[opendtv] Re: Sony To Take Viacom Over-The-Top | Multichannel

  • From: Craig Birkmaier <craig@xxxxxxxxxxxxx>
  • To: "opendtv@xxxxxxxxxxxxx" <opendtv@xxxxxxxxxxxxx>
  • Date: Sat, 13 Sep 2014 09:19:20 -0400

> On Sep 12, 2014, at 5:23 PM, "Manfredi, Albert E" 
> <albert.e.manfredi@xxxxxxxxxx> wrote:
> 
> Craig Birkmaier wrote:
> 
>> Please let me know when the ESPN and Viacom's of the world decide they can
>> make more money by taking their most valuable content out of the bundle.
> 
> Craig, you can be astonishingly obtuse.

Nothing obtuse here. The challenge stands. 
> 
>> The "eventually" part refers to the Millennials being ABLE to pay for
>> ESPN. Today they are using the authentication credentials of their parents
>> or a friend.
> 
> That's poppycock. Just something you dreamed up, to hang on to your mantra. 
> Here, start with this. It's about soccer, but it shows where the wind is 
> blowing:

No it's reality Bert.

I personally know (and work with) people who do this. If you want to watch 
ESPN's most valuable content on a mobile device you need to enter valid 
authentication credentials. That being said, this is easy for people to do, 
especially sharing the credentials of their parents or older siblings who 
subscribe to a MVPD Service. In this, it appears that ESPN is not uncomfortable 
with the leaky nature of authentication today.

> ESPN Tests New Business Model, Good News For MLS Fans
> by Andres Rocha  on May.27.2014 
> 
> Thanks for this info, I was not aware of this deal.

I'm not trying to minimize the importance of this ESPN experiment, but that is 
exactly what it is. What it is NOT, is a threat to the ESPN business model that 
is built around "the bundle.

Building and audience for Major League Soccer in the U.S. has been an uphill 
challenge. It is informative to read about the history of the league.

http://en.m.wikipedia.org/wiki/Major_League_Soccer

The league is now on more solid ground and is expanding its footprint, but 
promotion is critical to its future success, and it's ability to challenge the 
American version of "football,"  the kind of high value content that ESPN 
invests billions in. The kind of high value content that allows ESPN to demand 
the highest subscriber fees of any channels in the bundle.

This part of the Wiki article says volumes:

> Television coverage and revenue have increased since the league's early 
> years. In 2006, MLS reached an 8-year TV deal withESPN spanning the 2007–2014 
> seasons, and marked the first time that MLS earned rights fees, reported to 
> be worth $7–8 million annually.[166] In September 2012 the league extended 
> its distribution agreement with London based Media rights agency MP & Silva 
> until 2014 in a deal worth $10 million annually. Total league TV revenues are 
> over $40 million annually.

For a media company now valued at about $40 billion, this is play money. And 
that is 
what they are doing. Playing with a new product to see if there is a 
there...there.

Consider this from a Forbes article about ESPN:

http://www.forbes.com/sites/kurtbadenhausen/2012/11/09/why-espn-is-the-worlds-most-valuable-media-property-and-worth-40-billion/

> There are fears that spending on sports rights fees will crimp ESPN’s 
> profitability going forward as competition heats up from Fox Sports and NBC 
> Sports. ESPN recently agreed to double the annual rights fees it pays for 
> Major League Baseball and last year reached an eight year, $15.2 billion deal 
> to broadcast the National Football League.
> 
> The reality is that the value of sports on television is only increasing, as 
> much of the viewing public moves to watching programs on delay, limiting the 
> effectiveness of advertising. It is a problem that ESPN does not have to 
> worry about as 99.4% of sports events on TV are watched live, according to 
> Disney CFO Jay Rasulo.
> 
But Bert keeps trying...

> Here, let me repeat it for you:
> 
> "Following Netflix's success, other companies including ESPN are trying this 
> new business model, specifically giving exclusive access to their site's 
> stream of MLS games without fans needing to subscribe to any special Cable TV 
> packages." And, "According to ESPN President John Skipper, they're trying a 
> new strategy in where they are they believe there could be more profit by 
> engaging digital content with on-screen ads and a direct-to-consumer 
> strategy."

There is no parallel with Netflix in the MLS deal. Netflix does not have ads, 
and they pay huge rights fees, as does ESPN. The real issue here is how large 
an audience there is for MLS. ESPN does air a few MLS games on the MVPD 
channels under the rights deal cited above. But the audience is small and may 
be better served with the ad supported streaming service you cited. 

Please do not get carried away with the reality that everyone is experimenting 
with this new OTT medium. It is to be expected, but it is not fundamentally 
transforming the business model that is making the media congloms billions. 

As the Forbes article noted, more and more people are moving to on demand 
viewing of pre-produced content, either ad free, or ad avoidable. This is 
making channels that get people to watch live TV even more valuable. If ESPN 
does change their business model in the future, it will not be a free ad 
supported service. It will be a pay service like Netflix. 

But this is not going to happen as long as millions of homes that don't watch 
ESPN keep paying for it as part of the bundle.
> 
> So, emphasis on ads, emphasis on direct to consumer, emphasis on no special 
> cable TV bundle.

Emphasis on EXPERIMENT. One should not infer from this that we are going back 
to the golden age of broadcast TV, where all programs were free and ad 
supported. All trend data suggests just the opposite is true. People are 
willing to pay a premium for ad free content.

> Then there's this somewhat rambling NYT article from one year ago:
> 

> http://www.nytimes.com/2013/08/27/sports/ncaafootball/to-defend-its-empire-espn-stays-on-offensive.html?pagewanted=all&_r=0
> 
> After spending most of the time rehashing old stuff, you finally reach 
> "Looking to the Future." Read it through. ESPN lost more than 1 million 
> subscribers, between 2011 and 2013.
> 
> Look at this quote, which echoes what I've been trying to get across to you:
> 
> "Mr. Skipper described WatchESPN as 'a significant measure to preserve the 
> current system. And if you can't preserve it, it's our best opportunity to 
> convert to something new.'
> 
> "He added that while he could not imagine more than 10 percent of pay-TV 
> subscribers cutting the cord, 'big numbers don't have to flee the system to 
> have a profound effect on ESPN.'"
> 
> So, one year ago, the ESPN President acknowledged that what they were doing, 
> offering ESPN online only as part of an MVPD bundle, was basically a 
> desperate attempt to hang on to an old business model. And that even if theuy 
> couldn't preserve the dinosaur model, this would make a future model (like 
> direct online?) that much easier to migrate to. And this year, he started 
> taking exactly that type of approach.

Not sure how you can chalk this up to desperation. Perhaps it was recognition 
on the part of ESPN and it's MVPD partners that there was a huge opportunity to 
leverage the old bundle business model to add value and control the transition 
to anywhere, anytime, any device viewing of content.

There is no question that they are trying to protect one of the most lucrative 
business models ever invented, based on "tying" that is illegal from an 
anti-trust perspective for most other industries. 

You keep trying to convince us that good old competition, and technology will 
take us back to a legacy business model that died a long time ago. There is no 
"real" competition among the oligopolies that control our entertainment fixes, 
and no indication that this "illegal trust" will be broken up by the 
politicians that depend on it.
> 
>> The issue here is paying for the bundle.  Nothing has changed.
> 
> Bolderdash.

Nothing has changed. 

Regards
Craig

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