Saturday, January 1, 2011

As Cable System Operators Fight With Content Providers And Also Announce Their Annual Price Increases - Internet TV Goes Underutilized

The following three stories are more connected than people think:


  1. Time Warner and Sinclair Squabble Over Retransmission Fees Threaten Television Consumers
  2. CNN: Internet (Capable) Television Sales Go Up But No One Uses It
  3. Cable & Satellite Television Operators Announce Their 2011 Price Increases
now let me add a 4th one for good measure:


If people better understood the players involved in the process of piping video into their living rooms they could exert more power over the process and force a change in the economic behavior of all of the players listed above.

In the ecosystem of video there are:
  • The content producers/copyright licence holders  (NFL, CNN, CBS, Miramax Pictures)
  • The content distributors - the television broadcast networks (ABC, CNN, Fox Television)
  • The network/satellite operators - DirecTV, Time Warner Cable, Comcast, Verizon FiOS
  • The Internet service providers - AT&T, Level 3, Verizon
As you see in some cases one company can occupy several roles.   Comcast hopes to become a cable system operator and a content distributor and a content producer with its purchase of NBC Universal (Studios).

In the world of Internet TV the content distributors as we know them will be forced to change their business model.  Right now the NFL Network, for example, occupies a channel on various cable systems.  They also have the NFL.com in which live streaming is permissible for premium users.

As the model advances - one day we will be going directly to the NFL to receive their content.  Today the potential profits of using their broadcast network partners who sell commercial advertising space and have a brand as expressed through their sports analysts makes it more reasonable for the NFL to distribute through this INTERMEDIARY.

Once enough users have Internet Television and Mobile video capabilities - the NFL could justify keeping the content for themselves.  Otherwise called DIS-INTERMEDIATION.

Each year these cable systems raise their rates.   I received a notice in the mail to this effect a few weeks ago.
My recent venture to the local customer service office where people were upgrading their equipment and paying to reactivate their service showed me exactly how much leverage the cable operators have at this present time.

The solution to countering them is NOT more government regulation.  Instead there are means by which consumers who are knowledgeable can incubate competition and cause those who are getting fat to be more price sensitive.

Per my analysis the threatened loss of the "cable packages" is the heart of the Net Neutrality debate.   As people cancel their content subscriptions but retain their Internet service these companies are rendered into having a "Dumb IP Pipe".   This means that content providers like Google (YouTube) generate money through advertising dollars while the cable operators are left with individuals paying $49 per month flat rate for their "Ultimate (Speed) Internet Connection" at 20Mb.  

IPTV threatens the cable/satellite system franchise.  If each year's 10% price increase results in the loss of 300,000 subscribers (totally made up numbers for the sake of argument) then they will be forced to be more price conscious.

I am waiting for the content producers to take it on the chin. 
If you notice we still are seeing record contracts and box office takes for athletes and actors.  Even though the team/the league and the movie studio do the actual negotiations for distribution - the fact is that these funds are available to be paid for no other reason than the fact that the CONSUMER is being DISINTERMEDIATED.

The cable provider pays Fox Television and CBS for the privilege to carry  their network content.  Fox and CBS pay the NFL and NBA for the broadcast rights to the original content.   IF these intermediates can merely pass their added costs down to the consumer via increased cable rates - the grand TRANSFERENCE will continue.

IPTV first threatens to harm the middle man networks and cable packages.  
It also offers a global reach for content.   If some day a global branding could supplant the parochial loyalties that we have to our city sports franchises the competition could work to place a check upon the run away pricing that we are charged for tickets and merchandising.

No comments: