[opendtv] Re: Distribution outside the bundle
- From: Craig Birkmaier <craig@xxxxxxxxxxxxx>
- To: "opendtv@xxxxxxxxxxxxx" <opendtv@xxxxxxxxxxxxx>
- Date: Wed, 31 Dec 2014 09:08:20 -0500
On Dec 30, 2014, at 11:45 PM, Albert Manfredi <albert.e.manfredi@xxxxxxxxxx>
wrote:
>
>
> Craig wrote:
>
>> The cable companies made huge investments in the pipe,
>> upgrading it multiple times to increase capacity, go digital, add broadband,
>> and telephony. They ALSO made investments in new networks to fill those
>> channels.
>
> Yes, and the same can be said about the power utilities. So, your point is?
Really? When did the power utilities get in the content business? Who do I call
to get phone service from the power company?
Cable companies had little choice but to become yet another local utility
monopoly. They may not have objected to this form of regulation, but most
communities decided early on to treat cable as a utility, extending pole
attachment rules and charging for rights of way for this new infrastructure.
With few exceptions, these investments were made by the private sector, albeit
using junk bonds and other forms of financing to cover the tens of billions
each upgrade required.
So the real question is who got the free ride?
Did cable companies have an unfair advantage developing new content networks
since they also owned the "monopoly pipe?"
Did broadcasters have an inherent right to use their powerful position as the
developers and owners of content to demand preferential treatment by the new
cable competitors?
You tend to overlook some of the benefits that the cable companies brought to
the table. Infrastructure and services that did not exist in the content
industry, which have been leveraged to create massive new revenue streams for
the content owners.
Before cable, the content industry had two basic ways to make money:
1. Sell ads in television broadcasts - by necessity, these ads were targeted at
a faceless impersonal consumer. You could use sampling and statistical analysis
to figure out who was watching, but the broadcaster had no idea who their
customer was.
2. Go to the movie theater and pay for entertainment.
With cable, broadcasters were able to leverage the customer service
infrastructure created by the cable industry to collect the subscriber fees
that now account for a significant portion of their revenue. To do this they
needed help from Congress to give them the leverage needed to force the cable
industry to become their "bagmen."
To be fair, both oligopolies have benefitted from the relationship,
unfortunately at the expense of consumers. We now have a small number of
companies that control most popular content and the pipes that deliver it; and
now they are starting to consolidate, blurring the lines between content and
carriage. The public side - blackouts and related negotiating tactics that have
driven rate increases, are just a facade to cover the reality that the rates
always go up.
This is more than irony. The 1992 Cable Act was sold on the basis that the
industry was abusing its power, raising rates at 2-3 times the rate of
inflation, on powerless customers. The result was more of the same, as
expanding the number of channels became the justification for each new rate
increase.
>> If there were multiple truly competing MVPDs in every location, Fox *and*
>> the MVPD would have less leverage. Why? Simple. Because people would just
>> quickly migrate to those MVPDs that did carry their favorite programming.
>> And too, because there would be any number of other content sources
>> available to consumers, NOT under the control of that single monopolistic
>> distribution pipe/gatekeeper.
>
There are multiple competing MVPDs in every location. Fox has leverage in
several ways, as you can see on this web site:
http://www.keepfoxnews.com/
They are asking customers to complain to Dish, and they are suggesting that
customers switch to providers that have agreed to the terms Fox demands. I have
two alternatives here in Gainesville Bert; enter you zip code and see how many
options you have.
In the end it really does not matter. The MVPDs protest, then agree to new
license terms, then raise their rates to cover what the content owners demand,
while adding a bit for themselves. variety reports:
DirecTV, in an annual tradition, said it will raise prices across all
programming packages ranging between 3.5% and 6%, effective Feb. 5, 2015
> Not only is there competition among the congloms, but also within. For
> instance, ESPN is in competition against other Disney/ABC content. So what's
> truly lacking, and this was inevitable in the past, is alternatives for the
> pipe itself. There's a huge difference in degree, between how content sources
> compete, compared with the non-neutral distribution pipes, in your old MVPD
> model.
