Sunday, October 17, 2010

The Tyranny of Cable & Satellite Television....

For years we have paid Comcast, DirectTV and all the others...is that time coming to an end??
The digital book revolution has not only started it is well to transforming publishers whether they like it or not.  Many do not see the connection of what people want.  Before there was Cable Television there was regular UHF and VHF television with everyone having either a rabbit antenna on their TV or on their roof.  The content was FREE to the viewer and paid for by advertisers.  The viewer would endure the commercial to get to the content.

“...the content companies continue to experiment with how to monetize their premium content on digital platforms. Hulu is a failed experiment for Viacom.”
When Cable or pay television began to be spoken about tremendous claims were made for the hundreds if not thousands of channels that would be available to the viewer.  Then they promised something even greater - commercial FREE programming do to the fact that the viewer would be paying for the content.  The model was the public television of NPR where no commercials were shown during a program.  This was the promise in America.  This is NOT our reality.

The viewer now has the worst of both worlds.  He pays for the content through a monthly fee ($75.00 a month on average in the United States) AND he has to watch commercials in the middle of the program.  The costs of the content will go up for the indefinite future.

THE ECONOMICS OF CABLE & SATELLITE TELEVISION
Mainstream television lives from affiliate fees.  What are affiliate fees?  They are a share of the subscription fees Comcast, DirectTV or any other paid subscriber service charges a viewer.  As of April of 2010, 32 billion dollars were collected in affiliate fees.  This money is what drives every decision made by the television studios.  ESPN for instance charges these cable companies about $2.00 per subscription per month.  In 2009, DirectTV paid $37 out of every subscription to the content owners.  This is roughly 43% of their total revenue.  Comcast pays in affiliate fees 37% of their total revenue in subscriptions.  This 32 billion dollars income, surpasses Google's yearly annual revenues.  Whether Apple, Hulu, Netflix or others try to move into this market, they will have to deal with those monetary realities.

The Strategy of the Content Providers, the Major Networks and the Cable
The content providers want to be the "indispensable channel" to the cable companies.  To acquire that status, they will produce one "must have" show like Mad Men and then fill up the rest of the time slots with inexpensive content.  This hit show allows them to raise their affiliate fees.  From here, the content provider will attempt to create multiple channels like MTV or ESPN has done.

However, the line between traditional content providers and cable companies is beginning to blur.  Comcast has begin to buy up channels of content as a hedge against rising affiliate fees.  It owns E! Entertainment, The Golf Channel for example.  They tried to buy up Disney in 2004, through a hostile takeover, but, it did not happen.

The major networks, i.e., NBC, ABC, CBS in the initial stage of the rise of the cable companies did not charge any affiliate fees.  They have since begun to ask for them.  Oprah left ABC to form her own cable network because the would make more money by being able to charge her own affiliate fees.  All the cable companies need and want to have Oprah's show.

The sports networks have also launched themselves into this game full blast.  NFL, MLB and pro wrestling have their own channels.  When Hulu blocked access to the Boxee platform in it was because Comcast gave a very direct message to Hulu's owner, NBC, that since they were now distributing programming on their own, Comcast would no longer pay them affiliate fees.

One can see that with ever rising affiliate fees there will eventually by some kind of battle approaching.  In this battle it seems to us, the cable companies have the advantage.  Distribution has always given power to a company.  Those who have distribution can create content to distribute, but those who only create content, may not be able to reach the audience that wants that content.  Eventually the cable companies will buy up the big content producers and own the while pie.  The only way the content providers can escape this oncoming dilemma is to gain distribution themselves.  The Internet would be that channel.  But this is not the way the content providers see it.  They are comfortable with the affiliate fees, which they view as dependable and sizable.  Thus they sleep while the lion prepares to devour them.

Of course the cable companies that the Internet is a danger to their own private proprietary distribution system (i.e., their satellites and cables).  So they have themselves become ISPs.  This will allow them to make money not only from their own network but also from the Internet when the change to Internet TV fully takes hold, which they know will come.

