[opendtv] Re: Differing interpretations of the same data

From: Craig Birkmaier <craig@xxxxxxxxxxxxx>
To: "opendtv@xxxxxxxxxxxxx" <opendtv@xxxxxxxxxxxxx>
Date: Thu, 13 Nov 2014 09:34:54 -0500
On Nov 12, 2014, at 6:09 PM, Manfredi, Albert E <albert.e.manfredi@xxxxxxxxxx> 
wrote:
> 
> These are new packages, Craig, resulting from the erosion of "the bundle." 
> That's why they make the news. And once again, $40/mo is a lot more than 
> $8/mo, Craig. So HBO sold as an MVPD tier is still a lot more expensive than 
> it would be if sold direct to consumer. The extra cost to consumers, to get 
> HBO, do HBO no good.

The MVPDs come up with new packages all the time.

The fact is that it has always been possible to subscribe to basic/lifeline and 
HBO at a cost of about $40/mo in recent years; it was cheaper a few decades ago.

And the $8/mo number is bogus. Netflix now charges new subscribers $8.99/mo and 
that number is expected to move to $10/mo or more in a few years as the content 
congloms negotiate new, more expensive licensing packages. The price for the 
Nordic service is 10 euros ($12.50/mo). No price has been set for the HBO DTC 
service in the U.S., but it is expected to be comparable to the premium MVPD 
tier product that cost $16/mo or more.

> I think you're missing the biggest part of this. These direct to consumer 
> models are of interest to content owners who see people dropping their 
> bundle, or their tier, because of the demands of other competing channels. 
> It's not as simple as lowering the price to get more customers. For the 
> content owner, it's liberating oneself of impediments to their own success.

This has nothing to do with the demands of competing channels. It may well have 
a great deal to do with the fact that income levels for the middle class in the 
U.S. are declining, while the price of just about everything keeps rising.

Yes, the content owners are always looking for new ways to sell their content, 
and the Internet is providing a very easy way to monetize their older content 
libraries. But you need to be realistic. If a consumer cannot afford $50-80/mo 
for the extended basic cable bundle, are they going to sign up for multiple OTT 
services that could cost as much or more? 

Netflix is a good deal at $9/mo, but you need to spend another $20 - 40/mo for 
broadband, or depend all your time at Starbucks or other free WiFi hotspots to 
watch TV. 

Your problem is that you see the current bundling business model as an 
impediment, while most if not all of the content owners see it as the 
foundation of their success.

Here is what AMC Networks CEO Josh Sapan had to say about OTT versus the bundle:

http://www.broadcastingcable.com/news/currency/sapan-no-ott-amc-nyctvwk-tcs/135559
Sapan: No OTT for AMC #NYCTVWk #TCS

New York -- AMC Networks CEO Josh Sapan said the home of The Walking Dead won’t 
be offering its own over-the-top service a la Home Box Office and CBS, telling 
an audience at NYC Television Week that the programmer is happy working within 
the current eco-system.

“We live and thrive and feed off the eco-systems of MVPDs,” Sapan said in a 
chat with Multichannel News editor-in-chief Mark Robichaux. “…Our best 
preparation is to have the stuff that people want to watch the most. Today, we 
have no intention of going over the top. We think being in this ecosystem is a 
wonderful place.”

AMC does offer content through streaming services like Netflix and has its own 
TV app, as far as going direct-to-consumer a la HBO and CBS. Sapan said while 
the landscape is changing as viewers find new ways to view content either on 
their phones, laptops, tablets or TVs, it is still the content providers 
mission to develop “shows and brands that mean an awful lot to the people that 
like them.”

> IMO, I'm again merely stating the obvious. To use your analogy, I am saying 
> that it is simpler and administratively cheaper for Netflix to charge a 
> single monthly fee to subscribers, than it would be for Netflix to charge 
> either a different price for every movie you watch, or to charge for multiple 
> different monthly subscription types. We already went over the historical 
> reasons why bundling was technically desirable, in the days of analog cable.

Technically this is not true. Everything is automated. I'll agree that it is 
more appealing to subscribers to pay one low monthly fee than to pay for every 
program. Apple's iTunes let's you pay for each program - just different 
software. But iTunes is an ala carte service with early access to many movies 
and TV shows that are not available from Netflix or HBO.

It is laughable that you say that bundling was technically desirable in the 
days of analog cable, then turn around and evangelize new direct-to-consumer 
bundles delivered OTT.

> Yes, digital systems use computers, and computers have to be programmed, and 
> the programs have to be maintained. These are recurring costs. It's never 
> free to create an administratively complex scheme, Craig, even in the 
> computer era.

Give me a break. Obviously nothing is free. But automated servers can handle 
millions of transaction without human intervention, keeping the cost very low. 
Netflix relies on the credit card companies to handle their customer service; 
ditto for Apple. 

> And to the MVPDs, as markup. It's really simple. The MVPDs rake in more 
> revenues, for themselves, from subscribers getting extended basic plus all 
> the premium tiers, than they take in from the guy wanting only lifeline 
> service. So I'm not as coy as you seem to be about what a subscription fee 
> does. And it should be no surprise that basic-basic lifeline service is never 
> advertised. 

Obviously the MVPDs make more if you buy more. And yes, when they increase 
rates for the extended basic tier that most people buy they cover the 
subscriber fee increases and add a little for themselves - but they must get 
this approved by their local franchise authority.

> Aaaaargh!! Craig! You're hopelessly stuck in 1980! We aren't there anymore! 
> The MVPDs do NOT have that luxury anymore! They are NOT the sole distribution 
> pipe for TV content anymore. At least, NOT AS LONG AS their ISP role remains 
> neutral.

The MVPDs have NEVER been the sole distribution pipe gorgeous TV content. FOTA 
broadcast existed before the MVPDs, and you constantly point out that it still 
exist today. By the early '80s people were renting movies for their VHS players 
and starting to time shift some TV viewing; then DVD replaced VHS. Millions of 
people bought big satellite dishes before DBS became a reality, and HBO sold 
subscriptions to their satellite feeds DIRECTLY TO CONSUMERS.

The facility based MVPDs have real competition, and soon there will be OTT 
MVPDs. And they are STILL the only place you can get some of the most popular 
content people are willing to pay for. Wishing and hoping and putting words 
into the mouths of industry leaders is not going to change this reality Bert. 
They know exactly what they are doing and will continue to do it!
> 
> 
> And rightfully so. That was never being debated. What is being debated here 
> is how the congloms can get their revenues most efficiently, i.e. without 
> adding in the costs of now-unnecessary middlemen. How do you keep missing 
> this?

Because they all benefit from the monopoly pricing model the MVPDs provide. 
They all have access to more than 80% of US homes - guaranteed. This does not 
mean that 80% are watching their programs, but they ARE paying for them. If the 
go direct-to-consumer there is no guarantee that a sufficient number of people 
will pay them enough to equal what they are making now. In fact, most will be 
hurt, because most are not popular enough to get people to pay for them ala 
carte. 


Regards
Craig
References:
- [opendtv] Re: Differing interpretations of the same data
  - From: Manfredi, Albert E
[opendtv] Re: Differing interpretations of the same data

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