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

  • From: Craig Birkmaier <craig@xxxxxxxxx>
  • To: opendtv@xxxxxxxxxxxxx
  • Date: Sun, 25 Jul 2010 09:48:24 -0400

At 7:40 PM -0400 7/24/10, Albert Manfredi wrote:
Sorry, Craig, but the problem here continues to be that neither you nor I know the details of these deals. Makes a big difference.
Take your quote above. One way to interpret it would be that Scripps gets the subscription fee and all the ad revenue from their cable-only shows. Well, that's ridiculous, right? What does the MVPD get?
First, Scripps DID KNOW that they could get both ad revenue and subscriber fees by using MVPD distribution. And they knew that if their networks were popular they would be able to raise the subscriber fees at the end of each contract period, as they have done recently.
First, and most important, like local broadcasters, they get to insert ads into these networks. This produces substantial revenues for the separate companies that the MVPDs create to sell and deliver these ads. These companies are separate because they do not want this revenue to be included in normal operations, which are covered by franchise agreements.
Second, as the capacity of cable systems increased, the ability to offer more programming choices was viewed as a significant promotional benefit to sign up new subscribers, even as the monthly fees increased in proportion to the number of channels available. And this ALSO gave the regulated MSOs an out when they raised their rates - that is, they have always placed the blame for rising rates on the content owners and the subscriber fees. But they still manage to sneak in a few extra dollars for themselves with each rate increase.
So much more likely, Scripps gets SOME of the ad revenue and SOME of the subscription fee. In order to compete, an OTA broadcaster could, for example, give more of the ad revenue to Scripps, to make up for the lack of subscription fee, at first. Or even more extreme. Start off by airing those shows giving Scripps all of the ad revenue. To the broadcaster, this would be a way of getting people to tune into their multiplex. Carry that content for nothing, on their multiplex, like stores sometimes do with loss leaders, just to get customers to browse their shelves. And then you go from there.
Sorry, but this is NOT the case. They get ALL of the contracted subscriber fees and all of the ad revenues for the ads they run in the programs. The one area that IS negotiable is the number of ad insertions that the cable or DBS system get in each program. This is something we don't know and is likely different with every contract. alone
There IS NO WAY a local broadcaster can compete UNLESS they also can collect subscriber fees. Ad revenues alone cannot compete with dual revenue streams.
That being said, outside the U.S. market subscriber fees are not a fact of life and the media congloms take what they can get, as is the case with Freeview.deliver their content in the clear could ONLY
And please tell my why any of the non broadcast networks would screw with such a sweet deal? Allowing broadcasters to deliver these shows in the clear, even if they got the revenues from local ad insertions would undermine the dual revenue stream business model is several ways: 

1. It would make the bundles offered by the MVPDs less attractive.
2. It would undermine the ability of the content provider to maximize the subscriber fees they could demand on the next contract period.
The ONLY way it could work is if broadcasters could offer them more money than cable, and this is simply not in the cards with one revenue stream. 




 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.
Yes, but the competitive edge the FOTA broadcasters have is that they do NOT do this, NOR do they charge a monthly hookup fee. Some subscribers will jump ship if they see a decent amount of choice FOTA. That's how the marketplace is supposed to work. The business that charges too much for a product is SUPPOSED to encounter the more austere competition. This applies to BOTH the content AND the distribution method.
In a perfect world with real competition, you might be right. But this is not a perfect world. It is a highly regulated world where there IS no real competition. In every case - broadcast, cable, and DBS, we are dealing with regulated oligopolies who all are working to maximize prices and revenues. The difference in price for cable and DBS is insignificant. And broadcasters, thanks to retrans consent, are now able to get subscriber fess too. The transmitter is their ticket to the second revenue stream. 




 As long as the MVPDs can bundle, broadcasters
 cannot bid competitively for this content.
Maybe, hard to say. I think that a few programs get the bulk of the revenues from each bundle, and the rest get very little. Again, devil in details. FOTA broadcasters MAY not be able to afford the expensive content, but may be able to be competitive for some of the smaller fry, as multicasts. As of now, FOTA broadcasters are locked out of much of this content.
Yes, there are a few, like ESPN that get a big paycheck. But most get somewhere between 25 cents per month up to a buck. Even at 25cent per month this content is too expensive for broadcasters; they are not locked out, they simply cannot afford it, nor do these networks WANT to do business with a dying industry. 




 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.
So, take off the shackles from FOTA providers and allow for more consumers to have choices they would consider. I don't buy the idea that consumers can only be faced with a choice that costs them too much. That only happens when the markeplace is not functioning right. With competition, the congloms cannot have all the leverage on setting prices. 

Bring on the competition!
But FOTA providers love the shackles that have allowed them to be some of the most profitable businesses in the U.S. for six decades.
Unfortunately, government regulated oligopolies are not going to ask for a more competitive marketplace. At best we can hope that a company like Apple can do for TV what they did in the music industry - and even in music the prices are 2-3 times higher then they would be in a truly competitive marketplace. 




 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. ... I
 believe that Internet distribution is a more
 likely next step.
I'm certainly not suggesting that congloms would get back into broadcasting. However other interested companies could grow, and could operate the OTA pipe more efficiently with the nationwide footprint. I agree that Internet distribution could ultimately make all of this moot, depending on the rights management issues. Me, I consider FOTA and the typical free streaming Internet distribution to be very similar, from a user perspective. The MVPDs are the oddballs in this. 

Sorry Bert, but YOu are the oddball in this. 90% of the country has moved on.

Regards
Craig


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