[opendtv] Re: Digital Trends: ESPN may pull its finger out of the Internet-TV dam, unleash a flood of change

  • From: Craig Birkmaier <craig@xxxxxxxxxxxxx>
  • To: "opendtv@xxxxxxxxxxxxx" <opendtv@xxxxxxxxxxxxx>
  • Date: Tue, 11 Feb 2014 09:02:03 -0500

On Feb 10, 2014, at 9:05 PM, "Manfredi, Albert E" 
<albert.e.manfredi@xxxxxxxxxx> wrote:

> That's almost totally irrelevant. We're talking about new competing sources 
> of content.
> TV sets virtually saturate the market. I think we can agree. So if this 
> ubiquitous TV system offers three channels only, and each is equally popular, 
> you'd expect a huge viewership for each one. Say, 33 percent audience share 
> per. With greater competition, duh, you'll get a smaller viewership for any 
> incumbents. The objective is to increase competition, Craig. The total 
> audience share is already as close to 100 percent as it's going to get!

Nice description of the world in the '60s. But more choice does not equate to 
more viewing; there are only so many hours a person can watch TV.

Competition is good, but not necessarily profitable. Profitability can only 
come in a few ways:

1. Get people to pay for the programming - this works well for movies, but not 
so much for TV. ESPN could probably get away with this (actually the do, as 85% 
of U.S. Homes pay >$5/mo for ESPN.

2. Attract  enough eyeballs to sell ads at a price great enough to make a 

3. Get people to pay for programming they don't watch - the cable bundling 

For broadcasters, the marginal cost/revenue for additional multicast channels 
typically is not a major issue, as the profits from the primary channel pay the 
bills and then some. As I pointed out previously, multicasts actually caused 
some consolidation, as some of the second tier networks like CW and MyTV, which 
were carried on separate UHF channels could now be carried as sub-channels. For 
a network affiliated broadcaster, the cost of adding a sub-channel is very low, 
so the required ROI is also low. In some cases they pay nothing for this 
content, as it allows niche services to reach a larger audience.

Only a limited number of sub-channels are carried by MVPDs, as they are not 
covered by must carry/retrans consent. And almost NO MVPD channels are carried 
in broadcast multi-casts.

All this raises another issue that Bert may have a difficult time arguing about.

The dramatic rise in specialty niche TV channels was fueled by the growth in 
capacity of the MVPD systems.  It provided market access for all manner of 
special interest programming, and only needed an audience in the hundreds of 
thousands to make  economic sense (along with the subscriber fees they could 
collect). An audience of one million homes (nationally) could be very 
profitable, as these channels also have desirable demographic targets (e.g. 
Home Depot and Lowe's advertise heavily on HGTV).

But nobody has time to watch all of these "appointment TV" channels, and as 
Bert points out, programming a DVR requires a bit of planning. The big 
breakthrough with OTT services is that they are VOD services - no planning 

Services like Netflix are growing because of convenience AND the freedom from 

If there is a real threat to the MVPD business, it is the fact that they are 
still in the appointment TV business. As long as there are enough live programs 
that people are willing to build their personal schedules around, they can get 
away with bundling. Thus ESPN and other sports channels are the big "anchors" 
in their "TV malls."

But malls are growing passé' especially in the face of competition from Amazon. 
Strip centers where you can drive up to door of the store you need to shop at 
are now the big thing... CONVENIENCE.

There is much discussion about how ala carte could kill many of these niche 
channels. In reality, if they have a viable niche and produce their own 
programming, they will likely survive the transition to the on demand world of 
OTT TV. The channels that are most threatened are the retread channels like ABC 
Family and FX. If you can access all of this legacy programming on demand, and 
without commercials, why watch an appointment TV channel?

> No question, OTA, we have increased the sources of content available to 
> viewers. (And I assume all the OTA subchannels are also available over MVPDs.)

No. see above

> So the question you should have asked is, are different local stations more 
> successful than others, with their choice of subchannels? I don't know the 
> answer quantitatively, but undoubtedly, qualitatively, the answer is yes. A 
> clever choice of multicasts will bring in more viewership. One example: our 
> local Univision station just recently added an English language Get TV 
> multicast. Do you think that will increase or decrease its market share??

Popular sub channels like CW and MyTV do draw a profitable audience.most sub 
channels do jot unless there is a local target audience they can serve. For 
example there are many Spanish language and Asian sub channels in the Los 
Angeles market.

But increasing market share (or number of viewers) requires one of three things:

1. Growth in the number of homes in the market with all else being equal.

2. Offering content that gets people to watch more TV.

3. Taking market share from other broadcasters.

When we were debating the addition of multicasting to the ATSC standard, many 
broadcasters were adamantly against the idea. In essence they said "Why would 
we want to dilute the market for our primary service. As the number of FOTA 
ONLY homes has not increased significantly with DTV, they may have had a point.

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