[opendtv] Re: Electric power as a natural monopoly
- From: Craig Birkmaier <craig@xxxxxxxxxxxxx>
- To: "opendtv@xxxxxxxxxxxxx" <opendtv@xxxxxxxxxxxxx>
- Date: Tue, 11 Feb 2014 21:17:18 -0500
> On Feb 11, 2014, at 7:33 PM, "Manfredi, Albert E"
> <albert.e.manfredi@xxxxxxxxxx> wrote:
>
> We see this very differently. I see (even) ESPN debating when to make this
> move, and you see it as a fixed answer that will stand for all time. It's
> kind of obvious to me that if ESPN notices the younger generation resisting
> MVPD dependency, more so than the older folks did, then ESPN will continue to
> re-evaluate when to make the upgrade. Trendlines, Craig.
Apparently you did not read my analysis of the trend lines for appointment TV
in the digital trends thread this morning.
Clearly The content congloms are looking at opportunities to move their content
to the Internet, and entertaining overtures from companies with deep pockets,
who may be willing to spend enough to fundamentally change the content
distribution business.
Last April, when the article you posted about ESPN was written, Intel was
making noise about an OTT service to compete with the MVPDs. It should be
obvious that ESPN is one of the most important sources of exclusive content for
the MVPDs; it should be equally obvious that convincing ESPN to offer its
content in a new OTT service would be a priority for Intel. Why NOT talk?
ESPN networks was launched in 2010 - it allowed Time Warner Cable subscribers
to access the ESPN Channels via the ESPN networks website. In 2011 Watch ESPN
was introduced as apps for Android and iOS. Several months after the article
you posted was written, Apple and Roku announced that they were adding Watch
ESPN to their "Internet TV" devices. Several weeks ago Intel sold their
Internet TV assets to Verizon.
What, if anything can we conclude from this.
For one thing, we can conclude that Intel made an offer to ESPN that they COULD
refuse.
For another, it seems ESPN is content to deliver its channels over the Internet
to the 85% of U.S. Home that are already paying them more than $5/month.
Whatever they may have been offered to bypass the MVPDs, it was not enough to
risk killing the bundling cash cow.
Let's look at this from a pure financial perspective.
According to this article ESPN will pull in $7.31 billion from cable
subscribers in 2014.
http://www.businessinsider.com/chart-60-of-espns-11-billion-in-revenue-comes-from-cable-subscribers-2013-7
I assume that they use the term "cable" to include all MVPDs. This is almost
double the revenues ESPN generates from advertising. According to the NewYork
Times, only ~25% of cable subscribers actually watch ESPN.
http://www.nytimes.com/2013/08/27/sports/ncaafootball/to-defend-its-empire-espn-stays-on-offensive.html?pagewanted=all&_r=0
By the way Bert, this article is well worth a read.
The current subscriber fee for ESPN is about $5.50/month or $66/year. Some
simple math tells us that without the bundles that cause 75% of cable
subscribers to pay for a channel they don't watch, ESPN would need to charge
the 25% who do watch about $260/year to Watch ESPN, to equal current subscriber
fee revenues.
This is not an appealing option for ESPN, which has long term rights contracts
based on this level of revenues. Apple or Intel could better spend their
billions buying up rights to sports, rather than trying to convince ESPN to
risk killing the bundling cash cow.
As I stated in the digital trend thread this morning, appointment TV is less
convenient than VOD. This is the REAL long term threat to the walled gardens.
But live sports, and a handful of other live programs help keep the bundles
alive. It may take an "Act of Congress" to kill the sacred bundling cow.
Regards
Craig
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