[opendtv] Re: Amazon Considering Online Pay-TV Service
- From: Craig Birkmaier <craig@xxxxxxxxxxxxx>
- To: "opendtv@xxxxxxxxxxxxx" <opendtv@xxxxxxxxxxxxx>
- Date: Thu, 23 Jan 2014 08:21:46 -0500
> On Jan 22, 2014, at 10:34 PM, "Manfredi, Albert E"
> <albert.e.manfredi@xxxxxxxxxx> wrote:.
>
> Or not. Amazon doesn't have to have fleets of trucks, Craig. I think you
> continue to underestimate the cost of running MVPDs, and you assume that the
> connection fee listed in your monthly bill covers it all. I'll bet you that
> the true costs are buried everywhere in that monthly fee you pay.
I am fully aware of the cost of running the MVPDs AND the other Telco based
ISPs. Amazon might be able to convince the congloms to let them play in the
subscription TV market, but the consumer will still need a high speed broadband
service.
There is no possibility of the congloms licensing "live TV" to Amazon at rates
that are lower than the other MVPDs. But the real problem is the local
affiliate model used by the broadcast networks. The networks cannot bypass them
for a new MVPD competitor, while all others are required to carry local
channels. Local TV broadcasting is not dead yet.
So Amazon would need to pursue one of two strategies to carry the content from
the broadcast networks:
1. License each stations content individually, as the MVPDs are forced to do
today.
2. Not carry the broadcast networks, forcing the viewer to use an antenna to
watch local stations.
Both have risks. If they license local stations, they may be required to follow
the same must carry or retrans consent regime as the established MVPDs - I.e
carry All local stations. This would obviously require Amazon or the CDNs to
set up servers in every market to handle the local stations. Or worse, servers
at every ISP.
Requiring customers to use an antenna for local stations creates a Catch22
situation. To make the service seamless, Amazon would need to put the tuner in
the STB and deal with customer service issues, not unlike the issues the DBS
services face. Or customers would need to switch between the antenna input to
the TV and the Box that delivers the Amazon service.
Now that I have been using a "smart TV" for several months, I can say with some
certainty that the lack of integration is a pain. Switching inputs is a pain.
Multiple remotes are a pain. And entering data can be a pain without a separate
tablet or keyboard.
As for the true costs. We've been over this many times.
About 1/3 is subscriber fees - this will be about the same for any service.
Taxes and franchise fees are an interesting issue. There may be an advantage
here, relative to the local cable company, but DBS services typically do not
pay these fees, and their rates are not lower. In the long run it is likely
that local and state governments will just increase fees on ISP service to make
up for any losses in cable system revenues.
The rest is system costs and profits. Amazon may not need as much
infrastructure, however, like Netflix, they will be paying for bandwidth and
CDN services. Amazon already operates huge server farms and competes in the CDN
market, so they may be able to save a few bucks relative to Netflix, but this
is still a huge operating expense.
So that just leaves profits. If Amazon foregoes direct profits, with the
rationale that they will make the profits selling merchandise, they could
undercut the pricing of existing MVPD competitors.
Bottom line, however, is that they would not enjoy a large operating cost
advantage...
>
> I read that story on EE Times today, about Intel getting out. And my feeling
> was, finally something that makes sense. Intel SHOULD be getting out of
> colluding with content owners. Amazon, on the other hand, SHOULD be competing
> with MVPDs, at least when it comes to content distribution.
They already are competitors in some market segments.
> Amazon is also a service provider, after all. The legacy of the old model is
> this idea that the underlying network service can legitimately be coupled
> with the content distribution and content access control service. If
> anything, it is that combination of services that may or should be reformed,
> over time.
In the end it still comes down to the last mile. The bandwidth required for
Amazon, or any other OTT competitor, does not exist today. Enough people have
the bandwidth required for such a service to launch, but it could not scale
rapidly without a major investment. Will the telcos and cable companies make
this investment to enable a new competitor?
>
> By the way, you did notice the trend line for subscriptions to premium MVPD
> services, in another article posted today?
Yes. What's your point?
Premium services like HBO and Showtime have been declining for years as new
ways to watch movies have proliferated. Their biggest draw has been original
content, which now makes its way into VOD services, if you are willing to wait.
The extended basic bundle is still a staple in more than 80% of U.S. Homes,
having declined only slightly from its peak of ~88% in 2009.
I just found an interesting study about the U.S. Video market that does a good
job of looking at the market over the past two decades, and identifying the
barriers to real marketplace competition. The Exec Summary is well worth the
read.
http://www.freepress.net/sites/default/files/resources/Combating_The_Cable_Cabal_0.pdf
Regards
Craig
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