[opendtv] Re: OTA and MVPD competition

  • From: Craig Birkmaier <craig@xxxxxxxxx>
  • To: opendtv@xxxxxxxxxxxxx
  • Date: Mon, 11 Feb 2008 08:31:19 -0500

At 8:17 PM -0500 2/10/08, Manfredi, Albert E wrote:
Craig Birkmaier wrote:

Okay, you were talking annual costs. Still, that doesn't change any of
the main points.

DUH.

So again, given that this hypothetical ESPN-over-OTA is for only one of
ESPN's streams, and perhaps not even 24/7, and taking in consideration
what Dan said about how viewership of Monday Night Football dropped when
it moved to ESPN, I don't see why *Disney/ESPN* wouldn't entertain the
idea of using part of their OTA network's DTT spectrum for this. The
increase in advertizing expenditures might be small, from what you say
above, and the revenues might very well be worth it.

Dan was incorrect. It dropped the expected 15%.

They could not use part. It would take almost the entire channel (at least 12-15 Mbps to equal the HD quality delivered by ESPN. For this they would potentially grow ratings by the 15% that ESPN lost when MNF moved to cable.

The added revenues would pale compared to the subscribe fees that ESPN collects.

I see the opposition coming ONLY from the MVPDs, even though I don't
think that opposition is warranted.

The MVPDs do not call the shots. The media conglomerates call the shots. They are moving away from OTA, not back to it.

Not sufficient? Why would Disney/ESPN throw away this extra revenue,
even if it's not huge?

Because they would lose much more in subscriber fees.

Disney should have only one thing to consider: Is
there anything else I can transmit in my OTA medium, in that time slot
and subchannel, that would make me more revenues? Does the weather map
make more revenues, for example, than Monday Night Football? If not,
then it's a no brainer.

No brainer?

Perhaps you should start using yours.

Disney is making as much or more with ESPN than they did having MNF on ABC. Now ABC has the ability to pull in significant revenues on Monday night, counter programming to football.


And wouldn't it also be possible that Disney wouldn't expect the OTA
affiliates to make up the entire "subscription fee replacement" amount?
The ad reveues, per viewer per event, would probably be more than what
they're getting from their MVPDs anyway.

No. The stations could not afford this - they do not get that much revenue from football now. Look at the article I mentioned in my reply to Dan:

Another new factor is the amount of MNF inventory ESPN has up for sale. Because ESPN enjoys a second revenue stream from its carriage fees, the NFL puts a ceiling on its national avails, limiting it to 43 in-game spots versus the 60 to 65 opportunities broadcast enjoys. The remainder goes to the operators, which sell their parcel as local avails.

ABC would not give these avails to affiliates - they would take that money for themselves. And even if they did give affiliates a few more avails it would be impossible to charge enough to make up for the subscriber fees.


You haven't addressed the main point yet, Craig.

And what point is that? ABC is moving most of its sports coverage to ESPN because they can make more money there.


 Cable and DBS can afford to pay for the customer service
 organizations because they charge for this too. That monthly
 bill is north of $40 per home - subscriber fees make up a
 significant percentage of this (perhaps 25-30%), but the rest
 goes to paying for the infrastructure and MPVD profits.

I think we're saying the same thing, but I'm not sure. If MVPDs use any
of their ad revenues at all on infrastructure costs and customer service
costs, then that will take a bite out of what they can afford to pay
ESPN. Such overhead costs are lower for the OTA operators, so they
should be able to afford a higher fraction of their ad revenues to pay
ESPN?

The MVPDs do not use as revenues to cover operating costs. In fact, they have separate companies that handle ad insertion and they take this revenue through theses subsidiaries.

The cable systems are all regulated under local agreements. These agreements allow them to recover 100% of expenses PLUS a profit. The DBS systems are not regulated locally, but the rationale is the same. The monthly fees cover operating expenses, ad revenues go to the bottom line.


By the way, I discovered yesterday that Circuit City will install OTA
antennas for their customers. Of course, the customer pays. Not the OTA
broadcasters. Then again, assuming a good job, that's a one-time
expense.

I posted an article this morning that claims a large percentage of OTA users will need an outside antenna to provide an "equivalent" service after the analog shut-off. The article suggested that the vast majority of existing OTA TVs use rabbit ears. So what percentage of people that are keeping an analog receiver around will go to the expense of installing an outside antenna...again.

Clue - keeping a TV alive that is rarely used and worth next to nothing, by investing at least $100 in a DTV convertor box and outside antenna is not going to happen. For those who rely exclusively on OTA a new antenna is a possibility, but the majority of the estimated 110 million remaining analog sets are in the spare bedrooms of a cable/DBS homes.

Regards
Craig


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