[opendtv] Re: Sony To Take Viacom Over-The-Top | Multichannel

  • From: Craig Birkmaier <craig@xxxxxxxxxxxxx>
  • To: "opendtv@xxxxxxxxxxxxx" <opendtv@xxxxxxxxxxxxx>
  • Date: Thu, 18 Sep 2014 08:19:34 -0400

On Sep 17, 2014, at 7:39 PM, "Manfredi, Albert E" 
<albert.e.manfredi@xxxxxxxxxx> wrote:
> Craig Birkmaier wrote:
>> They (the content and MVPD oligopolies) have been milking this business
>> model for thirty years, through multiple technology transitions.
> And the "technology transitions" have now reached a step which permits a 
> different way of operating entirely. This is relatively new, with the advent 
> of two-way packet switched IP networks and streaming protocols. So, holding 
> on to technological restrictions of the past makes no sense, and of course, 
> consumers are responding with their wallets, accordingly.

Finally, we may have a breakthrough!

The congloms are not holding onto "technology restrictions of the past. They 
are holding onto a lucrative business model and using the technology transition 
of which you speak to enhance that model. Nothing new here; as I pointed out 
they have weathered multiple technology transitions and have grown more 
powerful as each new technology enables new capabilities.

At times new technologies may appear to be a threat to this business model. For 
example, satellite back haul made it feasible to create new networks, and cable 
made it possible to deliver these new networks to consumers. This appeared to 
be disruptive for a period of time, until the congloms used their political 
muscle to enable them to embrace and extend the existing TV business model to 
develop the subscription revenue stream they are now extending to the Internet.

The content congloms have always profited from the value of their vast 
libraries of content. This technology transition is allowing them to exploit 
these libraries in new ways, creating new customers for their content, and even 
allowing them to go direct to the consumer in some cases. 

While going direct and cutting out old middlemen may appear attractive, it 
would require them to develop new infrastructure, and threatens the cash cow 
created by tying their most valuable new content to a bundle of less valuable 
library content.

The result is an increase in the number of middlemen they can sell to, offering 
access to their content libraries. In essence, the technical limitations of the 
past are being removed, making it possible to expand their markets, while 
maintains control of their lucrative oligopolies.
>> So the issue becomes quite simple. Can the congloms continue to
>> protect "the bundle," as they transition their content networks
>> to a VOD consumption model.
> "The bundle," as you call it, was basically TECHNICALLY mandatory, in the 
> days of analog one-way broadcast cable systems. Now it's not. The congloms 
> know this, Craig, and are advancing new models.

The bundle was not possible at all in the days of broadcast TV. The only way to 
generate revenue was through advertising. This was fairly lucrative when 
consumers had only five channels to watch, and NO access to the content 
libraries. Cable and the VCR changed that. 

The analog one-way broadcast cable systems created valuable infrastructure at 
the local market level. They created "bandwidth" not available via the 
broadcast spectrum. They created a critical new customer service and billing 
infrastructure. And they created the second subscriber fee revenue stream, 
which was used in the early days to provide financial viability to new 

The content congloms saw the value in this business model; they embraced and 
assimilated it. The reality is that the bundle grew out of this assimilation. 
We saw an explosion of new networks in the '90s, many of which were nothing 
more than a way for the content owners to exploit their content libraries. 
Working together, the content and distribution congloms have used the bundling 
business model to control the TV landscape and increase revenues at a rate that 
would not have been possible with advertising revenues alone. 

There is no going back on this. We may see new middlemen selling content 
packages, like Netflix, but even they understand the critical role of tying 
library content to new "must see" content. In short, most Americans pay for 
their entertainment fixes, and will continue to do so. In fact most of us are 
paying more, to access multiple content silos.
>> [Adding value to MVPD bundle, by adding a streaming option.] To me
>> it is real Bert. I use these authenticated services frequently,
>> especially Watch ESPN.
> So, you're satisfied with half measures.



Resigned to the reality that I must pay for the content I want, and a bunch of 
stuff I don't want?


That is reality, and the Internet is only going to extend our choices of HOW we 
pay. Yet this is not all bad. 

The Internet is enabling " a What We Want is What We See." We can now access 
vast amounts of content on demand, and it is allowing new middlemen to get into 
the business of creating original content to enhance the value of their bundles.

The Internet is eliminating the walls around the "TV Garden." In this I'm NOT 
talking about the Walled Gardens Bert despises, I'm talking about the venues 
where it is posdibe to consume entertainment content.

Long ago we had to leave the home for entertainment; we went to live 
entertainment venues and then movie theaters. Radio and the phonograph brought 
entertainment into our homes. Broadcast TV brought video into our homes. The 
VCR brought the movie theater into our homes. 

Now the Internet is tearing down the walls around the family room. We can watch 
TV anywhere in the home on screens without wires. We can watch TV at work on 
desktop and mobile screens. We can watch TV almost anywhere, on our phones, our 
tablets, even on wearable devices. AND the ability to originate content, 
especially newsworthy events, is creating new opportunities.