TV Everywhere!
This video explains TV Everywhere from the man who first thought of it, Jeff Bewkes, CEO of Time Warner.  The idea of TV Everywhere first began with Bewkes, who then sold it to Comcast, and both in turn have been selling it to the different content providers.  Time Warner Cable has an ongoing trial of TV Everywhere with 10,000 customers in Syracuse, NY, NYC and Columbus Ohio.  Comcast's version of this new service is Fancast XFinity TV.  Both of these services are responses to the growing threat of Apple TV, Hulu and now the new just announced Google TV.

Some do not think that TV Everywhere or anything like it will succeed.  Apparently Comcast has been losing money with their new XFinity service.  It is argued that Comcast, Time Warner and Cox make up 70% of all MSO subscribers.  The remaining 25 other MSO's will not have the financial power to provide such a service.  Thus, if they cannot supply a business model that works, then the smaller companies will not have a chance either.


GOOGLE TELEVISION


That video was a general introduction.  But this next video really shows you some of the menus and abilities of the software.  Our praise for SoldierKnowsBest!


In this video Chris Anderson author of the book entitled, Free, speaks about the new business model that is developing through the Internet and in this particular case, through youtube.



WHY TV CONTENT WILL BE LESS AND LESS FREE IN THE FORESEEABLE FUTURE
What really stopped Hulu in its tracks and turned into a subscription service, was the question posed by Comcast to NBC, as to why Hulu paid no affiliate fees for the same content, while Comcast had to.  There is a rumor that Comcast has offered the large networks an extra $0.50 per subscription, for the rights to broadcast their show through TV everywhere.  Thus, the Colbert Report is no longer offered on Hulu, in the way it normally was.  Hulu will now redirect the Daily Show and the Colbert Report to Comedy Central's website.


THE BATTLE BETWEEN THE INTERNET AND CORPORATE AMERICA
Mark Glaser in a recent article pointed out some good reasons why sooner or later, the MSOs will face REAL competition.  TV Everywhere and XFinity TV are really just ways to keep the present business model of these cable companies as the only game in town.  They are meant to use their big pocketbooks and clout with the content providers to keep NetFlix, Google, Hulu and Apple out of this business.  Will this work?  NO!  It is well known in the history of business that when ANY company or group of companies try to stave off a new technology, they ultimately, either adopt it, or, disappear.  For now, they have been successful because of the billions of dollars at stake to fend off any new business models, but this is doomed to failure.  First they deny choice by forcing the customer to pay for material in bulk, denying them individual choice to pay only for what they want.  This was similar to the music industry, which wanted you to buy the entire album instead of just the songs you liked.  Comcast and Time Warner are not developing a new business model for online TV viewing because you still have to pay for their regular cable services.  For now, they say it will be free, but in light of the recent price raises, everyone can figure out that this is just a shell game.  Lately, Comcast and Time Warner have run into resistance with the congress.  They have been attacked by public advocacy groups who say that they will gain a monopoly on online viewing putting the new startup companies out of business.

Kevin Kelly one of the leading visionaries of the new Internet future, has spoken about the forces that are at work in regards to online content.
As creations become digital they tend to become shared, ownerless goods. We can turn this around and say that in this realm of bits, property itself becomes a more social endeavor. Property may be less about title and more about usage and control. An idea can't be owned in the way gold can; in fact an idea has little value unless it is shared or used to some extent. Its value paradoxically can increase the less it is owned privately. But if no one owns it, who gains the benefit of that increase in value? In the new regime users will often assume many of the chores that owners once had to do. And so in a way, usage becomes ownership.
If what Kelly is saying is true, then we are headed towards a MAJOR battle between copyright laws and this new medium - the Internet.  People do not expect to pay for things on the Internet not because they are use to it, but, because they instinctively understand the nature of this new medium. Media such as news, music, movies and other forms of the arts are basically useless unless they are shared.  The Internet brings in a new kind of sharing and this is the problem.  We are going through a transition of massive dimensions.  Comcast, Time Warner are mere toy boats in this ocean of change.  A new business model will emerge that will allow artists to live and produce more work.  Perhaps, some of the outlandish salaries which are now given and spent may have to change, but people will always be willing to pay for stories and great music, just not in the way that they have done so in the past.

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