[opendtv] Re: Broadcasters Lobby FCC for Cross-Ownership and Duopolies

  • From: Craig Birkmaier <craig@xxxxxxxxx>
  • To: opendtv@xxxxxxxxxxxxx
  • Date: Sat, 24 Jul 2010 10:59:40 -0400

At 3:48 PM -0500 7/23/10, Manfredi, Albert E wrote:
Whooooee! Would it be clearer if I had said, they SHOULD allow? Read it again, in context, and tell me you didn't just leap in to disagree. I was explaining how the FCC can level the playing field, Craig, I was not explaining the way things are today. I already know the way things are today.
Yes that would have been MUCH clearer. I thought I was still trying to educate you about how this stuff REALLY works. Sorry. 




 Broadcasters can create less expensive content too. Oh Wait! They
 already do!
Arguing in circles (again!). You have argued that broadcasters' content is too expensive, and then you argue that it's also cheap. You have argued that 5 congloms are too much of a content oligopoly, and then you argued that the 5 major MVPDs also create their own newscasts and entertainment shows. You have argued that we must separate content from carriage, and then you argue that broadcasters should develop their own content, because the MVPDs do. 

Twisted as usual.
I never mentioned 5 major MVPDs, although at one point I pointed you to a list of the largest cable MSOs. With few exceptions, MVPDs do not create content. Those exceptions are:
1. Contracted local access requirements - these are local access channels that are required by the franchising authority to carry things like government meetings. In a few larger cities there are access channels that the public can use to deliver information relevant to the community.
2. Local 24/7 news channels like NY1. These may be joint ventures with local broadcasters or wholly owned local news services.
3. Video On Demand - this is not MSO generated content but rather a premium pay per view service for motion pictures and in some cases (Comcast) recent network TV programming.
It is also important to note that MVPDs insert local commercials into many of the channels in the extended basic tier. In this they compete directly with local broadcasters for local ad dollars. Some cable systems have production facilities to generate the ads for local advertisers.
As for the cost of content, it is all over the board. Yes, the cost of scripted broadcast network content can be very high ($1-2 million per episode). And yes, many of the cable networks produce shows for as little as $25,000 per episode. But the broadcast networks are increasingly producing un-scripted programming that is a fraction of the cost of the highest rated sitcoms and dramas. And in a few cases these are their highest rated shows, like Fox's American Idol. The broadcast networks increasingly use their news divisions and talent to create cheap, throw away news magazine shows.
Some cable networks are creating scripted programing that is just as expensive as the broadcast network shows. Some of the off-HBO series that you have watched via DVD are MORE expensive than most broadcast network shows.
A brief aside here. The FCC does impose content restrictions on broadcasters; this includes various forms of obscenity including language, nudity, etc. Many cable networks exploit their advantage over broadcasters in delivering content that is explicit. Some of this content eventually makes its way to broadcast or family oriented cable networks; in these cases the content is edited to meet broadcast or network standards.
But the MAJOR point that you missed here is that any Broadcast Network or station group can create affordable shows like the cable networks. I used the example of Scripps Networks, which was started by a broadcast station group that also owns newspapers. The problem is that it is FAR MORE PROFITABLE to develop new cable networks - because of the second revenue stream from subscribe fees - than it is to syndicate this programming for sale to local broadcasters who can only generate revenues via advertising.
I believe the broadcast consortium that is developing the new mobile service is talking about creating content exclusively for mobile broadcast. Broadcasters CAN create good content - but most choose to rely on other people's content.
But in spite of the constant churn of your viewpoints, my point remains the same. Allow OTA station groups to operate more like MVPDs operate. Do not create sanctimonious-sounding rules for OTA stations to comply with, when the vast majority of the population are addicted to distribution pipes that bypass the sanctimonious rules (and allow them to make tidy profits as a result).
No Churn. My viewpoints are consistent...at least until you try to twist them to YOUR purposes. 

At least you are consistent in your position.
I would only remind you that without the second revenue stream from subscriber fees, broadcasters are economically disadvantaged with respect to paying for any content they might create. This WOULD NOT change if broadcasters were allowed to own a national footprint of stations. Unless. of course, they used this footprint to offer a subscription based service like the MVPDs.
This should not be allowed, as much as it is not allowed to prevent other MVPDs from airing this material. Something like "restraint of trade." The FCC or DOC should ensure that the material be made available to OTA station groups at a fair price. The shows you mention seem very low-cost, and should be affordable by OTA stations groups, EVEN IF the Scripps-owned OTA stations decide not to air it FOTA themselves. Perfect material for multicasts, for instance. 

