[opendtv] Re: FCC Eliminates Simulcast Rules

At 3:23 PM -0400 9/23/04, Manfredi, Albert E wrote:
>Even that would be feasible, if the major networks
>owned their own local transmitting stations. The
>media giants would have no reason to insist that
>cable systems carry their entire DTT multiplex, if
>the media giant already had lots of their content
>on the cable system. The media conglomerate could
>instead design its OTA network to include a
>different mix of products. What would they have to
>lose?

In theory what you are saying might be possible, but there are a few 
issues to resolve.

1. You would need to destroy the affiliate/network relationship and 
let the conglomerates take over OTA broadcasting.

2. One of the conglomerates - Time Warner - has virtually no 
broadcast outlets today. They would need to buy up stations all over 
the country, or make their cable networks available to their 
competitors, knowing that they would lose (or have diminished)  the 
leverage they now enjoy with cable and DBS (i.e. subscription 
revenues and preferred channel placements).

3. Designing new networks with a different mix of products is an 
expensive undertaking. Even if the networks create clones of existing 
networks, there is still an expense. But more important, if they 
really were to decide to compete with cable and DBS, would it not be 
to their advantage to pull their existing networks from the cable 
systems? Then people would have a huge incentive to buy receivers so 
that they could keep watching the stuff they like.

Bottom line, I agree that it would be desirable for OTA to deliver 
the same content as Cable and DBS. Real competition would be good, 
and it would drive down the cost to consumers for multichannel 
services. AND THAT IS EXACTLY THE REASON THAT IT WILL NOT HAPPEN.

>
>The affiliate model is different, I think, in that
>the affiliate's choice of multicasts would have no
>other way of getting to the cable system than must
>carry.


Yup. But more important, the affiliates SHOULD have the ability to 
negotiate for carriage of any existing network, whether or not it is 
owned by the broadcast network that they are affiliated with. Already 
we have seen strong resistance from the conglomerates to such 
"freedom" for local broadcasters. The broadcast networks are claiming 
that they control the entire 19.2 Mbps and that their local 
affiliates do not have the right to air networks other than those 
provided by the conglomerate. Thus, only independent stations would 
have the ability to offer exiating and new independent networks.

>
>>  If what you are trying to say were true, then
>>  the conglomerates could add more networks to the
>>  MVPD systems - where 85% of the viewers are -
>>  and they would attract MORE eyeballs.
>
>You're finally catching on, Craig, except not quite.
>
>By your reasoning, cable systems would have failed
>from the start. The media giants would have "no
>reason," you would argue, to "fragment their
>audience" by providing 90 percent of the content
>cable systems carry. They would stick with their
>one 6 MHz NTSC channel per market.

THEY DID.

They fought audience fragmentation for nearly two decades.

It was only AFTER they lost half of their audience that they began to 
take control of the content on cable and DBS. They did this primarily 
via the re-transmission consent regulations, which allowed them to 
gain preferred placement for new networks that they developed like, 
ESPN, FX, MSNBC, Fox News, CNBC, and others. Then they started buying 
up the cable networks they do not control. Funny how Viaco bought 
CBS, adding the Tifany network to its stable of cable networks like 
HBO, MTV etc.And the conglomerates bought almost every other popular 
cable network, rebuilding their empire.

>Funny, huh? Your reasoning doesn't work.

Sorry, but it is your reasoning that is flawed. IF the conglomerates 
could increase the time spent viewing TV by adding new networks, they 
probably would. But it is very difficult to find niches that are not 
already being exploited.

The only question now is how much further can they go with niche 
programming and still grow the audience. The reality is that when you 
attract eyeballs to a new network, these eyeballs are not watching an 
old network. There are two ways that this can work to your advantage:

1. You actually get people to watch more TV, a proposition that is 
quite difficult unless you can increase the number of hours in a day.

2. You can charge more for the eyeballs that you attract to a 
specialty niche channel, than the old channel that they are NOT 
watching.

