Monopolies, Retransmission Fees, and Screwing Customers

There's been a battle going on between the "broadcast" TV networks and the cable networks over something called "retransmission fees." Cable networks have traditionally paid for "cable network programming" but not "over the air programming." But that is changing and the broadcast TV networks are demanding these retransmission fees from the cable companies.

At the end of last year, there was a fight between Fox and Time Warner Cable that made some headlines. It was settled on new year's day.

The latest spat is between ABC/Disney and Cablevision and it has turned personal, pitting Disney's chief Bob Iger against Cablevision's chief James Dolan. 

Of course, the losers in all of these spats are the consumers who get jerked around and risk missing things they love like the college bowl games or the Oscars. Most of these spats get settled at the last minute, but the whole exercise gives everyone a black eye.

The reason we have to put up with nonsense like this is that cable providers are still operating near monopolies. There are other options like satellite TV or services like Verizon FIOS. But most consumers get their video services from the incumbent cable provider.

And when a content provider, like ABC or Fox, wants to get more money for its programming and the cable company balks, it is the cable company's customers who are stuck.

There's a better way and we'll have it someday, but not soon enough for me. We'll go "over the top" for our video programming, getting it via a broadband connection to the Internet. Content owners like Fox and ABC will negotiate distribution deals with dozens, maybe hundreds of providers. And we'll be able to subscribe to one or more of those providers over the internet through platforms like Apple TV, our portfolio company Boxee, and many others.

When ABC wants more money from it's distribution partners in this scenario, some will pay up and others will not. And if you want to watch the Oscars, you'll simply be able to drop your subscription to one provider, light up another, and/or possibly get it directly from ABC if you want to.

Most industries work that way today. Walmart might stop carrying Puma Sneakers but you can certainly find them in hundreds of other physical and online stores if you want a sweet pair of Clydes. A three tier distribution model from the manufacturer to the distributor to the retailer works very well to insure that there is always product available in the market to customers who want it. And I believe we are going to see that model develop in the TV (and Film) business soon.

#VC & Technology#Web/Tech

Comments (Archived):

  1. Jon Smirl

    FIOS is not an IPTV service. It’s closer to being normal cable modulated unto fiber. FIOS can be converted to IPTV if they choose to do so in the future. AT&T U-verse is the closest thing we have to IPTV.…In the long run channels (except for live news) are dead. Everything will go on-demand. Right now the infrastructure can’t handle it. Add up the bandwidth needs of 200 people watching a 20Mb Oscar stream. With a channel they consume 20Mb. With on-demand they consume 20*20Mb = 400Mb since everyone is not synchronized. Do the math for 1M people.All of this smoke screen about P2P bandwidth hogs is just a cover for the true problem which is on-demand video. Nothing else matters when compared to the bandwidth needs of on-demand video. YouTube is the beginning, America doesn’t watch YouTube for six hours a day.

    1. fredwilson

      thanks for the correction on IPTV. i will fix that.

  2. JennyCandy

    Nice post Fred. A VP from Disney/ABC came and spoke to my class at NYU Stern a few days ago and spoke very little about customers — unless he was talking about piracy or how new forms of consumption are hurting their revenue. They see us as the problem, not the answer. Tweeted this right after:…Excited for the next generation of TV and film distribution you talk about!

    1. Wavelengths

      Running a company is really fun, until you have to deal with those pesky customers.I am regularly astounded at how little time is dedicated to really trying to understand the customer’s perspective.Yes, if we customers get to wave our remote controls and dynamically select our providers based on what WE want, the providers might pay a little more attention.

      1. JLM

        Business is really about the number of customers you have and their “average” spend”.Business growth is about growing the number of customers while simultaneously trying to grow their average spend.Before a “suspect” becomes a “prospect” and ultimately a customer, the marketing challenge is how can a business get in front of the maximum number of suspects at the lowest possible cost.This is why the Internet and social media marketing are so critical — they arguably represent the lowest cost to identify and contact suspects.Once a business has a customer and has identified the value of that customer to the business — the average spend — then the opportunity becomes — “what else do you want today?”This is business from the customers’ perspective. Rrather than from the business’ perspective or from the product perspective of simply building a better mousetrap.

        1. Wavelengths

          I prefer the approach of “inviting” the customer, rather than the typical approach of “targeting” the customer. It’s a shift in nuance.If a business really fills the customers’ needs, and builds trust, through establishing a relationship, then — as Fred says, “Trust is currency.”I don’t disagree with your outline, but I think that the typical approach of today is more “buckshot” than “Here, Kitty, Kitty,” if you get my drift.

    2. UnsatisfiedMind

      I’m going to respectfully disagree with my NYU Stern classmate. I don’t think Disney sees customers as the problem, they see the revenue potential of current digital distribution methods as the problem.I think media content owners like Disney, Scripps, and Fox would very happily distribute directly to consumers (or through channels like Boxee and Roku) if those distribution channels offered an equivalent revenue opportunity to the existing cable/satellite distribution schemes.There seems to be an opportunity in this space in being the firm that creates the exchange that gives consumers the choice between “dozens, maybe hundreds of providers” for entertainment content while also providing content creators with enough revenue to create high quality content without requiring exorbitant subscription rates for each of these providers.