This is where you are so maddening.
Scripps Networks made a business decision to take the content they are creating to the MVPDs. A decision based in the reality that they will receive dual revenues streams from subscriber fees AND advertising. And this content is available to ANY MVPD, including cable and DBS systems.
I do not disagree that many of these shows would be popular if delivered via broadcast multiplexes. The problem is that broadcasters cannot generate enough advertising revenue to compete with the MVPDs, who collect subscriber fees.
Now let's step back a moment and think about this situation. The real power that the MVPDs have is their ability to make subscribers pay for content they don't watch. By selling programming packages they take control away from the consumer to decide WHAT they are willing to pay for.
The MVPDs argue that this is far more cost effective than an ala carte system, and to some extent they are right. If each home ONLY paid subscriber fees for the stuff they watch, these fees would by necessity be much higher to produce the same amount of revenue from significantly smaller number of subscribers. They also argue that analog cable systems cannot track what people are actually watching, and that it is not feasible to block individual channels on the analog tier; but DBS and digital cable systems can offer ala carte services (if they wanted to).
As long as the MVPDs can bundle, broadcasters cannot bid competitively for this content. Ad revenues alone are insufficient. And there is NO incentive to give broadcasters a different (CHEAPER) deal, as once the content is available free over the air, many people would drop the MVPD service.
On the other hand, if Congress gave the FCC the authority to regulate the MVPDs and force them to offer everything ala carte, it "might" be possible for broadcasters to offer the same content as cable. Instead of having to match the revenues generated by charging every MVPD subscriber for a network, they would only have to match the fees paid for those who subscribe to a network.
To do this they would need a sophisticated ratings system to determine how many OTA viewers are watching these networks, and pay the same fee per viewer as MVPD subscribers. If they could generate enough ad revenue to make a profit doing this they 'might" be able to compete.
The major benefit of forcing the MVPDs to sell networks ala carte, is that it might eliminate subscriber fees all together for many networks. Faced with the possibility that they would lose a significant portion of their audience, many networks "might" drop subscriber fees so they could reach the larger audience. I doubt that ESPN would drop their lucrative subscriber fees, but smaller networks that are only getting between 10 to 25 cents per subscriber per month might drop the fees and sell their programming the same way they do in the rest of the world, where subscriber fees are less common - e.g. Freeview in the U.K.
Bottom line, the congloms are feasting on a very lucrative business model with dual revenue streams in the U.S. They are not going to drop this business model unless they are forced to, or Internet distribution makes it possible to equal or exceed what they can make today with the current system.
But you had just said they were: "Only a few smaller stations have been sold by the networks. They are all near their national caps. 

My bad.
The real situation is that everyone was at the cap when they could only own seven stations. As the caps were raised, and the UHF discount was taken into consideration, some of the congloms kept buying stations, while others did not. Remember too, that less than a decade ago TV stations in major markets were demanding huge premiums when sold. The sale of KRON in San Franciscoto Young Broadcasting was the turning point. But station valuations in major markets are still fairly high, and the networks no longer are interested in growing their O&O portfolios.
I cannot predict what would happen if the national caps were removed, but my gut instinct is that the congloms would NOT go on a buying spree. The cost would be huge, and the only way they could benefit financially is if spectrum could be bundled to create broadcast MVPDs like OnDigital, WITH monthly subscriber fees. 

I believe that Internet distribution is a more likely next step.
In fact, ABC (even though it may have mostly actual-VHF stations) is at about 22 percent, NBC is 27 percent, CBS is 34 percent, and Fox looks like over 40 percent. Must be the UHF discount, or some other trick, that allows Fox to be in compliance. Taking the UHF discount into consideration, the others are probably well below their limit, Craig. 

Correct.
Also, perhaps this explains to you about big sticks. The UK and Italy each have 2000 sticks to cover their territory. France has 3000. Pretty amazing, eh? He we are talking about 10 (NBC, ABC) to 26 (Fox), for a sizable chunk of the population of a much more spread-out population.
I like to think of this as a protection racket. As long as the government allows broadcasters to negotiate for retransmission consent fees the existing system will limp along. The marginal homes that ANY broadcaster can reach via their big sticks makes VERY little difference on the bottom line. What is important is that the signal can reach all of the cable systems in and around their markets, so that they can maximize the number of homes from which they can collect subscriber fees.
Another way to look at this is that the FOTA service is basically a digital STL to cable head ends. 





 Apples and oranges...
No, it's not. Broadcasters, which are for the most part pipes and not content creators, and who have been increasingly NOT O&Os, have a national limit imposed on them. MVPDs, which are for the most part pipes and not content creators, have no national limit imposed on them. You still don't get it. The rules are created to prevent too much control over content *OR* distribution, so they have to be applied fairly.
The largest MSOs reach about the same number of homes as the smallest O&O station group.
While there is no government imposed National Cap on the number of homes that an MSO can reach, further consolidation is not likely. There were SIGNIFICANT concerns at the FCC AND FTC when Comcast bought the cable systems owned by AT&T. And the Comcast/NBCU merger is not a done deal.
It's still Apples and Oranges. Differerent industries that are regulated in different ways.
The only thing that is UNFAIR is that these industries rely on the force of government to largely eliminate market based competition. Get the politicians out of the middle and the public would be the major beneficiary. 

Regards
Craig





Bert


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