HBO considering offering HBO GO w/o cable

[Canned Goods n Ammo]

The news out of ESPN today....those rights fees cost a LOT of money.  Several friends impacted by this.  Despite posting profits, the margins not good enough.  Many ESPN deals are up in the next two years with distributors and the cost for ESPN (already highest of all widely distributed cable channels) will go even higher.


http://deadspin.com/source-espn-laying-off-hundreds-509043249

The demand isn't inelastic.

Eventually, people will just tune out and spend their time/money elsewhere.

Now, that doesn't mean ESPN or cable companies are going to fail next year... but it does open up the marketplace for a cheaper/different entertainment/content options.

ESPN will keep cranking it up, and consumers will keep paying... right up until they don't.

[Benny B]

The news out of ESPN today....those rights fees cost a LOT of money.  Several friends impacted by this.  Despite posting profits, the margins not good enough.  Many ESPN deals are up in the next two years with distributors and the cost for ESPN (already highest of all widely distributed cable channels) will go even higher.


http://deadspin.com/source-espn-laying-off-hundreds-509043249

Money isn't everything, Mortimer.

 - Oh, grow up.

Mother always said you were greedy.

 - She meant it as a compliment.

[forgetful]

The news out of ESPN today....those rights fees cost a LOT of money.  Several friends impacted by this.  Despite posting profits, the margins not good enough.  Many ESPN deals are up in the next two years with distributors and the cost for ESPN (already highest of all widely distributed cable channels) will go even higher.


http://deadspin.com/source-espn-laying-off-hundreds-509043249

Chicos you are a smart business guy.  What you are listing above indicates that ESPN is being poorly run.  They are spending more on rights, with the only hope being to charge more and more for their product.  In a climate fighting against these rising costs, they should not continue paying a premium for the content.  If cable companies balk at the increase in costs, because they are afraid to lose customers, ESPN would be left holding the bill.  Seems like they should have more foresight into shifting economic climates.

Really opens the door for a new company like Fox.

[Lennys Tap]

Yup, but producing fries and producing television shows are a lot different.  Producing almost anything compared to a television show or movie is wildly different, thus the different economic principles in play.

There are some very smart people who have tried to convince me for years that competition and choices are unimportant in health care because it is "different". You are a very smart person trying to tell me the same thing about television. It's what people looking to establish a monopoly or protect one reflexively say. I disagree in both cases.

[keefe]

The news out of ESPN today....those rights fees cost a LOT of money.  Several friends impacted by this.  Despite posting profits, the margins not good enough.  Many ESPN deals are up in the next two years with distributors and the cost for ESPN (already highest of all widely distributed cable channels) will go even higher.


http://deadspin.com/source-espn-laying-off-hundreds-509043249

I worked with Dirk Ziff on investments in ASEAN. I have also worked with Disney, a Ziff holding. Disney is a nasty, cut-throat organization. A lot of the blame for that culture rests with Eisner but the Ziffs are demanding SOBs and helped set the bar which Eisner had to hurdle. I have not worked with ESPN but I would guess a lot of the Ziff/Eisner culture is at play in CT. If so then high expectations for return, limited patience, and bone jarring layoffs are par for the course.

GE Cap and Ziff took positions in several companies when Ziff first started investing in SE Asia. They don't just want seats on the board but like to insert people into line positions. This is great in theory but a bull headed, loud, arrogant, culturally insensitive New Yorker in a 300 year old Chinese family enterprise in Jakarta is a recipe for disaster. Throw in the fact that in one case the obnoxious New Yorker was Jewish, in the world's largest Moslem country, and the disaster turned into a meltdown.

Dirk Ziff is an HBS grad but he was completely ignorant about living and working in Asia. Seeing their expectations first hand I could not imagine being subordinated to them. I am certain much of what is happening in CT is attributable to the Eisner culture cultivated in the mid-90's. It is mercenary, audacious, and contemptuous. Customers are seen as mice who will pay whatever fare Disney dictates. That usually works well in monopolistic verticals but is not sustainable with the introduction of competition. God bless Mr. Murdoch.