      1. fredwilson

        all we need to do is provide Disney, Scripps and Fox unbundled over the internet and i think we’ll see plenty of demand for their content at per subscriber price points that may dwarf what they are getting from the cable companies today

        1. UnsatisfiedMind

          Agreed, but I think this is just Step #1 in the substitution cycle.I don’t doubt that Disney could charge, let’s say $25/mo, for unbundled access to their Disney, ESPN, and ABC family of channels. Scripps could probably charge $5/mo for Food Network & HGTV. NBC Universal might get $15/mo for it’s set of networks. As a consumer, buying all these unbundled options is going to add up really quickly, and consumers will have a lot less choice because niche networks simply won’t be able to acquire enough subscribers to continue to produce content.As a Cablevision subscriber I can get access to to 290 channels for $80/mo. Sure, there might be 240 channels in my current cable package that I never watch, but every Cablevision subscriber is getting more choice for less money than we’ll be getting in the initial stages of the unbundled world.That’s why I think the next stage after unbundling has to involve ways to bundle packages of consumers instead of packages of channels so that there is wide enough distribution to keep costs low and choice high.

          1. fredwilson

            when i said “providers” in my post, i meant new bundlersi think we’ll see bundlers who focus on young men, young women, kids,techies, film buffs, etc, etci totally agree that consumers don’t want to buy all their channels alacartei think we’ll see dozens if not hundreds of bundlersthey’ll be like cable companies without the cable and they’ll compete in anopen market with each other for our business

          2. Antonio Tedesco

            I’m not suggesting consumers would pay more for a la carte access. If I can buy the dozen channels I watch for < a DirecTV package, I’d do it.

          3. JLM

            If you think about it, that’s what has happened w/ air travel. Bundlers or pseudo bundlers (Kayak, Orbitz, Expedia) are basically selling “excess inventory” but of a finite inventory.Media bundlers and pseudo-bundlers can sell “excess inventory” of an infinite inventory. Making each individual transaction minute in comparison to the overall market.Every TV turned off is idle inventory which can be accessed by making the marginal cost very, very, very low.

          4. ShanaC

            Airline tickets are equivlent. TV shows aren’t in the same way. The spark of creativity that causes people to be connected to some and not others is very hard to capture. We’re not sure completely how the formula works (as in you can make a formulaic show and it still won’t last…no one knows quite why)What will be the “excess” inventory then?

          5. Gregg Smith

            That’s interesting to consider, Fred. Will they pay cable providers for access to the networks or will cable providers pay them? Or will it be delivered with a direct to consumer model with the broadband provider only delivering the content (like the web today)?

          6. fredwilson

            here’s the way i see it gregg, but you are closer to the front lines than i am1) cable will be data providers plain and simple. they could be bundlers too and probably will maintain one that some of their customers will subscribe to.2) bundlers will emerge that will handle most of the distribution and customer acquisition3) networks will offer an ala carte single network subscription4) the retailers will be the software that runs on the internet connected TVs, appleTV, boxee, and others

          7. ShanaC

            We’ll have a lot of demand to be sure: in the beginning we won’t know what to make and what it’s cost should be. I keep thinking in the back of my head, unless you have a really good way of targeting cheaply customers cheap content, there is no way lots of high quality content is going to flow. certain kinds of content will just rise in price as information overflows and hides this stuff away.It is extremely hard to quantify creativity at its peak- it is what makes valuing art so difficult. It’s going to be a mess for a very long while when we debundle, that’s for sure…

          8. Harry DeMott

            What I never understand at all is the argument that a la carte will kill peoples choice in programming and then somehow equating that with a negative outcome. If I never watch Oxygen, why would I want to subsidize it. Should there be some right to programming that very few people watch. I always thought that these niche channels should be built up on VOD platforms or over the top platforms. Sure programming quality might be lower than what you see – but if the premise of the programming catches on – programmers can then put more and more money into production. If you look at most marginal channels – there are 1-2 shows per channel that actually attract an audience of any size and the rest is just filler and repeats. A good example might be something like Showtime – which I pay probably $6 per month for (it is bundled on Directv with other movie channels) – but really only watch Dexter and Tudors. So For $72 per year – I generally get 24 episodes in total of these shows – or $3 per episode – plus the option on any movies I might catch. Can I replicate this by using the DVD market – for sure.

        2. Reykjavik

          Total unbundling is what I want and is what cable companies and content providers will never agree to. Look at ESPN, for instance. They get a few bucks per month per subscriber, but I bet that a lot of households with ESPN on their cable line-up don’t even look at it. I’d be willing to pay more per channel for the channels that I would like, but that would mean the cable companies would extract less revenue from me. However, there would be more profit, as they wouldn’t have to pay fees to all those channels that I didn’t subscribe to. Incidentally, this guaranteed revenue stream is also what’s been driving up the prices that ESPN and others have paid for sports rights. Go a la carte, and you’ll see a change in the licensing economics as well. Again, never will happen.

    3. Andrew Stern

      I think many people on this thread are confusing CUSTOMERS and CONSUMERS. The Disney exec Jeremey refers to almost certainly cares deeply about his customers. The problem is that his customers are cable operators who buy his content. Network studios gets tens of billions of dollars a year from cable providers, which is why they are so wedded to the current system. Boxee-type over-the-top revenue is just too small for them to think deeply about right now.Which is why Fred Wilson and other smart investors have an opportunity to create the next generation of media distribution. The consumer demand paradigm is increasingly clear — and it’s an open field to determine who will service that demand with the best business model, technology, and most of all execution.

