[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 

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.


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. 


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.


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