[opendtv] Re: DTT in the US

  • From: "Manfredi, Albert E" <albert.e.manfredi@xxxxxxxxxx>
  • To: <opendtv@xxxxxxxxxxxxx>
  • Date: Fri, 13 Jan 2006 17:25:32 -0500

Actually, IMO, this is an interesting thread.

Craig Birkmaier wrote:

> You mentioned the oil industry. According to this story
> [http://www.allianceibm.org/platskybu092505.shtml],
> the oil industry operating profit margins for their
> second quarter in  2005 were:

I wasn't so much referring to how much profit an
industry makes, but to the tendency, in industrialized
economies, for a small number of dominant companies to
emerge in any given industry. I'm not surprised if
this also happens in the entertainment industry. The
profits are not out of line with other such industries.

> There are two huge pots: The ads inserted by the
> networks into the shows they distribute via cable and
> or broadcast affiliates (>$15 billion in revenues);
> and the ads inserted by the actual broadcast stations,
> including the network O&O's and all other stations,
> whether affiliated with a network of independent (>$15
> billion in revenues).
> At the station level, broadcasters get the ad revenue.
> At one time they also got compensation from the networks
> for carriage, but this is largely history today. In fact,
> in some cases the stations are paying the networks for
> key programming like NFL football.=20

This is exactly what I was talking about. These other ads
muddy up the picture. If the content owners were the only
ones who got paid by the advertizers (or directly by the
viewers), then it would be simple to make the case that
they should pay the OTA, cable, DBS, and telco media for
carriage. Which is what you keep advocating. But since
this is not the case, one should not expect content
owners to simply reimburse distribution chains for
carriage. That's why I've repeatedly asked who gets the
ad revenues.

> The cable companies PAY ABC or their affiliates to carry
> the broadcast network and the cable networks owned by
> Disney including ABC Family, The Disney Channel, The
> Soap Opera network, etc.

Yes, you explained this in the past. And for these cable-
only channels, don't the cable nets get the ad revenues
and subscriber fees? Which again makes it perfectly logical
that they should pay ABC/Disney, rather than vice versa.

Same argument applies to your Channel 4 paying Freeview. If
Channel 4 is paying Freeview, then I suspect Channel 4 is
the recipient of ad revenue, rather than Freeview. This is
why I answered as I did previously (but you objected to my
answer). If they could afford to pay x for carriage, that's
probably why.

> Get a clue Bert. The congloms have all of the leverage.
> The cable and DBS systems have the direct relationship
> with the viewers, and the billing systems that collect
> the subscriber fees for the congloms. The cable and DBS
> systems are happy to play this game ** because there is
> no real competition between the various distribution
> channels **.

(I added the emphasis.) As you say, the content creators
have a lot of leverage, because were it not for them,
those other businesses would fail. But the true shortage
of competition is in the umbillical distribution media.
This also causes rates to increase. This is leverage too.
As long as cable/DBS subscriptions stay at a high level,
I guess we're saying 78 to 85 percent now, one can only
expect the rates to rise. If the percentage is dropping,
rates will stabilize.

> You are correct, the appeal of a Freeview system will
> keep growing. But the only way it will happen is if
> consumers make a huge stink about it and get the
> government out of the business of propping up these
> monopolies and oligopolies.

I don't think it takes a huge stink to make this happen.
If subsciption fees keep going up, people resist paying
those fees. That's probably why OTA households remain
at the 15 to 20 percent level. You disagree, but I think
the system has been in equilibrium for many years. If
subscription fees rise too fast, more people will go OTA.
Perhaps this has happened to some small extent, who
knows. The system will keep adjusting its equilibrium

The perfectly natural thing for congloms to do, with the
extra room provided by DTT, is to compete against each
other AT LEAST for those 15 to 22 percent of households,
if not also for the rest of the viewers who use OTA some
of the time. Congloms can compete by offering OTA some
new material or some previously MSO-specific programs
material on the DTT multicasts. Which they are doing now,
in fact, but mostly with weather and music stations only.

And that's how a freeview system evolves here. No need
for any dramatic changes anywhere.

> The ultimate distribution system is where the content
> owner deals directly with the consumer, paying a fee to
> the distributor for their services (i.e carriage,
> collection of fees, and customer service).

I essentially agree with you here, as far as that single
statement goes. My only stipulation being that there's no
problem with content owners also owning some or all of
their OTA network, as long as many such OTA networks can
coexist and compete in each market. And that these
content-owner-operated OTA stations *can* use their
multicasts to tranmsit content created and owned by third
parties, if they see revenue coming their way from that
content. The motivation is simple: profits.

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