  3. kidmercury

    monopolies/excessive wealth concentration the in telecom/media business took a giant leap forward thanks to your boy clinton passing the telecommunications act of 1996. please remember that next time you want to tell us how great clinton was. don’t forget how he robbed social security to “balance the budget” or helped cover up the OKC bombing. and of course be sure to look up arkancide.lots of bad news folks, just because it’s the weekend doesn’t mean we should take a break from dwelling on problems and feeling bad. history repeats until we choose to break the cycle.

  4. Sandro

    I cannot agree more. Big provider companies – regardless of what they offer – need to start acknowledging that the consumers are the ones who ultimately have the money they so desperately seek, and if consumers are going to pay, they want some say in how they get to consume said offerings either through time-shifting, place-shifting, or as you highlight, provider-shifting. I can look to the dismal failure of DRM, or the growth of torrents as a delivery mechanism as two obvious manifestations of that “I am paying for this so let me do it in the best possible way for me”.As a sidebar, not a couple minutes after you posted this piece, I received an email from Time Warner Cable about the ABC situation and their battle with FOX. There’s clearly something brewing on all fronts. The letter can be viewed here:

  5. Antonio Tedesco

    Don’t forget we also get screwed by the cable companies who own content. Comcast and DirecTV fought over Versus last Fall and Comcast doesn’t give DTV access to SportsNet in Philadelphia. Hopefully the recent FCC ruling changes that and we really get access to it.I would love to see an a la carte model. I may have 500 channels but there is so little good programming.

  6. Joe Siewert

    This post follows nicely from yesterday’s videos and some comments where the discussion was around open infrastructure and needing to provide more flexible ways for customers to access broadband/data.

  7. MrColes

    Just to see if I have my business terms right… the service providers and content providers are complements, and the service providers will eventually become commoditized. However, since the cable companies (service providers) are pretty much a monopoly right now, the whole system is messed up and consumers are the ones who pay?More complements talk from Chris Dixon and Joel on Software:

  8. Henry Blodget

    Agreed. Simply cannot come soon enough.Unfortunately, since there’s so much money at stake, and since going direct to consumers won’t always replace the lost revenue, it will likely take a while.One way to break it down faster would be for a new entrant to raise a bunch of money and pay big retransmission fees long before it has the consumer subscriptions to back them up. This will make the risk for the content providers less–and they’ll therefore be willing to risk pissing off the cable companies. Right now, they’re so scared of losing distribution that they sign away the rights to the content in particular markets (all rights, not just cable rights). That needs to break down, and the fastest way to make it happen is to have an over-the-top provider be able to pay big fees from the get-go.The second piece is a simple set-top box. The consumer needs to be able to stuff an ethernet cord in the back of the box and have it work as simply and easily as a cable box. Until we have that, consumers just won’t jump on board. Consumers HATE complexity, and the current over-the-top solutions are just ridiculously complicated.

    1. fredwilson

      good points henry, particularly about the content companies reluctance to take the plungeone way around retrans fees is to use the digital over the air broadcast as a bridgei also think we won’t be using set top boxed will be internet connected big screen tvs running appletv, boxee, or something elsewhat if they all came with a digital over the air antenna and receiver?

      1. Gregg Smith

        My head spins thinking about the ramifications of all video programming being delivered via over the top and broadcast signal. Jon Smirl is right that the infrastructure can’t handle it. It will require fiber to every home and a tremendous amount of backbone construction. The signals today are being delivered via satellite. When I think of the hardware investment that will be scrapped, it’s overwhelming. Buy fiber investments and datacenters…

        1. Wavelengths

          You might be interested in the fiber-to-the-home project in Lafayette, LA. This is exactly what they are trying to provide.http://www.fiberforthefutur

          1. Gregg Smith

            I haven’t heard of that one, but there are many in the design or construction phase in relatively low density/rural/suburban areas like Lafayette. I would venture all are publicly funded or heavily subsidized. Utilities have a very low cost of money and a need to invest free cash flows (so the government owner won’t repurpose them to the general fund). Most utilities have very little additional investment to do in the electrical plant, so fiber is a good option with the smart grid potential etc. In addition, their ROI needs are much lower than a private entity concerned about creating value for shareholders.We’ve had to transition from a phone company only concerned about ensuring a dial tone is there when a receiver is picked up to a provider of a large menu of services over a broadband, cable and voice connection (with combined twisted pair, HFC and fiber network). It will be interesting to watch utility providers make the same transition. The muni utility in Memphis where I currently live couldn’t do it and ended up selling it’s fiber assets to Zayo for a song.

        2. fredwilson

          i’ve thought so much about the efficiency of broadcast and how we are going to scrap so much of our investment in it. but that’s is the power of a two way medium over a one way medium. one way simply cannot compete unless it can be elegantly paired with a back channel.

