Posts for 'Cable Networks'

I was very happy to see news today of MTVN striking a big video syndication deal for its multiple networks' content with AOL Video.

Recently I praised Comedy Central's launch of TheDailyShow.com, but I took it to task for what appeared to be a destination-centric strategy, which was further supported by some executives' remarks. In this age of syndication, I thought that was a wrong-headed approach. Coupled with Viacom's misguided lawsuit against Google/YouTube, it felt like further evidence that MTVN was falling out of step with key broadband opportunities.

Today's news shows renewed hope that this may not be the case. I know these deals don't get done in a day, but I'd really like to see more syndication momentum from MTVN (and other content providers for that matter) to spread its content far and wide. Broadband Internet users don't expect to have to go to destination sites to get their favorite videos, they want them accessible where they already frequently visit. Hulu and CBS, to name two content providers that are solidly focused on syndication understand this, as do many others.

Somebody needs to seriously clue in Kevin Martin, the chairman of the Federal Communications Commission, who has somehow gotten it into his head that America's cable TV industry needs to be burdened by all kinds of new regulations, despite the fact that competition is coming at the industry from every direction imaginable.

On the probability that you don't think too much about the FCC's actions, nor what they might mean to you, I have a reminder for you: when America's top communications regulator seeks to drive the industry that is America's #1 provider of broadband Internet service into a regulatory ditch, that's a problem for anyone who works in the media, entertainment, telecommunications and technology industries. Mr. Martin's cockeyed plans threaten to do this.

First, a quick recap. In the last several weeks Mr. Martin has sought to use hand-selected (and highly questionable) data to resurrect an arcane FCC prerogative known as the "70/70" rule. It is not worth reviewing what this rule is or whether or not it applies. What is important to know is that Mr. Martin has sought to use this rule to introduce regulations forcing cable companies to submit to federal arbitration to resolve carriage disputes with cable networks and to reduce the prices of certain leased access channels by upwards of 75%. Lingering in the background are further regulations, such as forcing "a la carte" unbundling of cable channels for unfettered consumer choice.

Last week wiser heads prevailed with the other FCC commissioners, many members of Congress and the White House intervening to check-mate Mr. Martin's plans. In fact, so perturbed by Mr. Martin's recent actions is the House Energy and Commerce Committee chairman John Dingell that has opened an investigation into Mr. Martin's handling of the FCC's affairs.

Now, in retreat, Mr. Martin has come up with a new regulation capping any one cable operator's U.S. coverage at 30%. This is particularly targeted at Comcast, which, with 27% coverage, is just a whisker away from hitting the proposed cap.

In criticizing Mr. Martin, let me make clear that I'm no cable apologist nor am I a regulatory libertarian, against all forms of government intervention. I worked in the cable industry from 1990-1998 and know the good, the bad and the ugly of the industry quite well. The government has intervened in the past to correct legitimate market failures caused by clear industry bad actors. But those days are past. Now the cable industry is fighting for its life against the triple threat of satellite, telco and broadband "over the top" competition.

So how is it possible that Mr. Martin has so completely "missed the memo" that America's consumer communications services - video, broadband Internet access and voice - are more competitive today than ever, and that re-regulation is completely wrong-headed? And that technology is enabling a wealth of new services that are causing traditionally distinct industries to compete against one another, with the ultimate winner being consumers? And that real, skilled, high-paying, American jobs which are tied to the innovative media, entertainment, technology and communications markets he oversees will certainly be adversely affected by these onerous new regulations he is proposing?

Of course, I cannot get inside Mr. Martin's head to explain his actions. All I can guess is that somehow he arrogantly believes that Washington's bureaucracy is better suited to sort out the hyper-competition and innovation sweeping these industries than are the free markets and myriad technologies being introduced. How profoundly incorrect that belief is. Last time I checked Mr. Martin's bio, he personally has exactly ZERO day-to-day business operating experience, so maybe someone can remind me what his particular expertise is in these matters? As if all this isn't enough, don't forget about how reckless it is for a regulator to mess around with one of the few remaining vibrant pockets of the American economy.

