[opendtv] Re: Electric power as a natural monopoly

  • From: Craig Birkmaier <craig@xxxxxxxxxxxxx>
  • To: "opendtv@xxxxxxxxxxxxx" <opendtv@xxxxxxxxxxxxx>
  • Date: Sun, 16 Feb 2014 09:07:45 -0500

On Feb 15, 2014, at 8:06 PM, "Manfredi, Albert E" 
<albert.e.manfredi@xxxxxxxxxx> wrote:

> No one likes to be driven out of business, Craig. I'm sure the town 
> blacksmith found it hard to stomach too, when cars started showing up.

Terrible analogy Bert. People did not go to the blacksmith to test drive a car, 
then order the car by mail at a deep discount. 

Blacksmiths had a significant portion of their business eliminated by a 
fundamental advancement in transportation technology. They did not disappear; 
they bought trucks and started to drive to the customer to shoe their 
horses...still do, and they ain't cheap. And it is likely that a few realized 
that cars and trucks have "feet" that need maintenance too. The smart ones had 
the opportunity to get into the tire business.

> I buy lots of stuff online specifically because it ISN'T available in stores. 
> Take for example, an OTA TV PVR. Go find one at Best Buy. Instead, the guy in 
> the blue shirt will try to get you stuck on an MVPD.

Me too! 

Before the Internet I bought specialty stuff from mail order catalogs. 

Amazon hands off most of the specialty stuff to affiliated stores; if the 
volume is high enough, and they know because they process every transaction, 
they start buying and selling the item themselves. In other words Bert, they 
cut out the "middleman," as the article I cited described. Ruthless, but it 
appears you support this kind of behavior.

> The important take-away being, just like trolleys would have disappeared 
> anyway, the new equilibrium in retail is bound to include a lot of online 
> retail. Simply because of its convenience and MUCH greater selection. Get 
> used to it. And, compete online!

Yes Bert. Just about every retailer now competes online, even those with brick 
and mortar stores. This allows them to sell the specialty products without the 
expense of local stocking; they can ship to your house or business, or you can 
save the shipping and pick up your purchase at the store. Sears has been doing 
much the same with catalogs for more than a century.

But Amazon creates a new dilemma. How do you compete with a company that 
operates without generating profits?

You can match price and likely lose money because you are not as efficient, or 
you can go out of business.

And there is still the issue of showrooming. Amazon leverages the overhead of 
every local store that actually stocks products you can touch and feel. Every 
online retailer may enjoy this benefit to some extent, but Amazon has turned 
this into a fundamental part of their business model.

> I don't even know what you're saying here.

Obviously. That's why you don't get it.
> Making good movies and TV that people actually seek out is expensive. You can 
> see any number of small time stuff on the Internet, e.g. YouTube, and you can 
> see lots and lots of free OR paid movies, on the Internet. Not put a dent on 
> what? Netflix grows, HBO shrinks, cineplex audience is so-so at best most of 
> the time, and you don't think this is significant?

A dent in the Universe?

No Bert, a dent in the business model where a handful of companies operate as 
oligopolies and extract monopoly rents from the content. The content owners 
leverage their oligopoly to control who gets the opportunity to play in the 
walled gardens, although the Internet is allowing companies like Netflix to 
create original content to sell through their service.

The content congloms own 90% of the content offered in the walled gardens. They 
are dominating what is left of the appointment TV business, and using the most 
desirable "appointment programming" to keep subscribers interested in the 
bundles. Netflix is just another middleman that they can sell their retreads to 
to make even more money.

Yes there is some concern in Mudville. The MVPDs are starting to lose customers 
for the first time in history. But losing 100,000 customers out of 100 million 
is not the end of the world. Unlike Amazon, the MVPDs are extremely profitable, 
and they still get to make a huge profit from broadband, even if the customer 
drops the TV bundle.

In short they are weathering the storm, and using the Internet to offer 
customers new services that cost them almost nothing, to keep their value 
proposition viable; you can now access their walled garden content on your new 
mobile screens. And they are the gatekeeper for all of the OTT services you 
like, as you are paying them $30/mo for your overpriced bits.

> You still don't get it, Craig. The "destruction" is to 
> unnecessary/obsolescent middlemen. Not to the content creators.

Not in the TV business. There are more middlemen buying the same content, not 
less. They congloms are more profitable than ever. There is no Amazon eating 
their lunch; Amazon is one of the new middlemen sending them money.

> I don't know how many times I've said this. The congloms create and own the 
> content. As long as they continue creating the content that people all over 
> the world want to see, they can't lose. You lose yourself railing against 
> "oligopolies" and get distracted from the thread!

They can't lose Bert because they are a protected oligopoly. Yes the ability to 
bypass their domination has been enhanced by the Internet, but they can weather 
this storm and remain extremely profitable for decades to come, as long as the 
politicians and regulators prop them up.

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