      2. Tereza

        Fred have you seen the DTT (digital terrestrial)/broadband “hybrid” set top boxes and services they are rolling out in the UK (Bestv), Spain, elsewhere.It’s an inexpensive box (~$100 one-time fee) the user plugs into the wall. No installation required. 15-30 channels (can be configured to only the ones you want). Time shifting. Feedback loop via broadband.Focuses on the low end of the market — people sick of paying cable or satellite bills (or whose needs are simple and with the analog/digi switchover they can’t use their bunny ears anymore).But these boxes could be configured to any logical, consumer-based bundle (kids, sports, porn, etc.)The core tech offers quite a bit of flexibility about how to marketize.

        1. fredwilson

          We are going to be in a post set-top box world very soon. The tv will be internet connected

    2. Brian Hayashi @connectme

      Professional sports – particularly the NFL – provides a potential way for a new entrant to make a splash with the least risk. Use NFL games as a tentpole and stop wasting on-air promotion on a single destination show – promote show concepts that the viewer might actually like. After all, It can’t be any more of a crapshoot than NBC’s upcoming fall schedule.The battles between the NFL and its players are akin to the battle between Cablevision and ABC – both are about indirectly shifting risk to the consumer. While consumers hate complexity, I argue both episodic TV and entire TV networks often need time to find their legs — time that they might not get in a hyperefficient market. After all, CNN’s 24-hour news model was widely viewed as a testament to Ted Turner’s hubris for years, until interest in the first Gulf War changed American viewing habits for good.

  9. Gregg Smith

    I work for a small, rural cable provider. We know the content will ultimately be delivered on demand, over-the-top via a broadband connection. We embrace this. We would love to give consumers a la carte programming but the content providers make it economically impossible. Want the station that everyone else wants? It costs more for that one than it does for these 40. The valid argument for that is that bundled programming pays for developing niche stations that wouldn’t get big view numbers but have a rabid following–generally higher quality programming that the masses don’t watch. In reality, a la carte cable programming would push the niche content to over-the-top. A good thing in my opinion, but the 5 big video content providers can’t figure out how to make money there.Contrary to popular belief, the cable business–especially anything beyond bare-bones, basic cable that requires a box (digital, HD, etc)–has very low margins due to what content providers charge per subscriber. Retransmission fees for programming that has historically been free via broadcast are a fact of life. I can’t speak to the Cablevision-WABC-Disney issue directly without specific knowledge of the deal obviously, but I do know that Disney–via the ESPN franchise–has historically been the most “creative” at generating revenue from cable and ISPs (see ESPN360). They are the programming monopoly. Consumers have plenty of choices in most cases for video programming (Direct and Dish in our market; add Verizon and ATT in NYC). To me, its analogous to Yahoo charging an ISP for its content I would love another perspective on that convincing me otherwise.We are seeing over-the-top (Netflix and Hulu mainly) drive demand for our higher bandwidth residential products just as we are seeing private cloud (i.e. wide area networking) drive demand for our fiber. We welcome the future as long as we can remain a valuable service provider and not a dumb pipe. We are working hard to make that a reality.

    1. fredwilson

      greggthanks for sharing the realities from the front lines. that’s very good newsto hear. maybe the small cable companies will lead the way to the “over thetop” world

    2. JLM

      Cable TV is a fascinating business on a number of different planes. I suspect that the accounting approach of capitalizing the development of the physical plant and valuing it at some multiple of plant in the ground (an idea undone by the actual pricing of several bankruptcies) means that cable TV has never made anybody any money unless they sold it to a bigger fool.On the other hand, it is a wonderful example of “convergence” whereby tv begat cable tv which begat bundled internet, phone and security services whch begat the unbundling and de-convergence of cell phone service.I suspect in 20 years every bit of what is today delivered by cable is delivered via satellite. Direct TV is the first wave of a tsunamai as the burgeoning and unlimited capacity and technology of the airwaves overwhelms the limitations of the pipe.

      1. Gregg Smith

        Broadband via satellite? It will be a very long time (longer than 20 years in my opinion) before an unwired connection can deliver the content consumers desire whether that’s wireless or satellite. I would love to read more about the potential technologies that promise to deliver a fiber-like connection without fiber.The bottom line regarding your cable bankruptcies comment: it’s rare, if not impossible, to find a successful private company that has constructed a network to the home in a non-urban market without significant government assistance.

    3. Harry DeMott

      Very interesting. AS you mention, in the cable companies I look at broadband service carries about an 80% EBITDA margin, VOIP telephony higher than that – and video is the lowest margin business of all – at under 30% – depending on scale. It would make logical sense – if one could do it – to simple get rid of all the bandwidth eaten up by the analog channels and bind more and more QAM’s together for higher and higher speed data. You could probably then do digital switching on al the other QAM’s and and dedicate a certain amount of pipe for perhaps the top 20 cable channels (using some sort of digital encryprtion for conditional access) and everything else can go through VOD. Cable would then not be a dumb pipe – but an intelligent pipe.

  10. Adrian Scott

    Last time I checked, television broadcasters had a near-monopoly also… (“The reason we have to put up with nonsense like this is that cable providers are still operating near monopolies.”) It’s interesting to look at the legal history of cable and compare it with napster/p2p/internet retransmissions ;)… (on another topic: is your ad revenue worth having the distraction of the flashy ad from american express on the right? annoying…)

    1. fredwilson

      i give all my ad revenue to charity. i apologize for the ad but not forgiving money to people who need it.