[Canned Goods n Ammo]

There are some very smart people who have tried to convince me for years that competition and choices are unimportant in health care because it is "different". You are a very smart person trying to tell me the same thing about television. It's what people looking to establish a monopoly or protect one reflexively say. I disagree in both cases.

Agreed.

I know TV is different than tomato soup, but at the end of the day, the basic economics of any good or service are the same.

We can dress it up however we want, but the principles of supply and demand are always at the core. The demand for content and entertainment isn't inelastic. At some point people will tune out and/or find alternatives.

[keefe]

Agreed.

I know TV is different than tomato soup, but at the end of the day, the basic economics of any good or service are the same.

We can dress it up however we want, but the principles of supply and demand are always at the core. The demand for content and entertainment isn't inelastic. At some point people will tune out and/or find alternatives.

This is the bottom line. Karl Marx was too angry to understand this fact.

[mu-rara]

Chicos you are a smart business guy.  What you are listing above indicates that ESPN is being poorly run.  They are spending more on rights, with the only hope being to charge more and more for their product.  In a climate fighting against these rising costs, they should not continue paying a premium for the content.  If cable companies balk at the increase in costs, because they are afraid to lose customers, ESPN would be left holding the bill.  Seems like they should have more foresight into shifting economic climates.

Really opens the door for a new company like Fox.

The new competition (Fox Sports 1 and others?) has something to do with ESPN spending like there is no tommorrow.

[Canned Goods n Ammo]

The new competition (Fox Sports 1 and others?) has something to do with ESPN spending like there is no tommorrow.

It's a double edged sword.

If they buy up/overpay for the top live sports properties, in theory, they have to raise their rates.

If they keep raising their rates, it opens up a larger slot for a competitor to come in underneath.

The competitor won't have the top live content, but they might be able to follow the blueprint of another sports network... named ESPN.

[ChicosBailBonds]

The demand isn't inelastic.

Eventually, people will just tune out and spend their time/money elsewhere.

Now, that doesn't mean ESPN or cable companies are going to fail next year... but it does open up the marketplace for a cheaper/different entertainment/content options.

ESPN will keep cranking it up, and consumers will keep paying... right up until they don't.

I've heard that argument in sports for two decades and it has yet to waiver...the sports teams and leagues know it.  With every strike and fans saying\threatening they won't come back, they come back.  On the television side, nothing is more "DVR proof" than sports, which is why they can charge what they do.  People don't want to watch a game 2 days later. 

[ChicosBailBonds]

Chicos you are a smart business guy.  What you are listing above indicates that ESPN is being poorly run.  They are spending more on rights, with the only hope being to charge more and more for their product.  In a climate fighting against these rising costs, they should not continue paying a premium for the content.  If cable companies balk at the increase in costs, because they are afraid to lose customers, ESPN would be left holding the bill.  Seems like they should have more foresight into shifting economic climates.

Really opens the door for a new company like Fox.

It's the reality of sports rights.  They are protecting their turf.  If anything, Fox is going to make it much worse.  NBC, FOX are going to drive up prices even more to keep content away from ESPN, but ESPN will come in and pay it which will keep FOX and NBC with mostly the scraps, but the consumer will ultimately pay a lot more as a result of all the rights fees being paid.  NBC paying $260 million for EPL is an example.  That's a ton of money for something that will be very difficult for them to monetize directly.  NBC has done it for years with the Olympics...their hope is to drive other ratings and make it work for them.  That's the nature of the TV business.  It's definitely crazy, that's for sure.   Not just TV, either.  I have a friend at Wasserman Sports and they just concluded a deal with Microsoft and the NFL yesterday at over $400 million for a sponsorship.  Monopoly money.

