[opendtv] Re: Analysis: Broadcast's $1 Billion Pot of Gold

  • From: "John Shutt" <shuttj@xxxxxxxxx>
  • To: <opendtv@xxxxxxxxxxxxx>
  • Date: Mon, 14 Jul 2008 10:45:25 -0400

Please see inline.

----- Original Message ----- From: "Craig Birkmaier" <craig@xxxxxxxxx>

An interesting question. The total is very significant, but much of this subscriber revenue comes from optional digital tiers that consumers can elect to subscribe to.

As opposed to the 'mandatory basic cable' that every US citizen is required to purchase? All cable is elected to be subscribed to by consumers.

I can assure you that most of the mainstream Discovery channels could operate profitably without subscriber fees.

Perhaps, but I'm willing to bet not with the same number of channels offered or the same number (and quality) of original programs produced.

Why would they do something stupid like this? The NORM in the U.S. is double dipping. Only market forces could change this, and they are insulated from market forces by the actions of government that make the double dipping possible.

As I posed in my question to you, the incentive to do this to gain access to a valuable slot in the expanded basic tier. The Craig Channel wants to be in the expanded basic tier of BerTV, so they offer a channel with no subscriber fees, and Bert gets to keep more money. So Bert kicks off The John Channel, who was demanding $1.50 per sub.

Nobody is talking about AD FREE premium channels here. What we are talking about is advertiser supported channels that also charge subscriber fees. It is ridiculous to believe that ala carte would lead to subscription fees similar to the premium channels, UNLESS the channel owner decided they could make more money dropping the ads all together and only get revenue from subscribers.

I'm sorry, Craig, I did not make myself sufficiently clear. A channel with no ads and a small subset of all subscribers goes for $10 per month, who knows how much of that HBO sees. A channel with ads and a universe of just about all subscribers goes for $0.10-$1.00 per month to the program provider. (I have no idea what the current per sub charges are, but it's in that range for most channels, I'm sure.)

Point being, HBO has a much smaller subscriber universe AND no ad revenue, which explains the high per sub cost. Expanded basic channels have a lower per sub cost because they get revenue for almost every subscriber in the system, AND they have supplemental ad revenues. Take away the number of subscribers from the equation (because of ala carte, assuming that <100% of current subscribers elect to take the channel) and in order for revenue to the program provider to remain constant, per sub fees have to do what? Go up. Therefore, ala carte is very likely to increase per sub costs, and lower any potential "savings" seen by the consumer. Exactly how much is beyond my financial projection abilities, but the trend line seems clear.

I do not buy this argument. I believe that the license fees are there to keep the BBC free of ads. In this they are more like HBO. The license fees were there before Freeview and Freview will most likely exist AFTER the UK pulls the plug on the funding of the BBV, which is now fully capable of sustaining itself via distribution to global markets.

I know we have agreed to disagree over this point in the past, and will have to continue to do so. The transmission infrastructure was originally built out by the Beeb, then ITV and others coattailed onto that infrastructure at a later date. The switch to digital has just perpetuated that practice. It is the model that you base your transmission utility proposal on. Beeb is the number one user of the transmission system, and a guaranteed tennant. Because of that, other tennants can be offered a lower rate than if they had to site, build, and maintain their own transmission network, as is the case here in the US.

If the Beeb went out of business tomorrow, and all TV Licensing fees ended, do you think that the rest of those Freeview channels and the Freeview transmission network would survive in its current form?



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