[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 22:02:48 -0500

> On Feb 11, 2014, at 8:20 PM, "Manfredi, Albert E" 
> <albert.e.manfredi@xxxxxxxxxx> wrote:
> More competition CAN'T result in greater aggregate viewership, once TV market 
> penetration is as close to 100 percent as it can be. The point is not to 
> increase the aggregate viewership. The goal now is to attract more eyeballs 
> to your particular TV station's multiplex, **robbing those eyeballs from 
> someone else's multiplex**. That's why it's called competition.

Nothing new here Bert. The only real competition in the broadcast TV business 
has ALWAYS been getting more viewers than the competition. That's why ad rates 
are driven by RATINGS. 

But the second tier content that fills up the multiplexes does little to draw 
eyeballs from the more popular first tier networks. And we are talking about a 
small segment (<20%) of the total audience. The impact is small at best, but 
still an opportunity to serve niche audiences in cities with large immigrant 
populations as I outlined earlier.

> Well, yeah! Greater competition results in thinner profits. TV content owners 
> can't simply gouge more, as you keep suggesting. Economics 101 tells you that 
> with more competition, they won't be able to, Craig. The younger generation 
> are proving more capable that older folk to resist the ever-increasing 
> gouging.

Not all competitors profit equally. Just look at Smartphones, where Apple and 
Samsung earn 109% of industry profits. The profits for everyone else are not 
thin, they are losing money on every phone they sell. This is not sustainable.

Profits in the Broadcast TV business have been the opposite of "thin" for 
channels affiliated with the major commercial networks. For independents and 
LPTV stations "thin profits" are the norm.

Thanks to bundling, and the fact that five companies control 90% of the content 
inside the pay walls, gouging is the norm. And it grows at rate higher than 
inflation every year.

The younger folks have a good excuse to reject the bundle gouging - they need 

> Only because they are subsidized by more desirable content in their tier and 
> because the congloms (or sometimes the FCC, for the really boring stuff) 
> twist the arms of the MVPDs to carry this content.

They are subsidized by subscriber fees, not other channels. The FCC has no 
control over the channels in the bundles. The only control they have is to 
require carriage of broadcast channels that can exercise their must carry or 
retransmission consent options.

> If your a la carte ideas came to fruition, most of those niche programs would 
> vanish, Craig.

Perhaps. I have suggested for years that the less desirable channels would drop 
subscriber fees to remain accessible to all MVPD subscribers if ala carte were 
to happen. As these channels run little if any live programming, they might 
make a successful transition to OTT distribution, if they can attract a niche 

> On the other hand, if they are truly "desirable enough" on the national 
> scale, then their ad revenues would reflect that fact. This niche programming 
> is probably similar to the OTA subchannel programming, which is also on a 
> national scale. I don't know this for sure, but my bet is that the ads from 
> the main -1 subchannel often do help subsidize some of the subchannels, at 
> least until the station lands on a good combination of subchannels.

As I pointed out before, the most successful sub-channels were established 
second tier networks like CW and MyTV. Most of the rest have little if any 
ratings, at the local level or at a national level. None of theses sub channels 
have must carry rights.

I also noted that sub channels add little additional cost for a broadcaster, so 
they do not need a significant audience to generate a profit. I suspect that 
stations bundle adds on the sub channels to sell ad packages on the primary 
channel. The advertiser may get more frequency at little additional cost.

> Come now. They flourish because of the value proposition. Low monthly fee for 
> lots of choice, and always on demand. The more people get used to VOD TV, the 
> more they will realize that by appointment TV is a nuisance. I'll bet you 
> that a strong deterrent to time shifting was the slavish dependency people 
> had to their cable STB, coupled with cluelessness about how to make their old 
> VCR work with the cable box. I agree with you that a big threat to the MVPD 
> business is that they depend heavily on the 1950s appointment TV model, and 
> I'm saying that the Internet is helping to change that. MVPDs have not *yet* 
> been able to emasculate your PC, as they did your VCR.

Thank you for agreeing with my analysis!

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