  11. Subrahmanyam

    Distribution monopolies have a huge problem on their hands. Their time is running up. And this time is probably directly proportional to their market size. Cable industry is huge in the US, unlike, say, the mobile apps marketplace where the telco distribution channels have rapidly given way to open ecosystems.Also, I believe content players have this inherent fear of going direct to consumers. The view that consumers are out there to bankrupt them, by demanding content should be free/near-free, needs a change !

  12. Dave Pinsen

    In your scenario, Fred, who would supply the broadband connection?Cable may be a local monopoly, but we have saved a boatload of money switching to it from Dish Network and Verizon: ~$100 per month for phone, Internet, and premium TV & DVR versus ~$100 month just for the TV & DVR before.

    1. fredwilson

      cable and phone companies will be the primary broadband providers although i have hopes that we’ll see a competitive wireless offering this decade

  13. chwarner

    Must carry rules and retransmission consent apply to television stations, not to television networks. The four major TV networks (ABC, CBS, NBC, and FOX) own television stations in top markets, so the current fight between Cablevision and ABC is not with Disney, per se, but with the ABC-owned local TV station in New York (WABC-TV, Channel 7).

  14. Dave Hendricks

    Agreed.i would rather go through Boxee or something else rather than the single-strand systems we are tethered to today.And I would be happy to pay a combination of advertising tax and micro-payments to watch things this way. As long as I could time and device-shift all of the programming.