You still don't get it. Competition for ratings is important, but does not have
a huge impact on the bottom line. Every content conglom invests in a few shows
that generate the hype that drives the industry. This popular content becomes
the bargaining leverage they need to attract subscribers and increase rates.
For every hit there is a ton of garbage, with liberal reuse of the more popular
older programs to fill up the five hundred channel universe.
I can't argue that content competition is similar to distribution competition -
it's not.
But the reality is that the MVPD pipes ARE NEUTRAL. The FCC requires the
content owners to offer their programming on "equal terms." Every MVPD has
access to the same stuff that every other MVPD has. Each must work out the
licensing terms, which set the subscriber fees and all kinds of side deals
related to how the content can be used.
For example, CBS negotiated a deal with Dish to disable Dish Hopper on their
channels. Fox just granted a variety of TV Everywhere rights in its new
contracts.
Perhaps a slightly different analogy might help you understand.
If you go to a Disney or Universal theme park, you pay one fee to get in. Once
inside there is competition between Space Mountain and Pirates of the
Caribbean, or Harry Potter and the Transformers ride. The parks are also filled
with second tier attractions and rides to help disperse the crowds. The big
name "franchises" provide the exclusive glue to get you inside.
By no sheer coincidence, the theme park models reflect the models used to sell
content and bundles.
>> You cannot access many OTT sites because they require authentication.
>
> No gatekeeper is preventing me from getting the needed authentication, Craig,
> nor who I seek that authentication for. That's entirely my decision. As if
> this even needed to be said.
It just business Bert. You get what you pay for...or don't.
You certainly COULD subscribe to a MVPD service - you choose not to. You COULD
subscribe to CBS All Access - you choose not to.
So while the glorious Internet has afforded you many new options, YOU CHOOSE,
only those options you do not have to pay for (except Amazon Prime, which
bundles free shipping, content and other benefits in an annual subscription).
Nothing has changed Bert. Just new store that you no longer need to drive to.
>
>> We disagree that
>> the Internet will fundamentally change the way the content congloms sell
>> their
>> programs. MVPDs will survive the shift to Internet delivery Bert.
>>
>> This is not a prediction. It is happening.
>
> Indeed it is, Craig, and you're missing it. HBO, Showtime, CBS, Netflix,
> Hulu, Amazon, all are examples of how content congloms are changing their way
> of doing business for brand new material. You think people should still
> pledge allegiance to that single MVPD, as you do, just for old time's sake.
These are not equivalents Bert. They are just different ways of selling
content. As technology evolves, the ways in which content can be sold evolve
too. Nothing you mention above is having a significant impact on subscriptions
to the MVPD bundles. Been through this too many times....
>
>> I am no longer tied to my cable pipe - I can watch much of the
>> content I am paying for anywhere on any device.
>
> That's hilarious, Craig. You are tied "virtually," even though you no longer
> need to be tied physically **or** virtually.
Your response is hilarious Bert. There is a huge difference between hooking up
a cable or dish to the TV in the living room, and accessing the content
delivered by that pipe on any device that has Internet access. There is a huge
difference between accessing some random number of live streams, and accessing
specific programs on demand.
These differences are so profound that you are telling us that the old order is
dead, soon to be replaced by the highly competitive world of Internet delivery.
The reality is that the content is just bits, that can be delivered in many
ways. Facilities based MVPDs are becoming Virtual MVPDs, even as new Virtual
MVPDs are being created. The only infrastructure that matters is the service
that brings the bits into your home, the mesh of public/private WiFi hot spots,
and your telco wireless data plan.
> How do you explain this, Craig? Are you insisting to all these people that
> "it will take years"?
Yup.
Just because some people are beginning to use the Internet to consume video
content, it does not mean that everyone is doing so. Nor does it mean that the
number of hours of content consumed via the Internet is anywhere near the total
number of hours people watch TV. I've posted multiple studies with actual hours
of usage comparisons - TV delivered by the Internet is still a small fraction
of overall TV viewing.
You love to talk about cord cutters, and the increasing number of homes that
are using antennas again Bert. FOTA TV is not delivered via the Internet!
Regards
Craig
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