Building B is major league stealthy company with an audacious vision for how consumers will access video content in the future. If it succeeds current multichannel video service providers (namely cable and satellite providers) will feel the brunt.

Building B has a blue chip executive team and pantheon of accomplished investors and advisors. It made headlines a few months ago when it announced a $17.5M funding round led by Morgenthaler Ventures, OmniCapital and Index Ventures.

Last week I had a briefing with Buno Pati, CEO/Co-founder and Phil Wiser (Chairman/President/Co-founder). They are both highly-experienced and successful technology executives who are also quite PR savvy. They know how to stay on message and close to their stealthy script. I needed to use my "virtual crowbar" persistently to try to pry a few new morsels of information out of them. From what I learned, it's a pretty cool story. Following is what I learned about what the company.

• TV must be the center of the consumer video experience, and today's service must be redefined
• Access to broadcast content is critical for success
• On demand, high def is in, linear, standard def is out
• Open access to robust wireless networks will be prevalent
• Advertising will be key value driver in the future
• Price of storage is going to virtually zero;

Given all this, in Buno's words, "Building B's opportunity is to unify, simplify and deliver a video experience to consumers at a more palatable price." This simple sounding statement belies an excruciatingly tall order.

The company is creating a next generation set top box of sorts that will deliver the gamut of video: TV, movies and broadband. Buno and Phil don't see their box as comparable to ones from say Akimbo, Vudu or Apple TV. These are really broadband-only augments, whereas Building B aspires to be a full-on substitute for cable or satellite. Their box will be able to access content through both wired and wireless delivery infrastructures. One engineering challenge is to match content with the optimal delivery network. So for example, one-to-many broadcast networks might be delivered over wireless while niche and interactive content would use broadband.

But Building B doesn't see a model selling the box at retail (though Phil concedes this might be a secondary outlet). Others have tried and failed at retail. Rather, its go-to-market strategy contemplates partnering with service providers like telcos and ISPs which want or need to be in the video business, but don't have the stomach or cash to upgrade their networks to do so.

Building B plans to develop a video entertainment service offering incorporating its box which can be made available turnkey to partners. These partners could include smaller telcos, particularly in rural areas, which have traditionally stapled on a satellite offering to fill out their triple play bundle. Or they could be larger telcos like AT&T or Verizon, who might augment their fiber rollouts with Building B's approach. Or they could be broadband ISPs, portals and others who aspire to be in the video business.

A key hurdle for Building B is assembling a fully competitive video lineup to what today video providers offer. This is no easy feat. Cable programmers in particular are reluctant to make advantageous deals with new distributors for fear of antagonizing existing cable and satellite affiliates. Yet Buno feels confident that Building B will gain access to major cable networks' fare, on demand, and on deal terms that are both economic to the company and non-disruptive to these networks' current arrangements. Accomplishing these deals alone would be noteworthy.

Lastly, Building B envisions delivering a personalized and easy-to-access service. Buno speaks of having a "dumbed down approach" aimed at satisfying only primary consumer needs and routines. Given its emphasis on HD, this is the part of the Building B vision that must necessitate a colossal hard drive in the box to cache content for ready access. Indeed, Buno said the company is "betting heavily that the price of storage is going to zero." If this assumption is off the bill of materials on storage alone could bust the box's budget.

Listening to Building B's vision, it's hard not to get enthusiastic about the world it seeks to create. As a consumer it would be thrilling. Yet the technology landscape is littered with ambitious would-be contenders whose aspirations foundered when faced with real-world engineering, marketing and business model challenges. Building B is simultaneously climbing tall mountains in multiple directions. If it succeeds, it will become a big-time disruptor of today's business models. It's going to be fun to watch it try.

And for Brotherhood, a program set in Providence, Rhode Island, they landed a cardstacker to create the state's capitol building out of 22,000 cards. Posted on YouTube 3 weeks ago, it's generated 350,000+ views.

For Showtime, and for any other premium content providers, broadband's ability to expose potential viewers to their shows is huge. Doing so with novel approaches like the ones above continue to demonstrate how broadband opens up a whole new creative palette for marketing and programming teams. More evidence that traditional marketing equations are changing.