  15. Diginerd, Fairfield County, CT

    I hate to defend Cablevision but I have to side with them on this. I’m sorry Fred I think you and a large number of other folks have missed what’s really going on here.My understanding of the situation is this, and if anyone knows anything to the contrary then I’m curious to hear it.Cablevision currently pays ABC $200million a year for the privilege of receiving ABC’s over the air broadcasts and then piping it down their distribution network for consumers to access.The benefit to Cablevision is it carries a major station that would be crippling to have missing from its lineup – in the current model. Cablevision generates revenue directly as a result of this arrangement in at least two ways. First it sells the ABC content as part of the “Basic Cable” package obtaining revenue from subscribers. I’m not sure what the margin is on delivery of basic cable, but I’ll bet it’s less than people think.Secondly it has the right to insert a certain number of “Local” commercials in various slots. Of course it sells these slots to local businesses.ABC on the other hand gets the $200Million as payment for allowing Cablevision to carry its channels. It also gets to add 3 Million subscribers to its footprint which in turn has an impact on Neilson ratings and as a result it can charge more for its commercials. By ABC’s own admission there are multiple ways that their content cab be received for free should the deadline expire and no agreement is reached. This raises the question why do they feel the need for a 20% price hike? The consensus is commercial revenues have fallen off a cliff. Those blanket commercials about this would have no room if there were paid ones to fill their place, and so ABC is seeking to maintain its net revenue stream.Cablevision simply can’t fold in this situation and fork out the requested cash. If it did its costs would have risen at the same time it has been suffering from the same downturn in sales of airtime. It might be able to do it once or twice, but if it did then every content provider shark would smell the blood in the water and use exactly the same tactics. Murdoch’s Fox empire would be right at the front of the line and after even more money than ABC.The net result is Cablevision will have to put up its prices to keep paying the piper. If you look at their filings I suspect this has been behind many of the hikes to date and not as a result of the “Greed Monopoly” theory.Anyway, this isn’t the end of the story by a long way (Thanks if you’re still reading). There are a couple of other things about this situation that are worth noting. Let’s start with ABC’s point that they have been discussing this issue with Cablevision for 2 years. Assuming that’s true (No evidence to the contrary) then why is there all of a sudden urgency to this matter on the eve of the Oscars?This smells like hardball escalation tactics by ABC and in the process they’re trying to frame out Cablevision as the bad guys when ABC is the rights holder. It is indeed theirs to call alone if the show goes on or not. Cablevision desperately needs ABC and they wouldn’t slit their own throats by voluntarily turning off the channel. However there’s also no way Cablevision will retransmit anything without ABC’s approval because to do so would destroy the company in a heartbeat. If a content delivery network cannot follow the letter of the law then no one will deal with it. This is on top of all kinds of legal fun that would come from such an action.ABC has got Cablevision by the short and curlies and is looking to leverage public perception into forcing capitulation. Or have they?Something that must be preying on the minds of the Disney execs right now is the fact that Cablevision have previously held their position in the face of public outcry and the loss of many customers over a similar situation with HGTV not so long ago. There’s huge difference between HGTV and ABC though – Practically all the content created by ABC is available for free on line. HGTV is a premium channel that many folks love and their content certainly isn’t up on their website to the same extent that ABC’s it. I certainly don’t want to be chaged more for the same content when it’s available for “Free” online…This brings us onto the main point in Fred’s article. What does the future look like? The people at Cablevision have certainly been thinking about this too. I’m not sure exactly when it happened but if you look at the contrarian postures and approaches they’ve been taking in the past couple of years I’d say they’ve been banking on everyone underestimating them as the same old brain dead company they always were. There’s a decent amount of evidence pointing to Cablevision having a far better grip on where they’re going to be in the future Vs the likes of Comcast and Time Warner. Let’s start with the content wars. Cablevision has very little in terms of “Proprietary Content” that they sell to others. What they do have are cash-cows though, unlike other plays made by cable companies to get into the content business which could be thought of as little more than getting some horses to trade. Content alone is tough to use as a bargaining chip, there’s no upside for anyone in public fights.Where Cablevision really have differentiated themselves against the other cable companies and AT&T’s uVerse product (FiOS to a point as well) is in their approach to the Internet. There was a time when they were being heavy handed with subscribers over the amount of traffic that was being consumed. In fact they were by far the most draconian company in the industry.This has changed. Now Cablevision has a 100MBit offering, and if you’re willing to pay for it you get what you expect. I have Ultra myself and I’m mightily impressed with it. I get to paid to run a very large computer network and to get equivalent service outside of Cablevision’s footprint is going to cost thousands of dollars a month. The nice thing about this from their point of view is the heavy users like me will happily pay them for the service, and in turn free up bandwidth for the normal users. Talk of bandwidth in this case is a little unnecessary as the recent overhaul they gone through their network is now in the position of being able to support a future where the majority of their subscribers don’t take a tv package.I haven’t had TV from them for 3 years, there’s no need as I can get everything I want over the Internet (Legally I might add!). Although I have no wish to, I could be watching the Oscars tomorrow evening on Cablevision’s network even if ABC pulls the plug.They’re not ready for everyone to drop TV yet, but you can see the pieces coming into position. One of the key indicators is what their competition are doing. AT&T uVerse is based on DSL and as such their network is not going to be able to provide subscribers with enough bandwidth to meet there needs in a few years time. Unfortunately there is nothing that can be done to mitigate this other than forklift their entire edge network and start over.FIOS isn’t available in my area, but if it was I still wouldn’t take it. Sure Fiber is “Better” than “Crusty coax” but that’s smoke and mirrors. There’s more than enough capacity in the cable for quite a long time and just because Fiber lets you run Gigabit I don’t see an offering from Verizon anytime soon. I also like not having a contract and having to take TV service to get the sportiest Internet on the East coastThis is for the same reasons you won’t be sing similar totally unlimited offerings from Time Warner and Comcast anytime soon. Their plan for the future looks to be based on selling traditional airtime and licensing their expanding content creation divisions. . Both of them put severe restrictions on the total amount of data you may download a month. They sell this as “Protecting the network” (Cablevisions old line actually), and that no normal consumer could possibly need 250 GB of data a month for a valid reason.Either their networks aren’t very well deployed (Possible for sure!), or there’s an ulterior motive in play which is driving them to cap bandwidth. A first though would be the obvious one of “Preventing piracy”, which certainly is a strong driver. On the other hand it serves another very useful purpose for the cable companies. It effectively stifles take up of high quality streaming of HDTV as a replacement of a TV package. Those moves that Netflix rents online aren’t small. Watch a bunch and you could be looking at sending very short emails (unlike this post, thanks again for sticking with it!) for the rest of the month until the cap resets. That means you’re more likely to keep your expensive movie package once your experiment with the future is sabotaged. While we’re at it those shows you’re watching over the Internet aren’t making the cable company any money through commercial sales. This comes full circle to ABC. If there’s falling revenue from the content then they need to find another way to monetize it and make up the short fall.On the other hand Cablevision appears to have worked out what it needs to differentiate itself from the other players. By having killer internet they’ve effectively hedged against ABC, FOX and whoever comes next. Further evidence of this is their new “Computer channel” which allows you to stream the likes of Netflix, HULU and ABC’s online web content right to your STB if you haven’t hooked it up directly.To address Henry’s point about complexity, the latest generation of HDTVs are coming with an ethernet port to allow you to stream content from the internet right to your TV…I’m sure Disney likes this as much as they do Cablevisions upcoming network DVR. I doubt it’s enough to trigger the present ABC fireworks display, but I’d bet a nickel it’s a consideration.The whole media industry is going through a significant period of entropy and those that make the right calls will survive and the ones that don’t won’t.

    1. Harry DeMott

      Currently, DIS does not get paid for the retransmission of WABC – the station in question – except for perhaps some advertising time that Cablevision provides. That is what this argument is about. The $40M that Cablevision references is equal to $1 per Cablevision sub per month multiplied by the roughly 3.5M Cablevision subs in the NYC area. The $200M referenced is solely related to Disney’s other properties such as ESPN (primarily) as well as the Disney Channel etc…

