[opendtv] Re: Early UHF in DC and Baltimore

From: Craig Birkmaier <brewmastercraig@xxxxxxxxxx>
To: opendtv@xxxxxxxxxxxxx
Date: Tue, 02 Aug 2016 08:25:26 -0400

On Aug 1, 2016, at 10:26 PM, Manfredi, Albert E <albert.e.manfredi@xxxxxxxxxx>
wrote:

Same place the new UHF stations were coming from, plus sources that could
only operate thanks to the enforced subscription fee, because they otherwise
would not have subsisted on actual viewer interest.

The Independent stations were buying content from the same sources as the
network affiliated stations. Either off network shows placed into syndication,
movies from Hollywood, or some new syndicated shows that appeared after the FCC
forced the networks to give local stations the "prime access hour" from 7-8 pm.
The networks affiliates were in the best position to buy the best shows, as
they had the largest audiences thanks to lead ins from their local and network
newscasts. The independents lived off of the "table scraps," running low cost
episodic shows like The Three Stooges.

Cable could have done the same, further diluting the pool of content available,
but chose to develop original content along with some regional interest sports,
like WGN and the Chicago Cubs, and WTBS and the Atlanta Braves.

Sustaining viewer interest in this new content was NOT the problem. Viewers
were hungry for new content, especially special interest content that the
broadcast networks would not offer, as they had to program for the mass
audience.

But it was still very expensive to create original content, as the Hollywood
studios had been feasting off of the inflated prices that only the big 3
networks, and then Fox, could afford. Hollywood controlled the talent and the
tools of production, and used this to limit competition.

This is still true today - just look at the billions that Netflix and Amazon
are spending to create original content with big name talent.

Satellite distribution removed one of the major barriers to creating new
networks. And dramatic reductions in the cost of production equipment during
the '80s made TV studios more affordable...

But none of this was cheap. So they turned to subscriber fees to help build new
networks until they could stand on their own with advertising revenue. Or that
was the plan anyway. During the '80s the total subscriber fees collected by the
MVPDs were not more than a buck or two.

The content congloms saw that consumers were willing to pay not only for the
improved video quality offered by cable, but the subscriber fees as well. They
too were feeling the pressure on program costs as both actors and athletes
started demanding higher and higher compensation - in essence, they saw the
networks and the team owners raking in tens of millions (now billions) and
started striking and refusing to work until they got a share of the action.

So there was strong interest to develop that second revenue stream - they had
been "giving away" content for too long!

But the cable networks, by necessity, had to develop programming with a much
lower cost basis. Before we introduced the Grass Valley Model 100 in 1984, the
typical post production system cost more than a million dollars. Together with
other more affordable production gear, the Model 100 allowed an editor to build
a post production system for about $100,000. People started building edit
systems in a spare room in their Hollywood bungalows. A decade later with
non-linear edting systems the cost was reduced by half again.

Networks like Discovery used independent producers to create shows that cost
$30,000-50,000 per episode instead of $1-2 million. Before long there were lots
of special interest networks, able to operate at much lower cost.

But cable systems kept increasing prices, and the broadcast networks used this
to take over under the guise of re-regulation. The 1992 Cable Act gave them the
keys to the kingdom.

The content congloms used retransmission consent to develop and obtain
preferred placement of their own new networks on the cable systems, which they
filled mostly with library content and a few new shows. And they started
demanding much higher subscriber fees, which drove up the cost of the MVPD
bundles. And they kept doing this for the past two decades, with the result
that "the bundle" now costs about $70/mo and the congloms are taking in
billions in subscriber fees. They have used this money to buy up the best
content, while the quality of programming on the broadcast networks has taken a
nose dive, along with the ratings.

That's what I mean by anti-competitive. The legacy MVPD model is a bit like
taxation. You pay because you have to, not because you necessarily want the
products you're buying.

That is a serious problem. A problem created by the close relationship between
the politicians and regulators and the oligopolies they helped to create and
now protect.

Tying is a classic definition of anti-trust: using a popular product to force
consumers to buy additional products they do not want. But these protected
oligopolies have never been threatened with anti-trust investigations and
prosecutions. And Congress has even gone so far as to pass legislation hat
allows the major sports franchises to operate as monopolies.

So we agree the system is broken. The question is how to fix it.

The unfortunate reality is that consumers are now accustomed to paying monopoly
prices for many services - virtually all utilities. And the politicians are all
too happy to play along, as this is just another form of indirect taxation.

A prime example is the upcoming spectrum auction, in which a portion of the
revenues will be used to "buy out" incumbent spectrum users that never paid for
the spectrum they have been using. This frees up spectrum to sell to the telcos
who can hide the cost (indirect tax) in their service fees.