[ChicosBailBonds]

There are some very smart people who have tried to convince me for years that competition and choices are unimportant in health care because it is "different". You are a very smart person trying to tell me the same thing about television. It's what people looking to establish a monopoly or protect one reflexively say. I disagree in both cases.

Well, it's pretty fundamental.  What are the cost of goods needed to produce content and the adoption rate of a product \ the need to fill hours.   Pretty fundamentally obvious how different things are.  No one has a gun to anyone's head, they can choose not to go to the movies or not watch television.

I disagree with you on healthcare as well.  How many businesses out there have to carry insurance to the tune that a doctor, hospital does for every single "customer" they meet?  It's incredible, but that drives up costs.  Create a drug that helps 99.99% of the population, but 99 of the other drugs you developed never got approved by the FDA so you need to monetize that one that did plus deal with the issues that is causes for the 0.01% that you are sued into oblivion for.

Again, not many industries like those two. Some I would argue are, but most are not.  Trying to cookie cutter all these is a fool's errand. 

[Lennys Tap]

Well, it's pretty fundamental.  What are the cost of goods needed to produce content and the adoption rate of a product \ the need to fill hours.   Pretty fundamentally obvious how different things are.  No one has a gun to anyone's head, they can choose not to go to the movies or not watch television.

I disagree with you on healthcare as well.  How many businesses out there have to carry insurance to the tune that a doctor, hospital does for every single "customer" they meet?  It's incredible, but that drives up costs.  Create a drug that helps 99.99% of the population, but 99 of the other drugs you developed never got approved by the FDA so you need to monetize that one that did plus deal with the issues that is causes for the 0.01% that you are sued into oblivion for.

Again, not many industries like those two. Some I would argue are, but most are not.  Trying to cookie cutter all these is a fool's errand. 

You would be an excellent lobbyist, but you'll never convince me that crony capitalism, corporate welfare and the discouragement of competition promote the common good, so we'll agree to disagree.

[keefe]

Well, it's pretty fundamental.  What are the cost of goods needed to produce content and the adoption rate of a product \ the need to fill hours.   Pretty fundamentally obvious how different things are.  No one has a gun to anyone's head, they can choose not to go to the movies or not watch television.

I disagree with you on healthcare as well.  How many businesses out there have to carry insurance to the tune that a doctor, hospital does for every single "customer" they meet?  It's incredible, but that drives up costs.  Create a drug that helps 99.99% of the population, but 99 of the other drugs you developed never got approved by the FDA so you need to monetize that one that did plus deal with the issues that is causes for the 0.01% that you are sued into oblivion for.

Again, not many industries like those two. Some I would argue are, but most are not.  Trying to cookie cutter all these is a fool's errand. 

Chico,

I have to admit I am seriously disappointed in you. You are not remaining true to your libertarian leanings by arguing thusly. Adam Smith, Milton Friedman, Simon Kuznets, and Ronald Reagan weep bitter tears of vain expectation. You, sir, are a sheep of much cry but little wool. An interventionist wolf in the velvety guise of a free market lamb. For shame! Please return your membership card to the Cato institute forthwith.

[ChicosBailBonds]

Chico,

I have to admit I am seriously disappointed in you. You are not remaining true to your libertarian leanings by arguing thusly. Adam Smith, Milton Friedman, Simon Kuznets, and Ronald Reagan weep bitter tears of vain expectation. You, sir, are a sheep of much cry but little wool. An interventionist wolf in the velvety guise of a free market lamb. For shame! Please return your membership card to the Cato institute forthwith.

LOL.   I've asked for an explanation why you think this particular industry is the same as the widget industry that others want it to be.....whether it is producing Pepsi, or whatever.  No one has explained it to me yet or the very smart people that have reported on this for years and years.

I'll keep my membership, thank you.  Friedman is a hero of mine.  RR....love him, though he did plenty of things that he could have turned his own card in for (amnesty, etc).  There are exceptions to all rules, and this happens to be one of them, at least for now.  Maybe it changes down the road, I suspect it will at some point, we're certainly trying to do so, but it is absolutely different than just about every other industry out there.  Them are just the facts.  When every product produced (every game, every show, every broadcast, etc) is unique to the core and not repeatable (assembly line thinking), then you have a different model from which to start. 

We'll see where it goes...someone like HBO can probably pull it off some day because they are already an a la carte service, but not yet.  Most of the other channels and sports content, going to be awhile.

[Lennys Tap]

I'll keep my membership, thank you.  Friedman is a hero of mine. 

Well, your "hero" is rolling over in his grave even as we speak. You've made him very sad.

[forgetful]

Well, it's pretty fundamental.  What are the cost of goods needed to produce content and the adoption rate of a product \ the need to fill hours.   Pretty fundamentally obvious how different things are.  No one has a gun to anyone's head, they can choose not to go to the movies or not watch television.

I disagree with you on healthcare as well.  How many businesses out there have to carry insurance to the tune that a doctor, hospital does for every single "customer" they meet?  It's incredible, but that drives up costs.  Create a drug that helps 99.99% of the population, but 99 of the other drugs you developed never got approved by the FDA so you need to monetize that one that did plus deal with the issues that is causes for the 0.01% that you are sued into oblivion for.

Again, not many industries like those two. Some I would argue are, but most are not.  Trying to cookie cutter all these is a fool's errand. 

I know this discussion is about television, but your analysis of the healthcare industry is deeply flawed (and there are some carry overs to the television industry).  The healthcare industry, particularly drug discovery is not very efficiently run, primary reason being is that they can afford to gamble alot as they can force prices on the consumer and insurance companies.  More over they can and have committed flat out fraud and been given essentially free passes because if we actually convicted them no one with govt' health care would be allowed access to the medications they need.

If we remove the safety net of guaranteeing the consumer will pick up the tab, the industry would be forced to become more efficient and have a more steamlined discovery infrastructure.  I think television will be similar, right now there is a guarantee that costs will be passed on to the consumer that is driven by the monopolies cable companies have.  Pull the rug out and these television stations will be forced to be more efficient and selective in their projects, thereby keeping prices down.

[keefe]

If we remove the safety net of guaranteeing the consumer will pick up the tab, the industry would be forced to become more efficient and have a more steamlined discovery infrastructure. 

I have worked in drug discovery and development and can assure you that protocols for safety, safety, safety, then efficacy preclude the normal productivity gain mechanisms afforded other R&D efforts. Any experimentation involving unproven molecules on human subjects are by design methodical, rigorously meticulous in procedure, readily duplicable, and documented to an extreme degree. It can take years to get data lock on the most mundane safety criteria.

Imagine the cost associated with running parallel trials at multiple sites in numerous political jurisdictions, each with its own regulatory oversight. Everything that goes into and comes out of a subject's body is weighed, tested, assessed, evaluated. Everything.

At GE Cap we only managed the data collection piece of Clinical Trials. Quintiles managed the physical infrastructure while Sun provided the back end servers and Microsoft the middle tier. Harvard provided the medical component and the Singapore MoH contributed the bilingual English/Mandarin and English/Hindi CRAs. At GE we had hundreds of DBAs working on the data management and the cost per body was not insignificant. We also had biostatisticians, microbiologists, and epidemiologists on staff.

All of this was only the Trial infrastructure. Add in Big Pharma's costs associated with all of the pre-trial research as well as the in-Trial expenses and it is easy to see how getting a molecule to regulatory approval after 3 Phases approached $1 Billion.

When Big Pharma id's a promising molecule they patent it and the clock begins ticking. Every day spent in Trial is one less day they have to market the drug under patent protection before generics wash away their margins.

The current system is flawed and something everybody forgets is that litigation is the single biggest factor debilitating drug discovery and development. I cringe every time I see the class action ads on tv...