When we were working on the HDTV broadcast standard, the manufacturers 
envisioned a new equipment gold mine. HD would require expensive new 
acquisition gear and million dollar edit suites. Moving those high quality 
images around would require massive bandwidth. There would be huge barriers to 


We now see reporters (often from newspapers), covering press conferences with 
an iPhone, and sending the HD video back to the "newsroom" over the cellular 
data networks.


Only with respect to the fact that I fairly accurately predicted this future. 

I am not surprised that one of the most powerful, profitable, and influential 
industries in the world has managed to co-opt this future.

That's what they do.

> Here's what this "added value" amounts to. Go back to the early 1900s, when 
> cars started being introduced. With your idea of "added value," the guy 
> running the stables where you keep your horse would say, I'll continue to 
> charge you for the stable hands and other services we provide you, to tend to 
> your horse. But as "added value," we'll set aside a small corner of the barn 
> where you can park your car.
> Wow. What a deal! Especially for the guy who decides maybe he doesn't need 
> that horse anymore!

Where were the stable conglomerates in 1900? They were small local businesses. 
The carriage and wagon companies may have been regional or national, and from 
these the automobile and trucks evolved. 

The added value was the transition from "horse power" to "horsepower."

Unfortunately, your analogy does not fit the current situation. We transitioned 
from dirt roads and wagon trains to Interstates and station wagons. Likewise, 
we have transitioned from the town crier delivering the news in the public 
square to the Internet, creating along the way the oligopolies that control the 

>> There is no ala carte "leakage." There is a shift in premium
>> streaming services like HBO to OTT VOD services.  But HBO is
>> not part of the bundle.
> Keep telling yourself that, Craig. The realities are, (a) that people are 
> showing more flexibility than you give them credit for, wrt what content 
> they'll watch. And (b) HBO is considering and testing/offering, as we speak, 
> direct to consumer OTT service. In Scandinavia. And please don't pretend you 
> forgot about that too.

Pay attention Bert.

HBO IS NOT part of the bundle. 

It began life as a premium streaming movie service delivered over the same 
wires as "the bundle." Technology now allows for movies on demand via the 
Internet - no appointment required. HBO must adapt or die; they are adapting. 
They must offer their content on demand via the Internet to survive, lest 
Netflix, et al consume them. This will happen soon everywhere, not just in 
Scandinavia. HBO Go is a first step, leveraging their existing premium MVPD 

When this happens it will have no impact on "the bundle." And the MVPDs will 
still make money because you will need their broadband service.

>>> You must have missed the part where ESPN is losing viewership.
>> Where did you come up with that one.
> http://www.nytimes.com/2013/08/27/sports/ncaafootball/to-defend-its-empire-espn-stays-on-offensive.html?pagewanted=all&_r=1&;
> "ESPN's viewership numbers plunged earlier this year [2013], and that was 
> before the debut this month of Fox Sports 1, a 24-hour network funded 
> lavishly by Rupert Murdoch's 21st Century Fox. Fox Sports 1 is likely to 
> shape up as ESPN's most formidable head-to-head rival.
> "All of this, particularly consumers' move away from pay TV, is reverberating 
> in Bristol. 'This is the most complicated environment we've faced in a long 
> time,' said John Skipper, the president of ESPN."
> "Consumers are fleeing pay TV at a quickening pace: 898,000 in the past year, 
> nearly twice the number in the previous year, the analyst Craig Moffett said. 
> And in the past two years, ESPN has lost more than one million subscribers.
> "What's more, ESPN ratings plunged 32 percent in the quarter that ended in 
> June."

So you are basing this on real competition - from new sports networks - and the 
loss of MVPD subscribers, many of which did not watch ESPN in the first place.

But the pace of cord cutting IS not accelerating. 

TV ratings change dynamically based on the content available. ESPN does most of 
its business in the fall because of their rights deals with college and 
professional football. By the way, ratings are up.

There is one reality about which I think we can agree Bert. Competition is 
fierce. New options abound as it becomes possible to consume content anywhere, 
any time, and new content silos proliferate. This has certainly played a role 
in the decreased ratings at a ESPN. 

The cord cutters probably have little impact on ESPN ratings; many did not 
watch in the first place, and those who did are a small percentage of the 
entire audience horse any given program. BUT the impact is amplified by "the 
bundle." Every cord cutter was paying ESPN more than $5/mo whether they watched 
or not. So that's more than $4 million a month in subscriber fee revenues gone 
from the bottom line.

> 'This is the most complicated environment we've faced in a long time,' said 
> John Skipper, the president of ESPN."

Yup. Such is the case when you have become the 800 pound gorilla, pulling huge 
amounts of revenue from people who do not watch your service. 

The real question that Skipper is facing is: how much will the people who DO 
watch ESPN pay for the service if it is no longer part of a required bundle? 

Fortunately that question is just speculative. The bundle is safe, and 
extremely profitable for now. 

You can UNSUBSCRIBE from the OpenDTV list in two ways:

- Using the UNSUBSCRIBE command in your user configuration settings at 

- By sending a message to: opendtv-request@xxxxxxxxxxxxx with the word 
unsubscribe in the subject line.

Other related posts: