Stand alone HBO

[ChicosBailBonds]

There are huge numbers of consumers looking to spend less on TV.  As soon as that option becomes available, ESPN needs to change their MO.

I think their are significant numbers of viewers that would pay ala carte for ESPN.  I don't think ESPN revenue would be as high as it is now.

Lower player salaries?

The TV contracts are guaranteed until 2026.  ESPN will get theirs for many many many years to come. 

ESPN has done the math, they know there aren't significant numbers that will pay for ESPN a la carte at the rate they need them to be paid in order to stay profitable.  Otherwise, they would have already done it.  I know one provider that is in a major negotiation with them right now and has been for the last year....lots and lots and lots of $$$$ is going to prevent straight a la carte for a long long time.  You'll see "skinnier" bundles, but with subscriber caps on them.

[ChicosBailBonds]

This is quite possibly one of the dumbest things I have ever read on this board.  First off, does nothing about college athletes.  Secondly, the inference that players should have lower salaries so you can have a cheaper cable bill is laughable.  If owners and GM want to stack their rosters with minimum pay level guys, that's on them.  If we sheep want to pay big bad cable company lots of $ for sports, that's on us.  But put the onus on players?

Good Lord, I still laugh.  "big bad cable".....why do so many of you not understand what drives the price?  "Big bad cable" has about 10% in profit margin...10%!!!  Go look at the profit margins of the content creators.   

[ChicosBailBonds]

Right.

As it stand, cable is priced for the masses, but if that $ continues to inflate, it will open up a hole for a lower cost alternative option.

Also, if you really want to extrapolate it, you might find content creators who feel they can create and even distribute content more efficiently than the current model. It's the "angry birds" effect. Could the next "Seinfeld" be developed and distributed via a cheap app, instead of somebody paying $X to a provider, studio, producer and distributor to get a bunch of content they don't actually use?

Again, the comparison to a game app or a song......     Something that costs very little to make.  I was at a conference last year where Angry Birds cost to create was stated at $165K total.  An album is created for half that.   

Ironic that you used Seinfeld, which got big because of mass distribution which is needed to get big.  Costs huge money to create the content for tv and many of them don't make it with the public.  If a game app doesn't make it, you're out a little money.  Much different than television.  To this day, never understand why people make these comparisons. 

[ChicosBailBonds]

That is essentially under way.

http://www.businessweek.com/articles/2014-08-28/youtube-hollywoods-hit-factory-for-teen-entertainment

Content creation and distribution is getting less expensive and more accessible every year.

MCNs....if I go through another MCN presentation begging for money I am going to scream.  The media loves to say how great they are, and about 5 to 7 of them have been purchased by major conglomerates, but most of them are surviving on YouTube ad dollars and begging for $$$ to stay afloat.  Lots of pixie dust fandom out there that are realizing that having a bunch of users (young folks) that don't want to pay for anything or believe stuff should be free doesn't drive their business models....I can tell you more than a few that are young guys who have told me "this stuff costs real money, it's hard to run a business".  Gee, no kidding...that's the problem with your model, your customers don't want to pay for anything.

It's an interesting space, one that my 12 year old loves.  Whether it's Machinima, Maker, Vevo, Fullscreen, etc.  Some of these guys have a value play, but way too many simply do not.  A number of the "artists" that have agreed to deals with these MCNs are now wishing they hadn't.  It's interesting to watch, to say the least. 

[Canned Goods n Ammo]

Again, the comparison to a game app or a song......    Something that costs very little to make.  I was at a conference last year where Angry Birds cost to create was stated at $165K total.  An album is created for half that.  

Ironic that you used Seinfeld, which got big because of mass distribution which is needed to get big.  Costs huge money to create the content for tv and many of them don't make it with the public.  If a game app doesn't make it, you're out a little money.  Much different than television.  To this day, never understand why people make these comparisons.  

#1 You brought up video games as a good comparison, not me.

Look at what your cell phone bill is like today vs 5 years ago.   How about PC video games, which is a much better comparison than the one people trot out each year to compare video to the song download industry.  PC Video games can be bought directly over the internet, just download and go...no need to go to Best Buy or Gamestop.  Prices are still $60 a game, despite the "delivery" system being more efficient.  Difference is they can also discount old games and still monetize them, much like video is today with old stuff on Netflix, Hulu, CBS All Access...new products coming out from Directv, Dish, etc.

Angry Birds is an excellent example. It competes with PC games. Its a cheaper alternative that came into play because of the new handsets and delivery model. They didn't need a large studio and years and years to develop it. It's low investment, low cost, high volume.

Not every television show is going to be "True Detective". And, as the premium shows continue to increase in cost, it does leave a place in the market for a lower cost alternative.

#2 Don't be so literal. I don't mean the next "Seinfeld" literally. I simply mean that instead of a traditional sitcom becoming a social icon (MASH, Cheers, Seinfeld, Friends, etc.), maybe it's something through alternate distribution. The marketplace is so segmented now, that nothing is going to reach as much mass appeal, and that only supports a more targeted, efficient approach.

#3 Honestly, I just think your too close to this subject matter to see the larger picture. You keep talking in contracts and red tape, and that's fine (it's what you know), but big picture, how consumers receive content, how content is distributed, and ultimately how content is created is all evolving right now. Networks and distributors can sign all of the contracts they want, but consumer economics will determine who wins and who loses.

It won't happen tomorrow. It won't happen overnight, but it's going to change. That's all everybody in this thread is talking about. CHANGE.

[Spotcheck Billy]

Good Lord, I still laugh.  "big bad cable".....why do so many of you not understand what drives the price?  "Big bad cable" has about 10% in profit margin...10%!!!  Go look at the profit margins of the content creators.   

Again, the comparison to a game app or a song......    Costs huge money to create the content for tv and many of them don't make it with the public.  If a game app doesn't make it, you're out a little money.  Much different than television.  To this day, never understand why people make these comparisons. 

Are you telling us the content creators make less than 10% or more?

[Chicos' Buzz Scandal Countdown]

Are you telling us the content creators make less than 10% or more?

interesting to see if he ever reaches the point of embarrassment...

[brandx]

#1 You brought up video games as a good comparison, not me.


Angry Birds is an excellent example. It competes with PC games. Its a cheaper alternative that came into play because of the new handsets and delivery model. They didn't need a large studio and years and years to develop it. It's low investment, low cost, high volume.

Not every television show is going to be "True Detective". And, as the premium shows continue to increase in cost, it does leave a place in the market for a lower cost alternative.

#2 Don't be so literal. I don't mean the next "Seinfeld" literally. I simply mean that instead of a traditional sitcom becoming a social icon (MASH, Cheers, Seinfeld, Friends, etc.), maybe it's something through alternate distribution. The marketplace is so segmented now, that nothing is going to reach as much mass appeal, and that only supports a more targeted, efficient approach.

#3 Honestly, I just think your too close to this subject matter to see the larger picture. You keep talking in contracts and red tape, and that's fine (it's what you know), but big picture, how consumers receive content, how content is distributed, and ultimately how content is created is all evolving right now. Networks and distributors can sign all of the contracts they want, but consumer economics will determine who wins and who loses.

It won't happen tomorrow. It won't happen overnight, but it's going to change. That's all everybody in this thread is talking about. CHANGE.

Once again, your post makes perfect sense. Chicos comes at this from one angle - and ONLY one angle. What do the rich and powerful say is going to happen? That is all that he sees.

Change will come. At times it will be very slow and at others it will be sudden. We see this with HBO's announcement (something they would never do because of content or whatever). I am sure that just a short time ago, they never thought they would do this, but markets change.

And the success of Netflix was a huge driver in that change. They were able to deliver quality content directly to consumers. They are the competition that HBO is preparing to battle with.

It also was not too many years ago where the Networks would never dream of having a 3rd-party deliver their "content". But because of changes in technology and society, they do it to survive. A hit show now will generate maybe half the audience that a Seinfeld did not too many years ago. There are too many choices now.

We still don't know what the landscape will look like, but it will absolutely not be as CBB envisions. Despite what he (or ESPN) says, there will be a standalone ESPN product. It is evolution and it cannot be stopped by the powers that be. We just aren't sure what that evolution will look like.

The power brokers (and wannabe power brokers) resist change because they don't know what their place will be in a changed world. Change will come regardless.

[Chicago_inferiority_complexes]

SMH....seriously SMH.  

I hope the Atlantic can get some business sense....they say it would be $30 a month, but you're right.     http://www.theatlantic.com/business/archive/2013/07/how-watching-unbundled-espn-and-amc-could-cost-more-than-your-whole-cable-bill/277916/

Adweek...$30 for ESPN....I sure hope those guys can get away from their "misunderstanding of economics"
http://www.adweek.com/news/television/la-carte-worst-idea-anyone-has-ever-had-151814

Variety...$30 a month for ESPN....they need to do some economics learning.  http://variety.com/2013/biz/news/would-you-pay-30-per-month-for-espn-1200563396/

Analysts say $30 a month...analysts no doubt...send them back to ECON 101.   http://articles.philly.com/2013-07-17/business/40614790_1_sports-channels-la-carte-sports-fans



I get this business, I get the economics just fine.

Now, your paragraph above shows you just absolutely do not get what you are talking about.  Absolutely ESPN would get north of $20.  You fail to recognize that ESPN TODAY gets about $7 to $8 per month per subscriber from about 100 million paid tv homes.  Do the math.  They have liabilities in to the many many billions, added to it just the other day with the NBA.  Do the math, this isn't hard....all it takes is someone with a business background.  Oh the irony...give it a try.

For a business guy, I get the economics just fine because I understand the nuances of how it works, and honestly...you don't....and if I'm being snarky and condescending about it, too bad.  You begged for a response a few times in this thread, I was busy working (where you were condescending yourself), so I'm giving you the answer.  I'm tired, but your snarky tone deserved a snarky response.  Clearly, you are out of your element in this space...completely.

Wow, Chicos, take a deep breath. No snark or condescension intended at all. Just some good-natured ribbing.

For a guy who assures us (depending on the day) that it will either never happen or could never work out, you sure are pretty defensive about something that isn't going to happen.

Sure, ESPN can get $30/mo. And it will have an incredibly small base of viewers who actually pay it. But, hey, if you're right and they can get back every dollar they're currently getting, why worry?

[Canned Goods n Ammo]

Once again, your post makes perfect sense. Chicos comes at this from one angle - and ONLY one angle. What do the rich and powerful say is going to happen? That is all that he sees.

Change will come. At times it will be very slow and at others it will be sudden. We see this with HBO's announcement (something they would never do because of content or whatever). I am sure that just a short time ago, they never thought they would do this, but markets change.

And the success of Netflix was a huge driver in that change. They were able to deliver quality content directly to consumers. They are the competition that HBO is preparing to battle with.

It also was not too many years ago where the Networks would never dream of having a 3rd-party deliver their "content". But because of changes in technology and society, they do it to survive. A hit show now will generate maybe half the audience that a Seinfeld did not too many years ago. There are too many choices now.

We still don't know what the landscape will look like, but it will absolutely not be as CBB envisions. Despite what he (or ESPN) says, there will be a standalone ESPN product. It is evolution and it cannot be stopped by the powers that be. We just aren't sure what that evolution will look like.

The power brokers (and wannabe power brokers) resist change because they don't know what their place will be in a changed world. Change will come regardless.

Well, to be fair to Chico's, I don't think we're going to see the destruction/demise of traditional cable next week or next month.

He's correctly pointed out that there is too much profit/money invested in the "traditional" model. They may lose marketshare, but that doesn't mean they will lose profit. Totally valid.

But, I think it's been said over and over again, change is afoot. The "premium pricing" for entertainment leaves a hole in the market for something that is "value priced".

That doesn't mean bundled cable is going to go away, but there is a risk that market penetration will eventually be eroded to the point where the networks cannot create the necessary ad revenue to afford their expensive content.

The networks need viewership... that makes the premium pricing model a risky proposition, especially if/when lower priced options get created (right now people view recycled content on Netflix, but how long before there is decent "value priced" content available?).

[GOO]

Getting rid of cable is the first step.  After you give it up, you will see the light   And since you won't have ESPN you will have more time with the family, kids, walks, etc    Sitting around watching sports is no way to live, especially since they usually go hand in hand with eating junk food and weight gain.  

Sorry, I'm just in a jovial mood today and my work PC is with the IT guy so I have too much time on my hands.

But until there is a major shake out with people saying no to cable, Chico's is right, the system will keep turning AS IS.  The cost now for standalone products for HBO and ESPN is probably too high to go it alone.. which tells us that the cable TV market is inefficient and giving too much money to a few such as ESPN in order to give service to a vocal minority.  Inefficiencies tend to be weeded out over time.  I do believe it is a bubble who's time has not come yet.  The propping up of ESPN by the many for the few won't last forever.  So if you love ESPN and it keeps you with cable, you should send a thank you note to the other subscribers who help pay for your ESPN.

The house of cards will come down, but just not yet.... I think the big thing that could happen, is if the 4 broadcast networks got together and offered their stations and sub stations for a flat fee over the internet, apple tv, google tv, etc for $25 or less.  CBS alone at $6 won't do it, especially when it is available over the air (and then anywhere with a Tivo).   Getting the major networks away from cable...  everything would change.  HBO and ESPN would have to offer their services standalone at a reasonable price (even if they lose money) as people flee cable and add netflix, etc.

Chico's can tell me why the networks won't do it.  But I'm not talking now, I'm thinking the next 10 years.

Also, if an Apple or Google really wanted to get in the game and offered the networks some sort of loss share to offer their stations over their devices, that could speed things up.      

[Benny B]

Another interesting one, Pluto.TV.  As someone who viewed almost all of my channels as filler garbage that I only cycled through when terribly bored, it's basically a free replacement of 100 of them.


http://www.forbes.com/sites/jjcolao/2014/03/31/hey-cord-cutters-pluto-tv-launches-with-85-channels-of-free-tv-style-internet-video/

From the article:

In addition to the expected categories of content like news, sports, music and kids, Pluto.TV presents a collection of niches unique to the digital age. The “Pwned FPS” channel shows a stream of first-player shooter clips from video games like Call of Duty and TitanFall. There are four channels devoted exclusively to TED Talks and one for “Fail.” Currently streaming on “Fail”: a show called “Fails Nutpunch Faceplant Wipeoutz.” (emphasis mine)

How does this not infringe on "Ow, My Balls?"

I don't know whether to think Mike Judge a creative genius or Nostradamus.

[ChicosBailBonds]

Are you telling us the content creators make less than 10% or more?

No, that's my point, they are making a ton more but the distributors are the ones that get the blame.  No one blames ESPN for their cable bill, or HBO, or Cartoon Network....they blame the cable company.  That's the irony of it all.  The profit margin on video is around 10%, which is nothing to crazy....especially compared to many other industries.

[ChicosBailBonds]

Right.

As it stand, cable is priced for the masses, but if that $ continues to inflate, it will open up a hole for a lower cost alternative option.

Also, if you really want to extrapolate it, you might find content creators who feel they can create and even distribute content more efficiently than the current model. It's the "angry birds" effect. Could the next "Seinfeld" be developed and distributed via a cheap app, instead of somebody paying $X to a provider, studio, producer and distributor to get a bunch of content they don't actually use?

Cable is priced based on what content companies force cable to be priced at.  A cable company might only want ESPN and ESPN2, no Disney content.  Too bad.  Disney forces it all on the cable company and guess what, you'll take Longhorn Network as well and like it.  OH, and distribution, guess what cable company...ESPN has to be in 90% of your customer's homes, if not....you don't get to carry it.

So on and so forth.

[Canned Goods n Ammo]

Cable is priced based on what content companies force cable to be priced at.  A cable company might only want ESPN and ESPN2, no Disney content.  Too bad.  Disney forces it all on the cable company and guess what, you'll take Longhorn Network as well and like it.  OH, and distribution, guess what cable company...ESPN has to be in 90% of your customer's homes, if not....you don't get to carry it.

So on and so forth.

Correct, but if ESPN wants $400 per month, the market penetration would drop, right?

Right now, cable is at a price point where a lot of people are willing to pay. I don't know how elastic or inelastic the demand is.

If content creators and distributors move to a premium pricing strategy, I think we'll find out.

[ChicosBailBonds]

What you're suggesting is a premium or super-premium pricing model/strategy. It clearly works for some brands and products. Apple, BMW, Cadillac, Marlboro to name a few.

Big picture, the risk is this:

If "traditional" cable moves to a premium pricing model (with less penetration, but better profit per customer), it creates a gap in the marketplace.

Examples:
- iphone is a great product that has high demand, and people are willing to pay a premium. However, if you look at marketshare, Apple left a hole at the middle/bottom end of the global market, and Android and google filled it with more reasonably priced products.
- BMW makes a fantastic car, but Toyota and Honda sell waaaaay more cars in the mid and bottom tiers.
- "traditional" video games are sold for a premium price (takes a lot of overhead to develop a game), but games like "Angry Birds" are far more popular and are profitable for their developers.

So, I think you are probably correct, "traditional cable" is not going to go away, but you might see far less market penetration at a premium pricing model, which would ultimately hurt ratings and/or ad revenue, as well as leave a pretty big hole at the bottom of the marketplace for cheaper/alternate content creators as well as alternate providers.  

You're not totally wrong on the conceptual part.  Though I would use different words.  The pricing for cable \ etc isn't necessarily a premium play, it's the cost of doing business to pay for all the content the content creators or forcing.

Yes, I agree that will create a separation and OTT will fill that gap.  You'll see more and more of the networks trying to fill that void.  Here's where it gets interesting, however.  The networks are trying to capture the cord never dollars without jeopardizing the huge revenues they get from pay tv. They will use price as their lever to do that.  That's why CBS the other day came out at $5.99....that's a rip off for that content you are getting and very few people will ditch pay tv for that kind of product, but it's enough of a lure for those that had no gumption to buy pay tv in the first place to take it for a spin.

Where it gets interesting is when too many people leave pay tv for the alternative, then their (the content creators) golden goose is in major jeopardy, including all the $$$ needed to create their content in a model in which a lot of stuff never makes it or doesn't last long.  If that starts happening, most analysts in this space will tell you they will jack up the OTT rates so much to basically get the missing revenue there, and at that point you're back to square one.  They can't give up their revenues needed to produce the content, but conceptually you are correct.

[Canned Goods n Ammo]

You're not totally wrong on the conceptual part.  Though I would use different words.  The pricing for cable \ etc isn't necessarily a premium play, it's the cost of doing business to pay for all the content the content creators or forcing.

Yes, I agree that will create a separation and OTT will fill that gap.  You'll see more and more of the networks trying to fill that void.  Here's where it gets interesting, however.  The networks are trying to capture the cord never dollars without jeopardizing the huge revenues they get from pay tv. They will use price as their lever to do that.  That's why CBS the other day came out at $5.99....that's a rip off for that content you are getting and very few people will ditch pay tv for that kind of product, but it's enough of a lure for those that had no gumption to buy pay tv in the first place to take it for a spin.

Where it gets interesting is when too many people leave pay tv for the alternative, then their (the content creators) golden goose is in major jeopardy, including all the $$$ needed to create their content in a model in which a lot of stuff never makes it or doesn't last long.  If that starts happening, most analysts in this space will tell you they will jack up the OTT rates so much to basically get the missing revenue there, and at that point you're back to square one.  They can't give up their revenues needed to produce the content, but conceptually you are correct.

Well, now we're getting someplace!

I completely understand content creators and cable companies trying to capture different segments of the market. Totally makes sense. It's a teeter totter that they are riding right now.

