[opendtv] Re: How the dollars flow
- From: Craig Birkmaier <brewmastercraig@xxxxxxxxxx>
- To: opendtv@xxxxxxxxxxxxx
- Date: Thu, 24 Sep 2015 08:32:50 -0400
On Sep 23, 2015, at 9:34 PM, Manfredi, Albert E
<albert.e.manfredi@xxxxxxxxxx> wrote:
Craig Birkmaier wrote:
How do you collect retrans consent fees for a "free" service delivered
over the Iinternet?
Who is going to collect these fees? The ISP?
Craig, in MVPD nets, let's say the CBS9 local broadcaster collects the
monthly subscription fee for each subscriber on the basic tier, from the
MVPDs. Correct? Why can't CBS collect that money instead? Similarly online,
if you have a pay-OTT site such as Netflix, CBS gets paid directly, right?
The money goes direct from Netflix to CBS.
You are running in circles. You started saying that the networks could replace
local affiliates with a service delivered FOTI = FREE OVER THE INTERNET.
If CBS charges for the service, as they do for All Access it is not FREE.
You do raise an interesting point about how the congloms are compensated when
they license content to sites like Netflix or Hulu. An article I posted
yesterday provided a glimpse behind the curtain at Hulu, which is partially
owned by Fox.
The Netflix model is simple - they license content from let's say Fox for a one
time fee (it could be a lump sum up front or payments over time). There are no
commercials, and At least until recently Netflix did not provide stats about
who, or how many subscribers watch this content.
Apparently the Hulu model is more like the MVPS business model.
For the free service the content owner sells the commercials; one revenue
stream much like the early days of broadcasting.
For the paid service with commercials the content owner sells the ads and gets
a subscriber fee from every subscriber to the service. This is identical to the
"welfare payment" business model used by the MVPDs.
For the commercial free version the content owners share the subscriber fee
revenues.
On the first point, sure. As long as an OTA audience exists, you need that
broadcaster.
Yup. It is the only truly free service available - other than the cost of the
electricity to run the TV.
On your second point, this second revenue stream you keep bringing up, that's
**so irrelevant to the conglom**!!
It is far from irrelevant Bert. It is billions of dollars and growing. And
that's just for the broadcast network. The get tens of billions for the content
they deliver through the MVPDs.
As long as FOTA soldiers on, a more logical solution is for the conglom to
pay the broadcasters for their service, end of story. (And the broadcaster
would also make money from ads aired with their locally-produced content.) If
OTA broadcast stops entirely, then the conglom simply sends that money over
to the beefed-up CDNs they would need.
In the early days of broadcasting the congloms DID pay the affiliates. It was
an expensive proposition to run a TV station in the early years, especially in
smaller markets where the audience size limited how much a station could charge
for ads.
As the cost to operate a TV station declined things changed. In 1970, a
quadruplex videotape machine cost $250,000. By the time U-matic hit the scene
the price was under $10,000.
Now you can buy a 4K DSLR that shoots and records HD for a thousand dollars.
As costs came down, ad rates went up. Most compensation to the stations came in
the form of ad avails in network programming. Only a small number of stations
in smaller markets received checks from the networks.
By the '80s broadcasting was a VERY lucrative business. The number of stations
nearly tripled, and it was not uncommon for stations in large markets to have
profit margins of 25 - 40%. I used to joke about the transmitters being "oil
wells" allowing stations to print money.
The networks realized they were leaving money on the table before they
convinced Congress to re-regulate cable and charge for the signals they were
giving away via antennas. They started reducing the number of ad avails in
popular programs, especially sports, and for some stations they started
charging reverse compensation - in essence the networks shared in the local ad
revenues.
When retrans consent happened all of the networks but CBS forced their
affiliates to support the "greenmail" that allowed the congloms to take control
of the content on the MVPD systems. No money changed hands, but new cable
networks were formed and given preferred placement in the channel lineups. CBS
and its affiliates took the money, which turned out to be the wrong strategy,
ultimately resulting in CBS being acquired by Viacom.
After the congloms got control of 90% of the content delivered by the MVPDs
they went for the cash and we started seeing the blackout strategy to drive up
subscriber fees.
So the idea that the networks should pay the affiliates is completely out of
sync with reality. And if the congloms moved to the Internet, using CDNs, they
would lose the FOTA audience AND the retrans consent money. That's not going to
happen any time soon.
CBS and the rest are available FOTI too, Craig.
Some programs but not all. And it requires a decent broadband service that
costs as much as basic cable. There is a reason that a portion of the
population does not have broadband - its economic. The politicians still want
to reach these people, and FOTA TV is how they do it.
You don't need CBS All Access, unless you want the library content. Someone
who uses FOTA TV can readily switch to FOTI already, except for live streams.
Not if they do not have broadband. And they cannot access some of the most
viewed and valuable content delivered by the broadcasters, like the NFL.
And since the congloms are well aware of this growing online audience, they
can in principle replace the FOTA service with FOTI, including making live
streams available. It's only their decision to make. (I acknowledge that more
infrastructure is needed, compared with OTA service, with consequences for
reliability of service.)
You continue to ignore the economic and political realities.
Exactly! That's called competition. The TV networks offer more viewing
convenience than they used to have, and they get some of the audience back.
That's the whole deal.
I guess we can agree on this. But we cannot agree that it makes sense to kill
the FOTA service and move to FOTI for the live streams. The congloms would Lise
too much revenue and audience. The combination of live, VOD and SVOD is working
- the congloms are making MORE money.
Stupid. You can only access TVE sites via authentication hat
you are paying for the live linear service.
So in effect, that live TVE stream is only available because the MVPD pays
retrans consent. This is what I've had to laboriously get across. Internet TV
**does not** involve any retrans consent payments, **except for** TVE.
Amazing how this "second revenue stream" is a complete non-issue, eh?
No. Thee are no TVE apps for the broadcast networks/affiliates that get retrans
dollars. Most of the money in subscriber fees comes from networks that are only
available from the MVPDs like, ESPN , Disney, TNT, A&E, and the rest that are
driving the cable ratings I posted recently. And these are the networks that
are driving TVE. This is allowing the MVPDs to become a hybrid service:
Live via their umbilical to the home.
Live anywhere you have Internet access.
VOD to access content libraries.
As usual, Craig, time and time (and time) again, I read the articles and you
don't. So you predictably get caught flat-footed. Or haven't you noticed? To
wit:
http://variety.com/2015/digital/news/verizon-go90-free-mobile-video-bandwidth-charges-1201587755/
"Verizon has no plans to introduce a subscription-based version of Go90, a
company rep said. The service is debuting as a mobile app, and eventually may
be extended to other platforms like connected-TV devices, according to the
company."
Two quotes from the same article that are 180 degrees out of phase.
Perhaps they are talking about connected TV devices that can access their
wireless data service like the iPads they sell with LTE chips?
By the way, it is easy to get content on my phone onto the big screen. The
point is they want people to use their wireless, metered data service.
The simple fact is, free ad-supported is the norm for Internet content. This
is something that TV has done forever too. So it should not be surprising
that TV execs interested in growing and keeping an audience, an audience that
is increasingly goin online, are going to have to accommodate this modus
operandi.
Sorry, but free ad supported is not the norm for the Internet. There is a
reason that HBO and Showtime are going DOTI (Direct Over The Internet). There
is a reason that Netflix is in more than 40 million U.S. homes, and Amazon is
pushing Prime. There is a reason Apple sells hundreds of thousands of
downloaded movies and TV shows every day.
And there is a reason that the cat videos on You Tube are ad supported.
People are paying for quality content without ads...
Regards
Craig
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