Many of us know that the cost of Cable TV is without a doubt is very high especially in the day of the Internet. This past week at SXSW, I had the chance to watch the debate between Mark Cuban and Avner Rowen of Boxee around the future of Television and where the video content will be. This was the debate we’ve read about for quite some time, how the Internet is causing early adopters to drop cable/satellite and instead watching all their video content over the Internet. Mark Cuban of course has expressed quite a few times on why a pure TV over IP platform will not be the mainstream in the next 10 years.
The debate had many moments that allowed each of debaters to take little humorous jabs at each other’s past, present and future business models and views over the issue. There was even an unexpected break fairly early on due to a fire alarm that was a false alarm. I’m not going to go into the exact details of what was said in that event nor what each have posted on their respective blogs since (you can read about it here & here), but I am going to discuss what was not really said though.
Mark Cuban’s main arguments of why today’s TV Networks will not move all of their video content out to the web has some validity. There are certainly some bandwidth and codec/video format concerns that make this method of video distribution a bit more difficult to manage than using the Coax of your Digital Cable provider for a “application specific network”. But then Mark goes on to say that this bandwidth should be reserved for “transformative applications” such as “Medical, Transportation, Defense, Gaming, Simulations and who knows what”. Gaming is “transformative” while Internet TV is not? And Porn is OK to dominate on the Internet but not TV? And shouldn’t much of the Medical or Defense be created in an “application specific network”? A very confusing view….from an outsider.
On the flip-side, Avner points out in his blog that “Content owners follow the audience” and the ends his blog post with 4 bullet points on why now is the time. Now I’m a big fan of Boxee and Internet TV in general, I was even at the Boxee Beta launch in Brooklyn but I believe sadly that Avner is wrong and it has nothing to do with technology. And all of those comments Avner points out are exactly why they will stall as much as possible on transitioning (back to that a bit later).
In the picture we are talking about here, Boxee is closer to the consumer in this picture than being in the Video Industry’s circle. That’s no disrespect to Boxee or Avner but simply to state that they have little influence over the Traditional TV Industry unless they get influence enough consumers to drop their monthly TV bill. Boxee has created a great platform to consume audio/video content streams through the internet but is trying to convince the Content Publishers that moving to the Internet is a good move for them. But is it?
Keeping the Cat in the bag rather than over Cat5
The Cable, Satellite and Broadcasting Channels have very little to win by moving all of its content over to the Internet today. Why? Because they have created a very successful and lucrative business model within the platforms they provide today and would like to secure that revenue as long as possible. Mark Cubin’s HDNet along with all other Cable Network owners have little incentive to move the content at this time. But Mark Cuban also has a slightly hidden secret about his interest in keeping today’s cable pricing models which you’ll find this particularly upsetting if you don’t watch sports because sports channels account for about 40% of all cable fees. So right up front, a non-sports viewer could see half their bill disappear if network fees stayed in portion to what they look like today. However the top five program producers (ABC, CBS, Fox, NBC and Warner Bros and their networks) draw in close to 80% of all viewers. This means, HDNet is in a sweet spot of being a Sport’s Network and Independent in today’s model which would struggle as an independent a la cart network.
So HDNet receives $0.55 per subscriber per month regardless if they ever turn on that station. Granted that’s a price for HDNet if you’re a sports fan (which would be higher in an a la cart model) but what about less popular stations such as The Military Channel? Well over 90% of all channels are never watched by an individual consumer. Could The Military Channel survive in a cut throat a la cart world? Today’s model allows it to rake in profit whereas a different revenue model may kill the product. Every media company would love to have this model, drawing revenue from both advertisers and a pool of subscribers regardless if they watch your content. It keeps your revenue risks low while serving a niche audience. Sure there is Hulu but most of that content is free Over The Air already or dated.
Avner argued that they can have this video content online and charge an individual which is true but by doing so, it still threatens their lucrative traditional business model. You see if enough channels did this, the more people may unsubscribe to the Cable Company. Remember, those subscriber subscriptions pay them regardless if they view their channel so nobody within the Circle wants to people to move away from the Cable Company’s structure.