Ironically, the stations most likely to take the buy out are all the
independent stations that offer the same old library content that the content
owners are selling to Netflix and Amazon. Evolution driven by monopolies...

And now they are un-embracing. It was most definitely training. Consumers had
to pay a fee, just because the system was so labor-intensive. That, plus the
fact that it was the only game in the neighborhood, trained people to keep
paying, just as they do for power and water. Once trained, no problem raising
the fees. Where else would the consumers go?

SOME are un-embracing. Most are not only continuing to pay for an MVPD bundle,
but they are adding more subscriptions for SVOD bundles from Netflix, Amazon,
HBO, Showtime, Starz and others.

What you fail to understand is that the majority of homes in the U.S. WANT to
buy this content. What they do not want is to pay for content they do not
watch. But that's the way the system is rigged.

Now they have other options, I mean aside from just OTA, and we can see that
they are embracing those other options big time.

Yup. This started with the VCR. People want, and are willing to pay for options.

Except it's not true today. Once, for movies, you had to subscribe to cable.

Nope. Most of the most successful independent broadcasters ran movies in prime
time, until the VCR and Blockbuster changed the way we watch movies at home. I
was watching "The Million Dollar Movie" on WOR in New York as a kid.

Yes cable is filled with movies, but they are filled with commercials. So
people rented tapes, then DVDs, or subscribed to HBO. Now they can access
movies on demand from Apple, Amazon, and their MVPD systems, or subscribe to
HBO, Showtime and Starz, which offer movies on demand via the Internet.

Now, you don't. Same goes with sports and everything else. Much as you try to
convince people that your "the bundle" will never unravel, it already has. We
have already seen other ways of getting even your regional sports.

Wrong again. Most of the highest rated programs are now behind the pay walls,
including most sports other than the NFL, which is an essential support system
for the broadcast networks. Consider the current dust up about the scheduling
of two Presidential debates against Sunday and Monday night football.

The bundles have not unraveled. But the sports leagues are skimming the cream
with rabid sports fans who are willing to pay even more to access their
teams/leagues via the Internet.

That's the wrong question. This is business. They "deserve" whatever the
lemmings are willing to give them.

The lemmings are where the money comes from. But the monopoly is allowed by the
politicians and regulators, who feast off of taxes on these services and free
access to the voters to stay in front of their constituents between elections.

What happened with Aereo, Craig? Can't you see the similarity? Aereo took in
subscriber fees. CONSEQUENTLY, the owners of the content, content that
allowed that business model to be at all viable, wanted a piece of the action.

Of course. That's how the system works. We can't have someone else making money
off of our "free" service. The courts were more than happy to shut them down.

Never mind that Aereo was just a CATV system using the Internet. CATV systems
never paid for the broadcast content they delivered to homes where an antenna
would not work. But the precedent of paying for Free TV was set in 1992, so the
courts had little choice but to "follow the law."

End of story. Cable behaved the same way as Aereo. When it came to the
content people wanted most, cable thought they could get it for nothing.
Well, think again. Consumers demanded that content be on their cable, cable
was charging monthly fees, so figure it out.

Bull. The service was already FREE OTA, and markets were protected from distant
signal importation. Broadcasters were more than happy to build links to CATV
systems that extended their coverage and increased their audience. Only a
handful of broadcasters were demanding compensation for their signals.

Things changed when those systems started offering programming that competed
for the broadcast audience. See above.

Yes indeed, except you still point the wrong way. The content owners were
historically capable of offering their product ad-supported. There's no
reason to believe they can't continue to do so, or at least sell by
subscription in a competitive marketplace. The only issue here is the
market-distorting distribution medium, that took away the auto-regulating
mechanism preventing run-away greed from taking hold. That's the issue, not
those producing content.

So naive. The market distorting mechanism at work here is called MONOPOLY Bert.
And it is enabled and enforced by governments at every level.

When market forces cannot operate, the only solution would be government
regulation.

You mean what we've got?

Talk about naive!

And again you point in the wrong direction. The government did not mandate
the laws of physics. Only so many cables could be laid in every neighborhood,
and it's as simple as that. Yes, the FCC could have set MVPD rates, as well
as maximum annual increase. They could have regulated MVPDs exactly the same
as they regulate your power utility. Maybe they should have, but now the
point is moot. The regulated-to-be-neutral Internet has made that MVPD issue
OBE.

The Internet is now becoming another regulated distribution medium. It is about
to be "overtaken" by the same content monopoly that controls the content on the
MVPD systems. In time, VMVPD services may cause traditional MVPD services to be
OBE.

Regards
Craig

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References:
- [opendtv] Re: Early UHF in DC and Baltimore
  - From: Manfredi, Albert E

[opendtv] Re: Early UHF in DC and Baltimore

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