[opendtv] Re: U.S. NEEDS A CLEAR PICTURE OF WIRELESS
- From: Craig Birkmaier <craig@xxxxxxxxx>
- To: opendtv@xxxxxxxxxxxxx
- Date: Sat, 16 Jan 2010 11:01:00 -0500
At 4:21 PM -0600 1/15/10, Manfredi, Albert E wrote:
Would it help you if I said, "The only reason MVPDs pay for content
is that the money flows from subscribers and from advertizers to
MVPDs (as ad revenues and combined monthly connection fees). The
money flow is not from the subscribers and advertizers to the
content owners"?
No, that would still be wrong.
It would be more correct to say that the MVPDs collect revenues from
customers that are used for a variety of business purposes. Some of
this money goes to the content owners in the form of subscriber fees
or direct payment. Customers pay directly for premium tiers like
Showtime and HBO, and for Pay Per View events, and indirectly for
the subscriber fee/retrans consent fees. I say indirectly because the
customer knows what they are paying for a premium tier or PPV event,
but does not know how much they are paying in subscriber and retrans
consent fees.
Perhaps you were asking a rhetorical question, but there IS
significant money flow from the MVPD to the content owners. Perhaps
as much as a third of the total revenues they collect, including ad
revenues. The ability to compete with broadcasters for local ad
dollars is another major advantage for the MVPD. They generate
additional ad revenues from non-broadcast channels that "may" allow
them to eat part of the subscriber fees, rather than passing them
along to their customers.
And this is the major reason that broadcasters are not in a strong
position to compete for delivery of non-broadcast networks. They
simply do not have the ability to collect money from their viewers
and ship it to the content owners. They can only sell advertising, or
entire time blocks to another content owner - infomercials, paid
programming, religious programming etc.
If a broadcasters negotiates a retrans consent fee, the MVPD must
either eat that charge, or pass it along to its customers - the MVPD
cannot insert ads into broadcast programming, without specific
permission. I have seen market research projects where the cable
company inserts different ads into broadcast programming for specific
neighborhoods, then buying behavior is tracked at stores in these
neighborhoods. But this is rare.
This can't so hard. The MVPDs are the ones who collect and channel
the money. And there is no reason to assume that this is the only
way the money can flow. That monthly fee charged by MVPDs has to
cover a whole lot of expenses that an OTA broadcaster doesn't have,
including additional expenses that cable companies take upon
themselves, which drive up their overhead costs. Such as, depending
on their proprietary hardware to be installed in customer premises.
The sort of thing that the IETF and ISPs go to great lengths to
**AVOID**. The sort of thing the electrical, water, and sewer
utilities also avoid. (When was the last time the water company
installed toilets and sinks in your house, for example?)
Ma Bell used to control the rental of telephone instruments. Now the
wireless telcos control which handsets we buy via long term
contracts. The MVPDs have had almost exclusive control over STBs,
which they make a great deal of money on. For a while, the telcos and
cable companies required that you buy or rent the modem from them and
prohibited you from installing a router to share the Internet
connection. Fortunately, they were forced to open up the market for
consumer premises equipment.
The MVPDs have been able to control the STB market for the most part.
I'm not supporting the status quo, just telling it like it is. The
politicians and regulators are letting them get away with this.
And please get over this supposed advantage that you think
broadcasters have over the MVPDs in terms of infrastructure cost.
This is ALL passed along to their customers, along with a tidy little
profit that is allowed by local franchise agreements. And yes, cable
companies ALSO share some revenue with the franchise authority. So
they are using their infrastructure and business model to feather
MANY nests.
> The reason the MVPDs collect these subscriber fees is to enable
content providers to have the financial resources to pay for
the content they carry - rights fees are very expensive for
sports and high quality off network programming.
The MVPDs do keep all of the revenues they generate from ad
insertions into the non-broadcast networks; but these revenues
are often "off the books" of the cable company - i.e. they have
local advertising sales companies that control these revenues so
that they do not impact cable franchise agreements.
I don't get that last part. If those ad revenues, mainly from just
one OTA stream, were enough to keep OTA stations going when their
programs are very expensive, how is it that the ad revenues sucked
in by the MVPDs are more or less ignored by you?
I'm not ignoring them, although they are a fraction of what
broadcasters haul in in ad revenues. What I am saying is that this
revenue is not included in most local franchise agreements. The cost
of cable service is regulated by these agreements, but it has been
easy to keep raising rates by adding more channels.
The cost to advertise on cable is relatively low compared to buying
time on TV stations.
When broadcasting began, the networks paid stations to carry their
programming. This was necessary because the station COULD NOT
generate enough from local ad revenues to make a profit. Eventually
stations did become profitable, and the networks have slowly
withdrawn direct compensation and cut back on the number of ad avails
they give the stations. Buying content in the syndication market is
also fairly expensive - stations typically only make a profit on the
shows they run in the late afternoon and prime time access hour. By
the way, the FCC created the prime time access hour to help stations
and syndicators. Prior to that the networks filled the slots after
the evening news. This also helped station profitability.
