[opendtv] Re: The Hollywood Reporter: Charter CEO: HBO, CBS Web Services Provide Opportunity for Pay TV Companies

  • From: Craig Birkmaier <craig@xxxxxxxxxxxxx>
  • To: "opendtv@xxxxxxxxxxxxx" <opendtv@xxxxxxxxxxxxx>
  • Date: Thu, 6 Nov 2014 08:27:03 -0500

On Nov 5, 2014, at 8:13 PM, Manfredi, Albert E <albert.e.manfredi@xxxxxxxxxx> 
wrote:
> 
>> Okay., let's see if I can word it in a way that you won't knee-jerk 
>> contradict: They are losing eyeballs because network technology has made 
>> other options available to consumers, for obtaining TV content.

Exactly! 

Old business model: 30-40 movies and episodic programs streamed over two 
channels for a month, with a four color program guide mailed to subscribers 
each month.

New business model: 50,000 programs available on demand with a personalized 
search engine to find the content you want to watch.

>> So that the increasing prices of the old MVPD/walled garden model have 
>> caused many households, in the millions, to re-evaluate their options. There 
>> is no doubt that ever higher prices are having an impact, Craig.

Total disconnect.

This conclusion is unrelated to the first part of the paragraph. Yes, the 
increased prices for entertainment, and not just the MVPD bundles,  are causing 
people to re-evaluate their options. ESPECIALLY people who have lost their 
jobs, or had their hours cut because of the economic downturn we have 
experienced for more than six years. 

On the other hand, tens of millions of people have ADDED an expensive broadband 
service and a Netflix OTT subscription to their monthly entertainment 
expenditures. HBO cannot ignore this.

Craig wrote:
> 
>> ESPN is in a completely different position. They are one
>> of the last bastions of ad supported appointment TV, and
>> will continue to prop up the extended basic bundle because
>> of the value proposition they represent, based on the
>> content they license and control.
> 
> That sounds like the double-talk of marketers, Craig. ESPN can also transmit 
> ad supported live streams over the Internet, direct to consumers.

They already do. It is called Watch ESPN. But it is not a direct to consumer 
play, it is a TV Everywhere play TIED to a subscription to the extended basic 
bundle. 

And yes, they can create new niche, ad supported, direct-to-consumer services 
like the MLS OTT service. One does not threaten the other. This is simply a 
business decision based on the best way to optimize revenues for a niche sport 
that does not attract an economically viable audience on the bundled ESPN 
channels.

> Your two points, i.e. that ads and live streams lead ESPN to remain in "the 
> bundle," are one big non-sequitur. You DO NOT need walled garden "bundles" 
> for "ad supported appointment TV." Nor do the sports leagues depend 
> exclusively on ESPN, or need to any longer, to get their content out.

I completely agree that it is technically feasible to offer ad supported OTT 
services without a subscription. Hulu is a good example.

You are ignoring the reality that ad supported live events are the backbone of 
the extended basic bundle, and sports is the most watched type of live 
programming. The pre-produced content will become, in the words of Jeff Bewkes, 
Universal VOD.

The sports leagues DO NOT depend exclusively on ESPN, but ESPN depends on them, 
just as the broadcast networks and the rapidly growing regional sports networks 
do as well. This creates a "non-virtuous" cycle that is driving sports into 
subscription services, or forcing the broadcast networks to offer loss leaders 
to stay viable. The sports leagues are able to get these "distributors" to bid 
against one another and drive up the prices.

NBC loses money on the Olympics, but the promotional value has justified the 
loss in the past. Now the ability to offer both FOTA and paid access to Olympic 
events both live and VOD, is allowing NBC to see the possibility of making 
money on the Olympics.

Yesterday CBS announced their earnings. This was a major part of that 
announcement:

http://www.broadcastingcable.com/news/currency/cbs-reports-higher-earnings-and-revenue/135385

> CBS said adjusted operating income before depreciation and amortization was 
> down 2% because of new contract with the NFL. The company said the NFL 
> programming helped launch three CBS-owned primetime series with higher 
> ratings in their time periods than a year ago.


Bottom line, consumers are willing to pay to watch sports.

> 
>> PVRs do not make large libraries of content accessible,
> 
> And the opposite situation applies here, wrt HBO. Cable companies have had 
> their own, proprietary, pay-extra-for-it, VOD service too. So just as ESPN 
> can send live streams over the Internet, HBO can provide VOD over cable 
> systems, sans Internet Protocol intervention.

Technically true, but impractical. As you correctly note, most cable systems 
offer pay per view movies. The compromise is called HBO Go - An OTT VOD play 
for those who subscribe to the HBO premium tier.

It is informative that HBO is working with the MVPDs in the U.S. to sell the 
new HBO "direct-to-consumer" service to their ISP ONLY subscribers...
> 
>> Selling HBO direct to a consumer still requires dealing with
>> a MVPD. You are still talking about something on the order of
>> $50/mo for a broadband connection and the cost of the HBO
>> service.
> 
> You need to deal with an ISP, yes, but NOT with a walled-in network. Your 
> choices are not determined by the ISP, Craig.

We don't know if this is true yet. The HBO OTT service may only be available 
from ISPs who also sell the TV bundle. There has been no announcement that this 
service will be available from the Telco ISPs, although it is certainly 
possible. It is quite possible that the MVPDs will cut an exclusive deal with 
HBO.
> 
>> Stop the rationalization. Your numbers are wrong.
> http://tvbythenumbers.zap2it.com/2013/08/23/list-of-how-many-homes-each-cable-networks-is-in-cable-network-coverage-estimates-as-of-august-2013/199072/
> 
> This is really simple. The WSJ claims that as of October 2014, ESPN lost 4.5 
> percent of households, compared with 2010. That's the bottom line. Your link 
> says that in Aug of 2013, ESPN covered 85.58 percent of households. So this 
> means in 2010, ESPN has to have covered at least 90.08 percent of households. 
> Either way, they lost 4.5 percent, as did TNT.

Yup. We have been over this MANY times. The peak was near 90%. The decline is 
well documented. You tried to convince us that the number is below 80% - you 
were wrong.

> How does that help your cause? A drop is a drop, no matter how you slice it.

I have never argued that cord cutters do not exist. We all know there has been 
a drop. Where we disagree is that you believe that this is a trend that will 
kill the bundle, while I believe it is mostly a reflection of the economy, and 
that the bundle will move to the Internet.

Regards
Craig

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