[opendtv] Re: Ted Turner on Media Consolidation

At 2:26 PM -0500 11/15/04, Manfredi, Albert E wrote:
>Yup, and what's more, there's no question in this case
>of "separating content and carriage" as being a viable
>solution. There's not much content to speak of that
>these giant RBOCs own on their networks. They grew
>because they were more capable than their competition
>at running gigantic networks at prices people were
>willing to pay for the feature set they offer.

It's a completely different business: common carrier versus a license 
to serve ONE market with broadcasts that may contain content the 
license holder produces AND any other content they wish to buy.

What is important to this discussion is the fact that breaking up Ma 
Bell just created 3-4 regional monopolies instead of one national 
monopoly. The markets for cellular were SUPPOSED to be open to new 
incumbents, and a few did manage to survive. In order to create 
"competition" the government rules on spectrum auctions were designed 
to PREVENT the RBOCs from dominating this new business. In some of 
the auctions they were prohibited from bidding on the available 
spectrum. Unfortunately they took a cue from the politicians with 
"Campaign Finance Reform" and just did an end run around the 
legislation. They created and funded legal entities to bid in these 
auctions, then took control of the spectrum that these companies 
"won." And now,consolidation is bringing most of the remaining 
competitors into the fold.

So I don't buy the idea that they were more capable competitors. They 
used their financial resources and political clout to dominate this 
emerging market.

>  > Just decouple content and carriage,
>
>I don't think that's the answer. The media giants
>would still be media giants, even if they didn't
>own their 39 percent "reach" OTA infrastructure
>(which you claim no one uses anyway), and even if
>they didn't own any of the cable systems.

Let's analyze this.

First, they now reach virtually 100% of the national audience with 
their content, and as I suggested, they would continue to do so if 
they were prohibited from owning distribution to the consumer.

The 39% national cap has NOTHING to do with reach. It is a measure of 
ownership of distribution of their programs. You can think of it this 
way:

If the networks were prohibited from owning broadcast stations, they 
would still capture the revenues from their network operations. I 
don't know the exact numbers, but I think this is roughly half of the 
15 billion they now derive from network operations AND the revenues 
from their O&O stations. These stations would become independent if 
content and carriage were separated, and presumably the revenues 
would stay in the markets where they are derived (unless of course 
the deal allows "distribution conglomerates" to own broadcast 
licenses that reach some government mandated cap).

On the other hand, If the caps are raised or eliminated, the Networks 
will buy even more stations to capture the revenues they control. The 
downside risk here is that with total control over broadcast 
distribution, the networks could then put the squeeze on cable and 
DBS, sucking out the remaining profits from those businesses. I can't 
think of any upside benefit for consumers.

And I have never claimed that "no one uses" the OTA infrastructure. 
We have recently  discussed the fact that somewhere between 15 and 18 
percent of U.S. homes still rely these broadcasts. But 85% get their 
network fix via cable or DBS, NOT an OTA broadcaster.

That being said, the revenues generated by OTA broadcasting are NOT 
shared with the cable and DBS systems that carry these signals. In 
fact the cable and DBS systems ship money to the networks in the form 
of subscription fees for the OTHER channels the networks own, and in 
kind compensation via carriage of other network content.

Back in the good old days, when networks could own only seven 
stations, broadcasters had enough clout to balance the power of the 
networks. The FinSyn rules that Turner talked about were equally 
important, as they put a cap on how much of the content carried by 
stations the networks could own. In other words, stations had no 
choice but to buy some of their content from companies NOT OWNED by 
the networks. But hose days are history. With control of  90% of the 
content we watch, and roughly 40% of the revenues from OTA 
broadcasting , stations are now at the mercy of the networks. They 
have little if any negotiating power, and they are being squeezed at 
every opportunity by the networks.

Prohibiting the networks from owning ANY form of distribution (except 
perhaps for direct-to-consumer via DVD or broadband) would largely 
correct the imbalance. Then again, if the networks then refused to 
deliver their content via OTA broadcasting, how long would local 
stations remain economically viable?


>They grew into giants because they either created
>or they bought the content that people enjoy
>watching. The content, more than the physical
>infrastructure, made the Viacoms and Disneys the
>giants they are.

Hardly. It has been the combination of content and control over 
distribution that has allowed them to become what they are, AND a 
generous portion of help from the politicians, with whom (and for 
whom) they have built their empires. This is the dirty little secret 
that you keep ignoring Bert. The government has granted these 
lucrative franchises because the politicians ALSO benefit from the 
ability to control the flow of information by allowing a few 
companies to dominate.

>Just as in the telecom case, separating content
>from carriage would accomplish nothing, I think the
>same applies to the media (content) giants.

There IS no Telecom case Bert. They have never been in the content 
business; they are in the business of providing connections.

Exclusivity in distribution is, and will continue to be an important 
means by which the value of content can be inflated. We just saw a 
real world example in the new rights deals that the NFL just cut. 
DirecTV paid a huge premium to remain the exclusive distribution 
platform for NFL Prime Ticket. Dish wants that content; every cable 
system wants that content. Even broadcasters would love to carry more 
games. But the rules are carefully constructed to protect the NFL, 
giving them the ability to maximize revenues while MINIMIZING 
distribution. Local broadcasters in NFL markets can't broadcast a 
game unless it is sold out. And they cannot carry competing games 
when the local team is playing at home. This creates the demand for 
the national NFL Prime Ticket subscription. If the other DBS service 
and cable systems could offer the same content the price of a 
subscription would tumble thanks to competition.

In a world where content and carriage are decoupled, everyone would 
be able to get that content at fair market prices. This IS, after 
all, what enabled DBS. Before the government stepped in and forced 
the content moguls to sell their networks to DBS services at 
essentially the same price that cable pays, DBS could not get off the 
ground.

One more thing Bert.

Why did OnDigital fail. The direct economic reason BERT? Not the 
competitive reasons.

I'll help.

They paid too much for content - specifically the rights to a UK 
Football League - and could not remain solvent. They bet the farm on 
one exclusive content franchise...and lost.

Regards
Craig
 
 
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