[ChicosBailBonds]

Keefe

I'm curious, what do you think Friedman would have said about an industry in which all the entities, the rich and the poor must share a majority of their profits and must spend a mandated percentage on labor?  Allowing for the weakest entities to compete on the same level as the strongest?

Normally I, like Friedman, would say this is crazy.  Yet some industries its not only workable its neeed.  The example above is the NFL.   

There are certain industries that don't fit the mold.

[forgetful]

I have worked in drug discovery and development and can assure you that protocols for safety, safety, safety, then efficacy preclude the normal productivity gain mechanisms afforded other R&D efforts. Any experimentation involving unproven molecules on human subjects are by design methodical, rigorously meticulous in procedure, readily duplicable, and documented to an extreme degree. It can take years to get data lock on the most mundane safety criteria.

Imagine the cost associated with running parallel trials at multiple sites in numerous political jurisdictions, each with its own regulatory oversight. Everything that goes into and comes out of a subject's body is weighed, tested, assessed, evaluated. Everything.

At GE Cap we only managed the data collection piece of Clinical Trials. Quintiles managed the physical infrastructure while Sun provided the back end servers and Microsoft the middle tier. Harvard provided the medical component and the Singapore MoH contributed the bilingual English/Mandarin and English/Hindi CRAs. At GE we had hundreds of DBAs working on the data management and the cost per body was not insignificant. We also had biostatisticians, microbiologists, and epidemiologists on staff.

All of this was only the Trial infrastructure. Add in Big Pharma's costs associated with all of the pre-trial research as well as the in-Trial expenses and it is easy to see how getting a molecule to regulatory approval after 3 Phases approached $1 Billion.

When Big Pharma id's a promising molecule they patent it and the clock begins ticking. Every day spent in Trial is one less day they have to market the drug under patent protection before generics wash away their margins.

The current system is flawed and something everybody forgets is that litigation is the single biggest factor debilitating drug discovery and development. I cringe every time I see the class action ads on tv...

I've been involved in drug discovery also, and can tell you that Big Pharma can improve on efficiency significantly.  I realize drug trials are quite expensive and there is a lot of risk.  I know whole companies that folded, because a rat dies after taking a drug, but that doesn't mean they are being run in the best manner possible.

I'll also say that big pharma is probably the shadiest industry out there.

Also, on the patent side there are a lot of avenues to extend their patent rights. For example, extended release formats, that provide no additional efficacy, but can allow them to obtain/extend the patent.  If the company holding the patent sues the provider of a generic, there is an automatic hold of 30 months before a generic can be offered. 

[ChicosBailBonds]

The current system is flawed and something everybody forgets is that litigation is the single biggest factor debilitating drug discovery and development. I cringe every time I see the class action ads on tv...

As do I and most sane people sans the Trial Lawyers of America.

[ChicosBailBonds]

I know this discussion is about television, but your analysis of the healthcare industry is deeply flawed (and there are some carry overs to the television industry).  The healthcare industry, particularly drug discovery is not very efficiently run, primary reason being is that they can afford to gamble alot as they can force prices on the consumer and insurance companies.  More over they can and have committed flat out fraud and been given essentially free passes because if we actually convicted them no one with govt' health care would be allowed access to the medications they need.

If we remove the safety net of guaranteeing the consumer will pick up the tab, the industry would be forced to become more efficient and have a more steamlined discovery infrastructure.  I think television will be similar, right now there is a guarantee that costs will be passed on to the consumer that is driven by the monopolies cable companies have.  Pull the rug out and these television stations will be forced to be more efficient and selective in their projects, thereby keeping prices down.

1) Cable companies don't have monopolies any longer.  Satellite is available to 94% of people in this country
2) Do you really think these content providers aren't already incredibly selective in their projects?  They don't just rush every show to the small screen.  I can't remember what the latest stats are, but more than 90% of scripts never even get piloted (i.e. created).  Shows are vetted, focus grouped again and again and again, yet most fail.  One person's treasure is another person's junk.   Think of it like a painter....DaVinci painted thousands of paintings in his lifetime, how many are "great"?  Or a composer's work?  Or a Director's work.  Too many people think along the lines of the hits, not the millions of failures that get you the hits.  Without the ability to create, and let's face it, this is an industry based on creation, you can't get the hits.