Is it corporate greed? Yes and No, it’s business model that makes them a lot of money and they’d like to protect it as long as possible, I don’t consider that greed but rather a method of control. They realize that there’s an untapped market that refuses to subscribe to traditional cable but they’d much rather protect the market they have. There’s just no major threat in online only model (like Revision 3) for mainstream content yet. And remember: Not everyone spends as much time on the Web as you do– 40% of the US have no broadband, while 30% of households still have no Internet access at all.
This goes back to my last blog post around decisions are not usually made with the consumer being the primary focus. When they see massive drops in customers, then they know they squeezed too much and will probably drop price to get back some customers. Corporations are here to maximize profits for their shareholders, not to serve the community. Also don’t expect government to fight too hard for consumers on this. The lobbyists on the cable company’s payroll (ie. The NAB) will continue to fight the existing business model and stifle any competition of their monopoly. Until consumers fight back in masses, they will keep jacking up prices.
The Triple Play Effect really created the 3 Pointer Shot (and the Foul)
Beginning in 2004 in the United States, the traditional cable television providers and traditional telecommunication companies increasingly compete in providing voice, video and data services to residences. The combination of TV, telephone and Internet access is commonly called Triple Play regardless of whether CATV or Telco offered it. Some have added wireless and/or cell phone service.
Bundling services was a very strategic move on the Carriers. Not only did they lock you into “deals” for all of your communication services (TV, Phone and Cable) but they also created an opportunity to protect each of those services from nibbling away at each other. Sure the bundled package “saves you” $10-$20 a month than in the past but eliminating services could have saved you more. For example, I use Ooma for my home phone which could cost me nothing if I didn’t want the premium services (still $100/year is a good deal).
In this case, we are talking about eliminating Cable TV. This is usually the biggest piece of your bundled service bill today and they do not want to lose this revenue. But let’s just assume that the consumer does eliminate Cable TV and watches all Video Content over the Internet. The Cable Companies have the strategic advantage to stifle this by adjusting your terms of service and pricing structure due to the consolidation effects they did back around 2004. The will simply adjust your Internet Broadband structure to be paid by the Megabyte rather than by Access Speed. And honestly, I’d rather head towards that pricing structure as today’s created tiers of committed speed seems to never meet what is advertised to the consumer and really doesn’t make sense. But if we went with this Internet Metered Model, couldn’t we only pay for TV when we want to watch it? The Cable Companies would think that’s crazy talk…
A Huge Misunderstanding Of The Issue At Hand
I think for most consumers, the issue really is not about whether or not all video content should be on the Internet but rather the incredibly high price consumer’s pay for Cable TV. And let’s not forget the 18 minutes out of every hour that we are expected to spend watching ads. An advertiser pays about $230,000 for a 30-second spot on ABC’s “Desperate Housewives” which is suppose to keep cost to the consumer under control? How is paying for every channel, for every minute they broadcast no matter if I watch it while diluting almost 1/3 of an hour’s time, worth $90/month of my paycheck?
And I think that’s the problem we all have, we are paying for the noise without rewarding the signal which just allows a system to produce more channels and content that I’ll never watch. It has nothing to do with which cable or box it is coming from, it that there is no accountability in improving the content the way it is structured. We don’t care if it’s on a TiVo or Boxee, just give us the good content we want for a reasonable price.
Cable TV does offer some good content and most people don’t want to completely cut the cord from that content, it’s simply a price issue over what you get for your money. I just don’t see many companies that are bold enough to be the Revision 3 for mainstream shows (at least yet). Consumers simply want “some” of the content on TV today they value without the price that subsidizes other people’s watching habits or simply poor filler content.
But if a la cart model was in place with decent pricing, would we be debating this issue? But more importantly, if a la cart system was in place over Cable TV, would you think that the Networks would be resistant to also distributing that content over the Internet for the same price? But there really is no incentive for Cable Carriers to do this; it’s really more of an incentive for high volume content producers if anything. I think you know where I’m going with this; Avner was trying to debate the wrong issue with Mark Cubin. He should have been debating on the subscription and business models of today, why they aren’t adjusting which would allow an easy transition to Internet Models in which Boxee could become the aggregator to the consumer. But the Ball is in the Circlee that simply doesn’t want to pass it to a Boxee, they’ll move the ball when they are ready…
(Note: These are wholesale prices and programming costs would adjust to the market in an a la cart model)