[opendtv] Re: Punching Above Its Weight, Upstart Netflix Pokes at HBO - NYTimes.com

  • From: Craig Birkmaier <craig@xxxxxxxxxxxxx>
  • To: "opendtv@xxxxxxxxxxxxx" <opendtv@xxxxxxxxxxxxx>
  • Date: Fri, 21 Feb 2014 08:41:57 -0500

> On Feb 20, 2014, at 4:23 PM, "Manfredi, Albert E" 
> <albert.e.manfredi@xxxxxxxxxx> wrote:
> Which makes one wonder why the pundits don't seem to get this. E.g, that 
> recent article that made a big deal of TWC maybe offering Netflix.

You mean pundits like you? 

You wrote:

> The owners of content have no reason to insist on JUST getting distribution 
> over legacy MVPD broadcast tiers or JUST over legacy MVPD infrastructure 
> anymore, why should they? As long as broadband access is unblocked by ISPs, 
> the owners of content simply want to maximize their revenues. If the ISPs 
> start playing favorites, e.g. should TWC block Netflix from distribution over 
> its broadband service, I'm willing to bet the FCC would start clamping down 
> big time.

We went over this before. The cable MVPDs have feet firmly in both their walled 
gardens AND as the primary conduit for OTT services, including those that 
require a MVPD subscription to access. The only thing that would change if TW 
offered Netflix is that it would be added to your TW bill rather than your 
credit card.

Obviously the content owners also play in both areas as well. Hulu/Hulu Plus, 
and the broadcast network portals have no financial impact on the MVPDs; you 
pay the subscriber fees whether you watch the program live via the MVPD or 
delayed via the Internet. The "middlemen" that are hurt the most are the FOTA 
broadcasters who are losing eyeballs to the catch up VOD services.

>> and you need a MVPD subscription to use many of the best OTT services.
> No, all you need is a double play (or single play?) package, Internet and 
> telephone, say. I don't consider that to be an MVPD subscription, because you 
> aren't getting their traditional MVPD TV channel offerings.


So you get phone and DSL from your telco. Does this get you access to the OTT 
sites that require a username and password?

The current password system is not very sophisticated. One of the guys I work 
does not subscribe to a MVPD service, he just uses his parents password. 
Perhaps they will block him when he turns 26...


I'm fairly sure that the system is sophisticated enough to know what the owner 
of the username/password subscribes to. For example, you must subscribe to HBO 
to use HBOGo. 

I have no doubt that the MVPDs will tighten up this back door moving forward. 
The ability to access MVPD content on tablets and smartphones is TOO important 
to the future of the MVPDs. It would not surprise me if the industry moves to a 
software based conditional access system, ESPECIALLY if the FCC finally is able 
to force the MVPDs to unbundle their STBs. This is the one area where he FCC 
has leverage in attaching conditions to an approval of the Comcast/TW merger. 
Any software based CA system should be sufficiently robust to protect the 
content sitting both inside and outside the walled gardens.

> Fair enough, if these prices for bandwidth are set the same for everyone.

Clearly this is not the case. Peering arrangements started as a matter of 
convenience, to make it easy to move e-mail, text messages and other smaller 
data transactions between the major ISPs. But moving Netflix traffic is a huge 
burden - as much as 30% of all prime time bits in the U.S.

So Netflix must either deal with the peering companies, cut deals with CDNs 
that bypass the WANs, or deploy their own edge servers. Every option is going 
to increase expenses for Netflix or any other large OTT service.

> The problem happens only if the MVPD/ISP arbitrarily block OTT services that 
> they think are competing against their own MVPD broadcast tier offerings. The 
> FCC could step in there, classifying Internet access as a telco service and 
> force neutrality that way. So the MVPD/ISPs would be plaing that game at 
> their own peril.

Blocking is a no no! Making the OTT services pay for the best Quality of 
Service is still an open debate. Comcast won the last round in the Appeals 
Court. It is unclear what THIS FCC will do moving forward, but the most likely 
outcome is that the OTT services are not going to get a free ride.

> The same? No, more. For people who mostly watch CBS content, for example, 
> Viacom could come out ahead if OTT sites offer bundles that emphasize their 
> content. They increase the percentage of views of their content, and reduce 
> the views of other networks. Of course, the other networks will retaliate 
> with their own bundles. The end result will be more finely tuned bundles and 
> more of a win for the better networks.

If there is no economic benefit, why change? The current system limits the 
ability of new entrants to get channels in the MVPD bundles, and delivers 
subscriber fee revenues for the retread channels run by the congloms. The 
current system maximizes revenues for the content congloms, while maintaining 
barriers to real competition. 

> You mean, the huge but dwindling audience?

No, the huge, mature, highly profitable audience that is slowly declining. Thee 
MVPDs have about 100 million subscribers. They are losing about 100,000 a year. 
The cord cutting rate may accelerate, or not. But they can make plenty of money 
riding this business model down, just as FOTA broadcasters have been doing for 
the past three decades.

> All you need for this to happen is for the CE vendors to quit colluding with 
> MVPDs and content owners, and finally sell some intelligently designed 
> connected TV appliances.


It's the content stupid!

Even you agree that the content owners are in control. 

CE companies are making billions selling intelligently designed mobile devices, 
for which the Internet (and"cloud") are a critical component of their 
ecosystems. The content congloms and MVPDs are providing access to their most 
valuable content for these new screens, even as they protect the walled 
gardens.mIf companies like Apple, Amazon, Intel and Google can't tear down the 
walls, what make you think that the older clueless CE companies can? Panasonic 
and  Sony tried to buy their way into the content conglom business; you can see 
where it got them.

> That's it. No need for any begging hat in hand, no need for under the table 
> "agreements," no need for any funny business. Nor would there be any risk of 
> any law suits.
Talk about clueless...

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