That's why I used the drug example.  I have some good friends at Amgen and Eli Lilly, and it's crazy the promising work that is done on a whole host of drugs when only one drug comes to market, and even then the litigation for that "successful" drug is insane.  Most of the stuff considered for the pipeline never gets to market.  As such, they monetize the crap out of the one or two "hits" that do make it to the market to pay for the R&D, etc.  That's why I used the analogy.  Many many failures, a few hits, and they are going to charge for those hits in order to keep developing.  Similar to the content creators.

[Lennys Tap]

1) Cable companies don't have monopolies any longer.  Satellite is available to 94% of people in this country
2) Do you really think these content providers aren't already incredibly selective in their projects?  They don't just rush every show to the small screen.  I can't remember what the latest stats are, but more than 90% of scripts never even get piloted (i.e. created).  Shows are vetted, focus grouped again and again and again, yet most fail.  One person's treasure is another person's junk.   Think of it like a painter....DaVinci painted thousands of paintings in his lifetime, how many are "great"?  Or a composer's work?  Or a Director's work.  Too many people think along the lines of the hits, not the millions of failures that get you the hits.  Without the ability to create, and let's face it, this is an industry based on creation, you can't get the hits.



That's why I used the drug example.  I have some good friends at Amgen and Eli Lilly, and it's crazy the promising work that is done on a whole host of drugs when only one drug comes to market, and even then the litigation for that "successful" drug is insane.  Most of the stuff considered for the pipeline never gets to market.  As such, they monetize the crap out of the one or two "hits" that do make it to the market to pay for the R&D, etc.  That's why I used the analogy.  Many many failures, a few hits, and they are going to charge for those hits in order to keep developing.  Similar to the content creators.

I wonder if you went to DaVinci's house and wanted to buy a painting if he would only sell it to you if you would also buy some crap nobody else wanted. Or if a drug company would only sell you an arthritis drug you found effective if you also bought some junk from their warehouse that didn't work. Or if a movie studio would only let you pay to see Iron Man if you also bought a ticket to Gigli. Create enough hits to cover your misses (or one big enough hit) and you're in business. Don't and you fail. Isn't that the American way?

[keefe]

Keefe

I'm curious, what do you think Friedman would have said about an industry in which all the entities, the rich and the poor must share a majority of their profits and must spend a mandated percentage on labor?  Allowing for the weakest entities to compete on the same level as the strongest?

Normally I, like Friedman, would say this is crazy.  Yet some industries its not only workable its neeed.  The example above is the NFL.  

There are certain industries that don't fit the mold.

Friedman was a big Sox fan so I believe he would be in favor of competitive balance in professional sports. Baseball's anti-trust exemption exists for the reason that the internal management of MLB or the NFL is to maintain some semblance of competitive balance. The mistake you make is in confusing competitive balance with competitiveness. MLB, NFL, NBA, NHL are collectives with 30-32 independent business units. Profit sharing and access to labor are mechanisms used to control competitive balance between the constituent members of the collective.

But MLB or the NFL must be competitive within the entertainment vertical for it is there that they slug it out with Hollywood, the symphony, the local poetry reading, a trip to Disneyland, or having a beer in your backyard. Consumers vote with their wallets and baseball competes with Sea World for a family's discretionary entertainment spend. They may purchase tickets to see the Padres but that is a sub-brand to MLB.

 

[Benny B]

We'll see where it goes...someone like HBO can probably pull it off some day because they are already an a la carte service, but not yet.  Most of the other channels and sports content, going to be awhile.

Your agreement to eventually agree with the rest of us who support free commerce is accepted.