      1. Diginerd

        Fair point. The odds of the general public getting a handle on the situation is near zero..The next question then is what “Programming” does ABC7 provide to warrant this fee, instead of it going to the parent (Disney). Obviously local news and weather shows, butI’m trying to get a clear understanding of where ABC7 is coming from.A significant amount of resources are consumed in order for cablevision to provide ABC on the screens of 3 million viewers. As I mentioned before, ABC7 gets a HUGE amount of commercial advantage by having this population watching its shows and therefore its commercials.Cablevisions “Basic Cable” package is $16.72 in Lower Fairfield county. If you subscribe to it you gai acces to 64 channels. Strip out the duplcates (HD / Std Def) and there are 51 distinct channels as part of the package. ONE of which is ABC. It looks like Accuweather got pulled from the lineup already (I’m sourcing my data from Cablevision’s site as I don’t have a TV subscription myself, Just monster Internet). I’m curous how much it actually costs to provide the infrastructre to give ABC it’s audence, not going to happen so short of speculating wildly there’s no way we’ll be able descern what’s an appropriate level of compensation for ABC.Personally I don’t think it should be much given the costs incurred by CV to provide the huge benefit to ABC by having an extra 3 million viewers due to this arrangement and in addition there’s a clear double standard when it comes to streaming content insest of “Broadcast”. That said given how little I know about the inner workings of these organizations it could be that ABC is being very reasonable. They haven’t done themselves any favors in the manner PR for this has been handled.In a lttle over 2 hours she should hav an answer though.Anyway, the price any (Non “small”) Cable operator charges is regulated by the local franchise comission (Hence the variation in price in CT and NY). Cablevison may petition about it, but they certainly don’t chose how much they get to charge for it.…There is another deeper issue at play here too. If we follow reductio ad absurdum with ABC’s arguement they should be targetting every ISP who has the gall to be the dumb pipe allowing their programming to be shown via the internet. Why is it clear to everyone I ask that the ISP is simply the transit and ABC gains materially from this arrangement.In the case of Cablevision’s retransmission of the NY feed I guess it comes down to how many commercial slots they’re allowed to use for their own purposes. That is certainly a key factor, but if ABC’s revenues are down just imagine how Cablevision is feeling after the mess when Scrippps pulled this stunt with PREMIUM CONTENT, not over the air content that is generating revenue for the content creator.

        1. fredwilson

          the first point in this comment is spot on. the consumer can’t figure all this stuff out. that’s why we need to get the consumer paying directly for video content (and healthcare)

          1. phoneranger

            OK hang on Fred. Now you want to microchunk the healthcare system too? The consumer gets to decide which treatments he thinks will work best for him? It’s not the same as choosing one or two tracks from the latest Kings of Leon album. Personally I’d be happy to cut ESPN out of my cable bill. Because I don’t think DIS or TW have made a compelling case. And I’m not really that concerned about the survival of the incumbent content providers or distributors. But taking a microchunk approach to healthcare is truly a leap of faith. Especially given the poor record American consumers have put up recently in the housing crisis. For sure the healthcare system is broken. Anarchy isn’t the solution.

          2. fredwilson

            here are my thoughts on the healthcare system…

      2. Brian Hayashi @connectme

        The first round of retransmission/consent started from the position that Cablevision et al. would pay ABC for the right to carry their signal. Instead, ABC responded by asking for bandwidth in lieu of cash. This bandwidth was then used to launch channels like all of the ESPN spinoff channels, Disney XD, ABC Family, etc. In my opinion ABC is the bad guy, because they are not being honest about their position. The cut-off was meant to create maximum pain for the TV audience, knowing full well that Cablevision’s front line employees would bear the brunt. This has been a tried-and-true tactic since MTV launched their “I Want My MTV” campaign in the early 1980s.But to Diginerd’s other points – which are actually pretty right-on for the most part – early trials of high-speed data showed that a certain percentage of subscribers could be counted on to abuse the upstream channel. Such abuse often led to QOS issues among other cable subscribers in the same node, similar to the ingress/egress issues when people would steal cable and leave some wiring unshielded. Rate limiting the upstream channel was the most elegant solution to addressing this problem.And lastly, for all of you people that seem to desire a hyperefficient marketplace where you can buy exactly the programming you want, be careful what you wish for. Most of today’s popular shows required some form of subsidy to give them time to find their audience. That is one reason why YouTube – after years of trial and error and enormous outside investments – has been spectacularly unsuccessful at launching a single TV programming concept that could be considered a hit, much less coming close to stinkers like “Eli Stone” or “Pushing Daisies”.

    2. fredwilson

      i’m pleased that cablevision is doing the right thing and investing in their infrastructure to provide better and faster digital data services. that is the best and only thing cable companies can do to remain relevant.

  16. Diginerd, Fairfield County, CT

    Bugger missed a key point… Look at the triple play bundles that are being sold. 2/3 of it is for providing a data network. If you’re looking on ROI running a good data network is highly profitable and not subject to being held hostage to content providers wasnting “Retransmission Fees” for delivering the same content via QAM. If you extend ABCs current logic they will be asking all the ISPs to pay them for the privilege of providing the “Free” service they provide.I’d rather run a great ISP instead of making TV shows, it’s a steady gig. For every hit there’s raft of cancelled shows.

    1. Mark Essel

      Diginerd,I stare in awe at your analysis of cable. They too see profit in being the best dumb pipes (if I understand your full description).What do you think of the 4G LTE/alternative networks, or the releasing of more spectrum to allow for peer to peer network connectivity?

    2. fredwilson

      yup. that’s the world i want. cable as data infrastructure, no more, no less

  17. Brent

    My first thought when I read this was that this probably sounds like how people thought about relationships with cell phone providers. Theoretically you could have a month-to-month relationship and drop and pick up providers at the drop of a hat, whoever was providing the best network that day, but practically, we all end up with those infernal two year contracts because they offer us stupendous value in exchange for massive lock-in.

    1. Diginerd

      If this is what I think it is then anyone whold in Cablevisions Territory and not a subscriber is going to be wishing they were month to month. It would explain ABC’s current angst as well.http://www.businessinsider….