How do viewership #'s and ad revenue come into play?

If I understand you correctly, it sounds like networks are looking for usage fees more than ad revenue.

Could an alternate/cheaper business model concentrate on ad revenue instead of usage fees? Maybe the ads are built in and can't be skipped? Maybe the ad content is custom for each viewer? (similar to google).

[Spotcheck Billy]

What is OTT? Do you mean the same as OTA (over the air)?

[Spotcheck Billy]

No, that's my point, they are making a ton more but the distributors are the ones that get the blame.  No one blames ESPN for their cable bill, or HBO, or Cartoon Network....they blame the cable company.  That's the irony of it all.  The profit margin on video is around 10%, which is nothing to crazy....especially compared to many other industries.

My point was your 1st quoted post telling us that content creators get all the $$$ not Big Cable but your 2nd post I quoted you state how high the costs in creating content are (and logically why that is), if their margins are so much higher than the 10% Big Cable gets perhaps it is too high to sustain.

[brandx]

If I understand you correctly, it sounds like networks are looking for usage fees more than ad revenue.

I think that is what they would like. As network viewership goes down drastically (as it has), they will need to look for other revenue streams.

That the is Catch-22. More usage fees mean higher cable prices. Higher cable prices means fewer customers. Fewer customers means lower usage fees.

It's going to take a few years for the market to figure itself out. That's why the HBO experiment is going to be so interesting.

[ChicosBailBonds]

Correct, but if ESPN wants $400 per month, the market penetration would drop, right?

Right now, cable is at a price point where a lot of people are willing to pay. I don't know how elastic or inelastic the demand is.

If content creators and distributors move to a premium pricing strategy, I think we'll find out.

Correct.  My point was that the pricing is mostly driven by the bundling forced on distributors.  As far as price elasticity, that argument has been going on for the last 15 years about television, tickets to Disneyland, tickets to the ballgame, etc, etc.  There's a ceiling, sure, but those discussions have been going on for decades.

[ChicosBailBonds]

My point was your 1st quoted post telling us that content creators get all the $$$ not Big Cable but your 2nd post I quoted you state how high the costs in creating content are (and logically why that is), if their margins are so much higher than the 10% Big Cable gets perhaps it is too high to sustain.

OTT = Over the Top.   Netflix, Hulu, Dramafever, Crackle, etc are OTT providers.  It's an industry term, but is coming more into the mainstream now.  My world was the linear satellite side for many years, but I have changed gigs to be in the OTT space now.  Essentially providing video "over the top" from a managed network (which has it's own share of issues) and without a decoder piece of hardware like a set top box.

[ChicosBailBonds]

My point was your 1st quoted post telling us that content creators get all the $$$ not Big Cable but your 2nd post I quoted you state how high the costs in creating content are (and logically why that is), if their margins are so much higher than the 10% Big Cable gets perhaps it is too high to sustain.

I don't believe I ever said content creators get all the $$$.

[Canned Goods n Ammo]

Correct.  My point was that the pricing is mostly driven by the bundling forced on distributors.  As far as price elasticity, that argument has been going on for the last 15 years about television, tickets to Disneyland, tickets to the ballgame, etc, etc.  There's a ceiling, sure, but those discussions have been going on for decades.

You're not wrong, but part of elasticity is a reasonable alternative.

As pricing continues to grow, it does create a vacuum that could be filled by PROFITABLE alternatives.

As you have correctly pointed out, the alternative space will have to be profitable to work. Netflix is still figuring out their business model.

But, once the alternative model is established as profitable, the ball will roll very quickly.
 

JUST TO ADD:
Tesla couldn't compete when fuel was $.99. Internal combustion vehicles were too reliable, and fuel was too cheap to justify the cost of an electric car.  

Alternate content creators and providers couldn't really compete when cable was $40 per month. But, now that cable is reaching $100-$150 per month, there is room for an alternative option to make $ with an alternate plan.

[chapman]

The house of cards will come down, but just not yet....

Actually, House of Cards is a step in the right direction since it's on Netflix