However, a bigger picture question that Dailyshow.com's launch raises is how these direct-to-consumer initiatives work vis-a-vis third-party distribution deals. With media companies newly empowered to engage directly with their audiences using the Internet and broadband, many analysts have predicted the result will be diminishing relevance of third-party aggregators, including everyone from Comcast to Yahoo to Joost to you name 'em.

It's pretty apparent that MTVN/Comedy Central is coming down on the side of heavily emphasizing direct-to-consumer as its broadband video strategy when you combine Viacom's ongoing lawsuit against Google/YouTube, MTVN EVP Erik Flannigan's comment ("People should be reacting to 'The Daily Show' on its own site...God bless them for doing it everywhere else, but this should be the epicenter of it") and a company spokesman's comment ("that a few selected clips could become available on sites through syndication deals").

Count me among those who think this is both the wrong approach and one that will ultimately under-optimize the value of the Daily Show and other franchises in the broadband era. Quite simply, building out a strong direct-to-consumer presence like Dailyshow.com is NOT an either/or decision relative to also developing strong third-party distribution relationships.

In fact, the reality is that strong third-party distribution is essential in the Internet era, because Internet usage is both highly distributed among millions of web sites and also concentrated at a few large portals. Media companies' goal should be to proliferate their content (under the right deals of course) into all the nooks and crannies of the Internet while also striking deals with big portals to maximize exposure, usage and ad revenue.

But don't think distributors get a free ride in the Internet era. They need to prove they can leverage their audience devotion and traffic to drive value for content providers. Those that do will succeed. Proof of this is already emerging. One senior broadband executive recently told me that over 80% of his traffic comes from YouTube and other distribution partners, with his own site's traffic in the minority.

Not aggressively pursuing third-party distribution, as it appears is MTVN's plan, in essence requires that users reorient their behavior to come solely to one uber destination site like Dailyshow.com. To me this smacks of classic traditional media thinking where consumer convenience or preference gets short shrift in the name of what's supposedly "best" for the brand. My guess is if you asked Jon Stewart off the record what his preference is, he'd likely say, "make my stuff available everywhere!"

So kudos to the folks behind Dailyshow.com. But don't let your good works end now. Go out and find the best third-party distributors you can and let them help you extend the Daily Show franchise even further.

The past two days have witnessed two very significant cable network-related transactions. First, Discovery announced its acquisition of HowStuffWorks for $250 million, its largest acquisition ever. And second, Scripps announced that it would separate itself into two companies, with its marquee networks, HGTV and Food Network, finally being pried free from the E. W. Scripps's traditional newspaper business.

I interpret these announcements as continued recognition by major cable networks that their futures lie squarely in the interactive and broadband video areas. These networks - and others - are laying the groundwork for an evolution from sole dependence on their traditional business model. That model has been a monster success over the years, built on ever-expanding distribution through cable and other multichannel platforms and annual increases in monthly affiliate fees.

With the advent of the Internet and broadband, the fragmentation of audiences, the proliferation of content startups and the strengthening of online advertising models, all cable networks realize that embracing interactive/broadband opportunities is critical to their future success.

Discovery's acquisition of HSW gives it a trove of broad and deep online content, some developed by HSW and some supplied by third parties, which will now be available to Discovery's multiple properties. In one fell swoop, Discovery gains scale and expertise, which must now be delicately integrated into its current on-air and online brands. If the integration of HSW's content is a success, it will become a template for other deals.

Meanwhile, the Scripps split up follows that of Belo, another lagging newspaper company. The standalone entity, Scripps Networks Interactive, will have a growth focus leveraging strong brands in some of the best lifestyle categories (food, home, luxury, etc.). With its own currency to do deals, I wouldn't be surprised to see Scripps ramp up its acquisition activity as it bolsters its position across all these categories (in fact CEO Ken Lowe said as much in the analyst call). Scripps has been a real leader among cable programmers in building out broadband extensions to its cable networks and I would expect to see that activity grow, accompanied by distribution deals with online distributors which have strong reach.

While the Discovery and Scripps deals are the latest evidence that the traditional cable programming world is undergoing significant change, I expect we'll see plenty more similar moves in the year ahead.

