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

  • From: Craig Birkmaier <craig@xxxxxxxxxxxxx>
  • To: "opendtv@xxxxxxxxxxxxx" <opendtv@xxxxxxxxxxxxx>
  • Date: Tue, 25 Feb 2014 08:54:01 -0500

On Feb 24, 2014, at 6:33 PM, "Manfredi, Albert E" 
<albert.e.manfredi@xxxxxxxxxx> wrote:
> Craig Birkmaier wrote:
>> Again, we agree in principle. But you disagree that they will use this
>> power to protect the walled garden business model. You seem to think they
>> will just let you access EVERYTHING from them via the Internet...
> True, we do disagree that the congloms have any vested interest in retaining 
> legacy solutions. For the 100th time at least, using the Internet DOES NOT 
> MEAN that all of their content has to be ad-supported and "free," Craig. I 
> don't understand why you can't get past that misconception. Hulu Plus is not 
> free. Amazon Prime is not free. Netflix is not free. Any new portals devised 
> now can be either free or by subscription.

Don't change the subject. We all know that the Internet can support different 
business models, not ad supported and subscription.

What we are talking about here is the content INSIDE the MVPD walled gardens; 
and the content bundles. We are talking about the use of authentication - based 
on your subscription to a MVPD service - to access some OTT portals.

In some cases you can access content that has already run on a live MVPD 
channel via OTT portals that do not require a MVPD subscription. In many cases 
you cannot. 

The core of this arg...discussion is that you believe the content owners will 
cut out the MVPD middlemen, and possibly broadcasters, and sell directly to 
consumers via the Internet. My position is that the content owners will 
continue to use the MVPD bundling model for as long as they can because it 
allows them to generate a lucrative second revenue stream, and limits 
competition (on the live side of the MVPD systems). 

They know that the current system forces the vast majority of U.S. homes to pay 
for every channel in the bundle. They DO NOT know what will happen if we can 
buy individual channel brands or programs ala carte; and they do not know what 
they would need to charge for their channel brands in an ala carte world. Would 
they need to raise prices substantially if half or two thirds of MVPD 
subscribers chose NOT to buy their channels.

> The congloms use whatever middlemen and techniques make sense now, and not 
> the middlemen and techniques that made sense with 1970s technology. The 
> congloms have no reason for that level of nostalgia. All they want is to 
> maximize their OWN revenues (and profits), not the revenues and profits of 
> legacy distribution schemes.

1970's technology was called broadcasting. And there were a handful of CATV 
systems bringing broadcast channels to homes that were terrain blocked from the 

It was not until 1992 that the congloms "bought" the right to take over the 
MVPD bundles. I say bought, because they helped finance the campaigns of the 
politicians who agreed to reign in the cable industry because of skyrocketing 
prices. But the 1992 cable re-regulation  act is a classic example of the "Law 
of Unintended Consequences." I would argue that the congloms and politicians 
knew exactly what would happen, but it was sold to the public as an effort to 
reign in an industry that was behaving badly, both in terms of higher than 
inflation price increases, and terrible customer service. 

The reality has been as follows:

1. The congloms used retransmission consent to develop a large number of new 
channels, and acquisition to buy many of the existing cable networks. As a 
result, five companies now own 90% of the content in the MVPD bundles.

2. Prices have continued to increase at 2-3 times the rate of inflation. From 
1992 until ~2005, the rate increases were primarily justified by the increasing 
number of channels. Since 2005 the big push has been to increase subscriber 
fees, and collect them for FOTA broadcast channels, with no corresponding 
improvement in service.

3. Customer service still sucks, with cable and the telcos near the top of 
everyone's list of most despised businesses. And the MVPDs are still making a 
bundle off of the STBs that were supposed to be unbundled as a result of the 
1995 DTV legislation.

In short - and we all know you disagree - the content congloms LOVE the 
middlemen who are helping them make so much more money in the U.S. than they do 
in other parts of the world. You have provided no evidence that they can make 
more money by cutting out the MVPDs.

> If we're talking about their own portals, especially fox.com and abc.com, 
> then they are either lying through their teeth, disingenuous, or uninformed.

Neither Fox or ABC were on the panel. 
> In recent times, a couple of years for Fox and months for ABC, they have gone 
> to an 8-day delayed model, on their own portals. The only logical conclusion 
> I can come to is, Fox and ABC don't think these portals should be used for 
> catch-up. You can hardly catch up to a broadcast schedule, if the portal 
> delays you by 8 days. Do the math.

Eight days does present a problem as you can never catch up unless they skip a 
week with the live broadcasts, which does happen frequently. There were hardly 
any new shows during the Olympics, just reruns. ABC and Fox may also have 
chosen this delay to encourage people to catch-up via other portals that pay 
for earlier rights like Hulu Plus and iTunes.
> And like I said, CBS seems to have acknowledged that the broadcast schedule 
> is not relevant to the IP portal for their content. 

But CBS clearly stated on the panel that they prefer for people to watch the 
live broadcasts. You may rightly say that this is yet another example of having 
one foot in the past while the big toe on the other is testing the waters of 
the future.

What is most evident here is that the middlemen most threatened by all of this 
are the network affiliated FOTA broadcasters. The content congloms only need 
these middlemen to reach the bottom feeders and cable never's like you Bert. 
And now, you even admit to preferring the convenience of on demand via their 
OTT portals to programming your DVR or making an appointment to watch live.

>> They also believe that authentication Is fundamental to the new TV everywhere
>> business model they are advancing; pay once, view everywhere...
> That's a no-brainer, right? You can do that today on any number of Internet 
> portals.

More like just a BIG NO for you. Do you subscribe to ANY OTT service?

When I say authentication I am primarily referring to the ability to watch 
channels that are part of the MVPD bundle via mobile devices. But yes, 
authentication is used for all pay services.

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