highly marketed plans) - are currently given short-term discounts so as mentioned I have written customer care and billing software and I know their billing vendor, Convergys, very well and they know in detail the exact number on each plan, so customer services can up sell - I guarantee that !! so I would have difficulty with anything close to $58.28 in Harrison market (again there are large commercial accounts that should be included as well)See More
Thursday at 10:25pm · LikeUnlike
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Sent: 1/30/2012 2:14:42 P.M. Central Standard Time
Subj: Re: Conclusion from survey and comments on Cox Harrison

Hi Jeff,

It's Herb, not Harold - thanks - I realize you inherited this but I go back to the days when Bob Wheeler (Bobby & WJ's dad) and my dad, Joe Lair, were best of friends. Cable & TV's and sold antennas getting only Missouri stations.
I handled customer care and billing for Bobby at Twin Lakes (after Bob's stroke, Bobby got cable and  WJ got KHOZ) when they went to computer.
So in early days the only reason for cable was the LR stations - the original intent of cable before satellite.
Cable was not a profitable business - about $5/mo on coupon books. We did work for Branson and it was a cooperative - no one would underwrite it or borrow money to own it.
I pay $200 now - Cox paid $4,000 per sub in 1999 when they bought Harrison from TCA (who had bought Twin Lakes)- avg bill was $35 - no phone, some Internet - now subs are in the $8-10K range
The contract needs to be updated - probably written when cable was not very profitable.
Of course franchise fees are tricky but collected by cable company as an additional percentage of bill and paid to city - they use poles, easments, and access - satellites do not, so no fees.
I've handled systems in most of the states and over 50 countries so I've seen about ever trick you can imagine (some use actual cash versus accrual, some services are included and some excluded, etc.)

Let me know if I can help

Herb Lair

In a message dated 1/30/2012 1:54:41 P.M. Central Standard Time, writes:
Harold, (got this habit of calling me Harold, not Herb appears to be intentional)
We are communicating with Cox on this. I am not sure we will make progress but are trying.
Issue of franchise fee check matching any documentation from Cox still unresolved – also no outside independent audit mentioned (when State comes to audit city or IRS for individuals - internal audits have minimal relevance and no relevance to franchise fee reconciliation other tha
n getting accurate franchise summary data) . Franchise agreements are frequently amended because you are dealing with technology, not every 15 years - previously reported in January HDT "Trying to enforce that agreement now might mean reverting to those old days, Crockett said". I am having difficulty finding public statements from city public official's statements in paper and social media supporting subscribers or local community. All are in favor of Cox, since no action is being taken to get independent accurate information. The issue about network duplication has been exposed with several KY3 interruptions that have been detailed for local programming not of interest in Arkansas- Paragould municipal cable has similar situation with Memphis, Jonesboro, and LR - check their channel alignments and who they are responsive to -- 2 CBS, 2 NBC, and 3 ABC. Making general unsupported statements about duplicate programming without supportive data is irrational - in response to councilman Sherrll there were no local surveys prior to removing KARK, or in support of a replacement. My calls to Cox customer care about replacement for KARK, was met with “they didn’t know” what it would be, and I wasn’t getting a reduction in my bill for removing a channel. More to come on conflicts of interests, ethics, etc. TKO 8 has entire meeting, if you question anything I have brought to your attention. Other discussions in social media that provides details and concerns. See facebook, Linkedin, or Twitter herb5247.

Updated 03/30/2012 -  Click on Len Pitcock on video - you can skip to it once loaded on computer to where Len speaks - it was a Chamber of Commerce type presentation where he says some things in Q&A about "internal audit" and conversations with Mayor "only" in past.
Len started by saying they were complaints about Cox and communications and then he said Jech, previous manager, had left 18 months ago and he had taken over role remotely and essentially indicated that he and city/mayor had ongoing conversations - he talked about issue of Cox being accused of being unresponsive and he had regular conversations with Mayor (and city?) over past 12-16 months - so he in effect took over manager role after Jech - which would have to do with input (and probably decision) on hiring and firing  -  Pitcock could be considered a boss for Joe Crockett - bottom line is that it is not the way corporate Cox advises their execs on relationship with City, based on longtime exec Greg Bicket's  comments and FCC- so I'm sure Cox Corporate will take swift action.
This is not a picky thing it's a FCC policy that will bring in Fed scrutiny that Cox will not like or the city. Cox has a lot at risk, so has the city!