For your educational benefit, I will tell you now that it is #2 that 
is the driving force. Advertisers are moving their budgets to cable 
and DBS because they can reach highly targeted audiences. They are 
paying small premiums relative to mass the appeal cable networks that 
feature off-network re-runs, like ABC Family and FX. But they are 
paying far less than for a broadcast network show that delivers a big 
unfocused audience.

That being said, there are only so many profitable niche markets. We 
already have almost every conceivable special interest channel. Most 
of the new channels are little more than re-packaging to further 
narrow the demographics. Hence, Scripps Howard (a broadcast company) 
created Fine Living, as an adjunct to HGTV, to focus on the high end 
of the home improvement business.


>To make an OTA system that attracts more viewers
>for a given network, some by stealing from
>multichannel systems, some by stealing from the
>competing *networks*, some by just adding people
>who would otherwise be doing something else, the
>OTA networks need to add choice.
>
>As you mentioned, we are dealing with a saturated
>marketplace. Like the marketplace for
>automobiles. What the seller does in this case is
>fight for market share. Not necessarily=20
>increasing aggregate viewership (although I'm not
>discounting that possibility either for OTA
>viewership).

The car example is a good one. As you note, the market is already 
saturated, and to make things worse, people are not replacing their 
vehicles as frequently as they did in the days when cars only lasted 
for 2-3 years. So what did they do?

They  drove up the price of new cars by adding all kinds of 
amenities. Products are differentiated today by features and 
convenience. There are many new market niches, like "Xtreme Sports 
Utility Vehicles" and hybrids.

Bottom line...the choice already exists. The only thing that MAY be 
in play here, is if you can get the 15% who have NOT elected to pay 
for a multichannel service to watch more TV, by adding more choice. I 
think you will find that this is highly unlikely, since, like 
yourself, the 15% seem to be happy with what they are getting now.

>And since I'm not willing to pay, unless and until
>all other options go away, then each of the media
>giants can only tempt my eyeballs with *one*
>program stream, as things are today with analog.

Not true. As I explained, you have more choice than that today. There 
are several independent stations in your market which primarily 
program off-network re-runs. What is lacking for OTA viewers is the 
niche programming that is available via cable and DBS. Yes, providing 
more choice is desirable, but it is not going to cause you, or most 
of the rest of the 15% to watch more TV. It is simply going to 
further erode the one audience that still has little choice other 
than watching the broadcast networks. It would be very interesting to 
see how much of the audience for the networks is coming from that 
15%. Few programs actually attract more than 15% of available viewers 
in ANY time slot. I'm not sure the broadcast networks are all that 
anxious to cannibalize the one audience they can still depend on.

>
>Instead, if ABC, for example, offered me two or
>three FTA streams, while NBC and CBS only offered
>me one, I would be two or three times more likely
>to watch something from ABC as I am now.

Prove it. This requires a leap of faith. It suggests that the content 
in these additional channels is at least as appealing as the content 
on the main network feeds.

>
>So NBC and CBS would play a catch-up game and
>also provide more choice, to compete against ABC.

Wow! I'll be able to watch more reruns, and possibly some 24/7 News 
channels spreading liberal propaganda.

I can't wait!

>
>That's how you get an OTA system that works.

Dream on.

>
>All it takes is for *one* network to start
>offering something better than the others. That's
>all. And the consumer wins.

It takes something else Bert. Something VERY IMPORTANT.

It takes millions of homes with the ability to receive these new 
digital multiplexes. For some reason, the politicians seem to be most 
worried about the last 15%, who may not have the means to upgrade 
their existing receivers.

And what was the analysis of the latest bill to come out of McCain's 
Senate Committee? There are significant concerns that even with the 
$1 Billion subsidies that are included in the bill, that hardly 
anyone will upgrade, because the analog service is NOT going away any 
time soon.

The only way to effect a meaningful change is to change the rules 
like they did in the UK. This requires getting rid of the existing 
network affiliate relationship. It requires offering the most popular 
networks in the Free and Clear. It requires real competition.

In short, Bert, it requires an unreasonable leap of faith.

Regards
Craig
 
 
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