[opendtv] Re: Apple's online TV proposal stirs interest from broadcast networks

  • From: Craig Birkmaier <craig@xxxxxxxxx>
  • To: opendtv@xxxxxxxxxxxxx
  • Date: Mon, 4 Jan 2010 11:15:12 -0500

At 6:53 PM -0600 1/3/10, Manfredi, Albert E wrote:
Craig Birkmaier wrote:

 Look how long it has taken for the Broadcast franchise to start a
 significant contraction - decades. Just saw a study that said that
 TV station revenues were down 22% in 2009.

Let's see what happens to ad revenues as the economy improves again.

See my response to John.

I continue to think that this means nothing much anymore. What is a "broadcast network," when the OTA station groups run the majority of OTA stations now, buy the content they air, and the subchannels have no relation to the affiliated network?

Yes, they buy content from a variety of sources, as they have for decades. The TV syndication market has always been the source of content to fill in all the gaps in the broadcast network schedules; no surprise that some of this content is making it to sub-channels.

John Shutt wrote:

Those who want to watch cable-only sports, news commentary, and entertainment such as Monday Night Football, The O'Reilly Factor, and Iron Chef America.

When the History Channel, TLC, and Fox News are available FOTA, I'll drop cable.

John is representative of the vast majority of American TV homes. Cable did not get where it is today by selling out to broadcasters - they got there by competing with broadcasters AND by getting a second revenue stream from subscriber fees.

In order for cable content to migrate to FOTA multiplexes, a station must sell enough ads to cover not only the cost of the content but to make up for the lost subscriber fees as well. Stations are simply not in a position to pay $0.25 per viewer, per month to add a channel to a multiplex that may not even generate enough ad revenue to cover the syndication costs.

On the other side of the fence, however, broadcaster may be able to attract new content start-ups who would have a tough time getting onto cable and DBS systems. Here is an interesting story about one such network:

Diginet BizTelevision Open For Biz

And remember Bert: Only a small portion of the content that local broadcasters deliver generates the revenues needed to cover all of the broadcast hours when they lose money.

It is no coincidence that the Fox Broadcast Network threatened to pull their signal from Time Warner Cable systems, just before the network's coverage of the Bowl Championship series began Friday night - they reached a deal 30 minutes before the start of the Sugar Bowl.

Scripps Howard pulled Food Network from Cablevision in a similar bid to get higher subscriber fees. But they are NOT going to make this content available to broadcasters who cannot afford it. More likely they are telling irate viewers to switch to DBS.

One example. This TV, which is as far as I can tell transmits old movies and TV shows, is carried by the Fox affiliate in Baltimore and the CW affiliate in DC. And the MNT affiliate in DC carries Monk, Stargate series episodes, and all manner of CBS and Fox reruns, during off hours (even without a subchannel). Ion transmits a very eclectic program mix, including their own Canadian-made Durham County series.

Almost ALL of these programs are sold in the broadcast syndication market. Cudos to ION for understanding that their survival may hinge of being a content creator, not just a content distributor.

So, what makes this "broadcast networks" in your mind? I think it's all up to the OTA station groups, what they morph into in the digital age. This is not your old ABC/CBS/NBC fare that you assume.

I never made such an assumption. I actually worked in TV stations and know all too well the realities of programming all of those non-prime time hours at a loss.

 > The question you should be asking is who operates the most efficient
 storefronts and customer service organizations.

In fact, I ask myself this all the time. I think you continuously underestimate how much of the monthly subscription fee of the MVPDs goes into maintaining that work force and physical network they rely on.

I've not seen the real numbers, nor have I even estimated them on this forum. But it is easy to estimate that about 1/3 of their total revenues now go to content providers in the form of subscriber fees. I wrote recently that the cable industry is generating about $5 billion annually in subscriber fees for cable networks;broadcasters are hoping to increase their take to more than $1 Billion in 2010. The last major upgrade for the cable industry cost about $75 billion, but this is amortized over a decade, so the annual cost is only slightly higher than the subscriber fees now being paid.

Just consider this. To get broadband and telephone service from Verizon, with no TV content fees at all, costs $70/mo. That's ADSL.


To get TV service, initially you pay no extra for the FiOS setup, needed to achieve adequate bandwidth for TV. But for the second half-year that climbs to $95/mo just for the 3 Mb/s broadband and telephone bill. After the first year?? Who knows. Then on top of that, you add $12.99/mo for the unadvertized basic-basic service, or about $20/mo for the basic service, but only promised for a few months.

Or a combined 1-year package of basic TV, telephone, and broadband for $100/mo. Initially.


So very soon, you'll notice that if you had not caved in to TV over physical cables, you can save quite a lot of money every month, especially after the first 6 months to 1 year, and most of that has NOTHING to do with the subscription fee kickback to the networks. It just costs money to provide a physical network capable of carrying HDTV. The cable companies have the same problem, and their fees are not much different.


So the real story here is how competitors will challenge this system that is spiraling out of control.

Broadcasters DO NOT provide a viable option - they simply do not offer the content that most people watch most of the time over a 24 hour day.

Cable and DBS TV bills keep rising because of the subscriber fee issue; if the Internet can offer a viable ala carte alternative the whole house of cards that is TV distribution could collapse.

Did I mention that wired telco subscriber lines are is serious decline too.

Technolog has a way of changing the competitive playing field.

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