But there are many day parts where stations cannot charge enough for
ads to cover the cost of the programming. And now it is getting
increasingly difficult to fill all the ad slots in the programs that
used to make a profit.
Wow. I almost can't believe I'm reading this. So, who exactly is it
that is in bed with MVPDs, preventing fair competition?
There is nothing to prevent fair competition other than the realities
of the advertising market.
The congloms are in bed with the MVPDs. They own 90% of the channels
and they LOVE the dual revenue streams from subscriber fees and
advertising. In many cases they NEED these fees to pay for expensive
programming - ESPN and the Fox sports networks cannot generate enough
ad revenues to cover sports rights fees. The broadcast networks
couldn't either, writing off billions in losses when they paid too
much for sports rights.
There was a time when the networks could afford "loss leaders"
because of the promotional value they got from running promos in
popular sporting events. The Summer Olypmics were viewed as the
perfect platform to promote the upcoming Fall Season, and the network
that paid for the Summer Olympic rights typically got a large bounce
in the fall season. The same was true for some popular dramas and
sitcoms, which the networks used to anchor an entire evening of
programming. But viewers no longer sit and watch an entire evening
from one network. The benefits of popular program adjacency are now
almost nonexistent.
And then there is the reality of channel surfing, DVRs and other ad
avoidance tools. I'll address this in another thread...
MVPDs always have the capacity advantage and the ease of reception
advantage, so I don't see how what I'm proposing would be a great
threat to MVPDs anyway.
Because it would give at least a portion of their customers the
excuse to drop the service. Broadcasters got rich because of program
scarcity. The MVPDs (and the congloms) are getting rich because of
program EXCLUSIVITY.
The reason is that the FOTA market is finite and small. In
order for more channels to pay for themselves you need more
eyeballs - otherwise you are just sub-dividing the existing
> audience.
You could have used that argument also in 1950 or 1960.
And the broadcasters DID. They were not happy when the FCC opened up
the UHF band to broadcasters allowing some competition from
independent stations. The networks may have competed with each other
for ratings share, but the most important factor in their success was
government imposed scarcity.
What really happens when more choice is made available is that
people watch more on the whole. That spokeswoman for the Food
Netwoork claimed that TV viewing was still going up.
Yes I heard that, but I am not certain I believe it. Clearly kids
watch a lot more TV than when was a kid. We have the TV turned on
for most evening hours, but this does not mean we are watching; it is
often just background noise.
In a world where we have so many more choices, it seems illogical
that people are spending more time watching broadcasters and the MVPD
channels. Clearly, people will watch something they really like. My
wife spends endless hours watching HGTV.
I am highly suspect of the research about viewing hours and TV
ratings in general.
Well, it goes up when more choice is provided. Even if more OTA
households are NOT created, the existing OTA households would watch
more TV. Simple example. When we got the ten 24-hour news stations
from around the world OTA, *I* watch more TV, because anytime day or
night, I can get the latest news FROM TV. Where perhaps before, I
would have turned on the 24-hour news station on the radio, or
simply accepted the fact that I'd have to wait to get the news.
Yes, it is possible to expand viewing hours at the margins. But we
are talking about small increases to a small segment of the market.
It is very difficult to turn this into enough revenue to make a
profit.
Honestly, I think you are putting way too much emphasis on
subscription fees as the cure for all evils.
I'm not putting the emphasis on subscriber fees. The MVPDs and the
Congloms are.
In my estimation these fees are now evil. They probably had some
merit when Turner was trying to build CNN and TNT, and could not
generate enough in ad revenues to operate; even with subscriber fees
they still lost money for a decade. Now they are reaping the rewards
of dual revenue streams.
Retrans consent is even more evil. The stations that have programming
that is desirable enough to demand retrans consent fees rather than
must carry, are all highly profitable, except for a handful that got
over leveraged trying to expand their station groups. Yes, profits
are down with a down economy, but for most broadcasters the profit
margins are still huge compared to other businesses; often above 20%.
Now the congloms have set their sights on the profits generated by
local broadcasters. The congloms can make MUCH MORE money by killing
broadcasting. That's the real threat, not the FCC.
It is fair to say that broadcasters have been cashing out for the past decade.
> If ad revenues were enough to populate these sub channels
with higher quality content, you can be certain that this
would be happening.
Oh? You just finished telling me how that would threaten the MVPD
model. Couldn't have that happen.
The cable networks are but one source of content. There is plenty of
high quality programming in the syndication market. The problem is
that stations cannot generate enough additional ad revenues to pay
for the content to populate these sub channels.
Regards
Craig
P.S. Even PBS learned the value of direct payment from viewers. Those
telethons are an important means by which PBS affiliates collect
subscriber fees...
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