(Note while both Discovery and Scripps are clients, these are my opinions only and no confidential information has been relied upon)

For now, there seem to be happy faces all around the cable industry regarding these online premieres. Cable networks argue that online generates upfront buzz leading to higher awareness and ratings for on air. This in turn builds value in multichannel subscription services. This was the point that Bruce Campbell, Discovery's president of digital media made at the recent CTAM NY panel I moderated. Of course, networks are doing the right thing following audiences online, all the while continuing to proclaim that their traditional affiliates (cable and satellite operators) are their most important customers.

Maybe I'm missing something, but I doubt all these happy faces will prevail for long. My guess is that at some point next year the lights are going to go on in the cable operator community that the portals and other new distributors are getting access to programs that operators' monthly affiliate fees pay for in the first place. Of course gone are the days of cable exclusivity, but if and when operators flex their muscles and express their change of heart about online premieres, my bet is they'll stop.

Operators should know that, at some point, the law of "there's only 24 hours in a day" kicks in - so if someone caught the premiere online, they don't actually need to tune in for the on air debut. And of course, do cable operators really want to allow viewers to grow accustomed to seeing high-quality long form programming online and/or through portals?

I think we'll see lots more of this activity until the cable operators call "foul". In the meantime, operators would be smart to start getting some of these premieres on their own portals, to bolster their own online positions.

Today I moderated a spirited discussion panel at CTAM NY’s annual Blue Ribbon Breakfast at Gotham Hall in NYC. The title was "Over the Top TV....Can Broadband Video Be Cable's Newest Opportunity?" We had an amazing group of panelists (click here to see list and listen to podcast) and with 450+ attendees a packed house as well.

A key question we dug into was whether and to what extent cable’s traditional (and highly successful) paid subscription model will be impaired by the rise of broadband video usage. Try as I did to see if any of the panelists believe that it will, none would admit to it. The reasons given included, "some form of a paid model will always exist but will never succumb entirely to a free, ad-supported model" to "cable networks won’t push broadband video distribution of their programs so hard as to upset the current model of receiving affiliate fees from cable operators", to "the low probability that inexpensive PC-to-TV bridge devices will proliferate any time soon" to "viewers have shown that they want a selection of channels to browse."

While I think each of these answers is quite legitimate, my point of view is that we are in the early days of an fundamental transformation in the video (and indeed the media more generally) business that will eventually (though of course who knows when and to what eventual degree) see most, if not all programming get unbundled into a fully on-demand paradigm.

I believe the ultimate answer to how cannibalistic broadband is toward cable ultimately turns on whether consumers believe it’s a "zero sum" game, meaning they choose between EITHER accessing programs via a VOD or DVR offering only available if they’ve bought into a monthly multi-channel video subscription (that’s to say the way the world works today) OR if they opt out of that subscription offering and INSTEAD choose to buy these programs a la carte, or receive them free, courtesy of a highly targeted ad model. The opt out option would of course be available through open broadband video distribution.

All trends point to the latter ultimately prevailing. While cable operators are well-positioned to shift their models to exploit this behavior if they act aggressively, they are also vulnerable to it if they don’t. The most important driver of the "opt out" scenario is that for an increasingly larger portion of our society, their behavior and expectations are formed by the Internet. And the ‘net is a completely personalizable and on demand medium. Especially for most online media, it is also mainly free, or paid on a fully a la carte basis (e.g. iTunes). Users’ expectations are through the roof and only getting higher. As broadband proliferates they will bring these same expectations to their decision-making.

Is it really realistic to believe that in 5 years when today’s MySpace/Facebook/YouTube/iTunes crazed 16 year old kid goes to set up his/her first apartment, s/he is going to embrace the notion of subscribing to a hundred channel package just so s/he can watch a handful of programs on demand? And of course, the ‘net’s behavior change isn’t confined to kids, it’s pervasive across all age groups.

Cable operators have an outstanding opportunity to capitalize on these macro behavioral trends. But doing so will require cable operators to make a significant and risky departure from their traditional subscription-based business models. It’s a classic incumbent’s dilemma. It will be interesting to see if they can do so.