  18. IckyBadger

    This article misses the point by focusing on the cable company’s market power, and ignoring the economics of content distribution. It is content providers who are preventing the development of over-the-top programming. [Plus ingrained habits of consumers that take a long time to change.] It is content providers, not cable companies, that killed Hulu’s deal with Boxee. It is content providers who induce equipment providers to connect only to pay sites and not include a browser. There are many companies trying to provide over-the-top programming, and the main problem they all have is the inability to get programming. Many of them can’t even get big content providers to return their calls. Content providers have the power in these negotiations.I am not writing this to slam the content providers–they have a lot to lose in this fight. My point is that the “monopolies” of the cable companies are irrelevant to the problems raised in this blog post. We can fight about how much market power cable companies have, but their control over the pipe has nothing to do with why over-the-top programming hasn’t taken off.

    1. Diginerd

      Let’s not forget that many content delivery companies are content providers too, and in many cases moving more in that direction than the delivery business. I’m not an exec at a cable company or content provider but if I was I’d be trying to build the biggest and baddest ISP possible. No matter which way technology develops it is certain to involve moving large amounts to IP data from one place to another.Inthe Goldrush of 1849 there were those that struck gold and became richer than their wildest dreams, most lost their shirts. The guys that made and sold picks and shovels were the only ones making a profit all of the time.

    2. fredwilson

      the thing that got in the way of Hulu and Boxee is the hundreds of millions of dollars the content owners are getting from cable providers. it’s not one or the other. it is both. they are paired at the hip for now. but not for long.

  19. PhilipSugar

    I’m not smart enough to figure out how it will end up but I would point out a couple of things as a former telcom guy, then software guy, now marketing software guy.1. Whenever I see telcom/cable companies not embracing that they are in fact a dumb pipe….it really annoys me. Does the water company care if you brew the most expensive whiskey with their water or it goes down a leaky toilet? How about the electric company… they care if I’m using it to power my super profitable trading algorithms running on a computer or sitting with a light bulb on I don’t know about it in my basement… with it….you’re a dumb pipe. It doesn’t matter whether I’m on a super important business call or just a blathering teenager…..2. As somebody pointed out video is more efficient point to multipoint. I.e. one satellite transponder or cable head-end to thousands/millions of people at the same time…..maybe this changes….I don’t know…maybe it will become “too cheap to meter”. They said this about electricity and it never came through, but for long distance……I guess I’d have to say for digital it could happen.2a…remember though when the marginal cost goes to zero……so does the price. Think of the expensive “hoot and holler” systems brokerage companies used to have versus free conference calls today.3. There are always dislocations when the party paying for something is not the one directly receiving the benefit. I.e. the advertiser ultimately pays but the consumer is the one that benefits….for a current controversial example thing of healthcare…3a. If eventually the internet disintermediates…..remember….then the value to internet companies goes to zero. Fred and I disagree how much Amazon should pay affiliates, but I would say that if the friction for transactions goes to zero..then long term the only people that make money are the producers/sellers and any commissions go to zero, as buyers pay the rock bottom price.Therefore long term the only way a multi-tiered distribution model works if it provides efficiency. I.e. Walmart does because their distribution system makes it cheaper for them to ship tractor trailers of stuff to a store and me pick it up…..However see my point number 2…..if there is no cost to ship….they go away. In the non-digital world there is always friction….not so sure in the digital world.This is not to say you can’t make money…….making phones, routers, switches, software….just not as a percentage of what is sold.

  20. paula

    DivX made a big announcement at CES for an “over the top” play. They will be launching an embedded Internet TV platform with online content directly to the television. What are your thoughts their new initiative?

    1. fredwilson

      i don’t know enough to give you a credible opinion. i will go look at it.

  21. Economics101

    First, Fred’s conclusion is right… Ultimately consumers will have more choices of distributors through which to get Disney’s content. What’s not clear is whether that system will support the quality of content consumers have today (and yes, I know the twittersphere predicts everyone will be happy with just “Funny or Die” – I don’t believe that). I think its pretty clear that the superdistribution world ends up generating LESS total revenue for the content owner…. It may be there’s too much content produced today and we’ll be fine with less, but that’s not yet obvious.A few observations about why this debate gets confusing, especially for consumers…Fred complains there’s no other way today to get Disney other than thru Cablevision and thus consumers lose – that’s not exactly right because many Cablevision households can choose today choose from FiOS, DirectTV and DISH as well as Cablevision. Cablevision knows how much competition there already is – otherwise they wouldn’t settle with Disney on New Years Eve. They’d hold out much much longer.Cablevision’s drawing a line in the sand on New Years Eve with Disney actually benefits consumers… The reason Cablevision resists is because Disney wants jack its rates HIGHER than the consumer rate increases at Cablevision. If you look at the GROSS MARGIN of the video business of the cable/telco industry, it has dropped ~5% in each of the last 3 years, even while cable prices have been raised about ~5% per year. The reason for that is that programming conglomerates (Disney, Viacom, CBS, Fox) have amassed a lot of networks and thus wield more power on New Years Eve than they did 10 years ago…. E.g., “if you don’t pay me more for ObscureNetworkX, you can’t have ABC”. Or if you don’t charge EVERY subscriber for ESPN (not just the ones that want sports), you can’t have Disney Channel. Analysts are predicting that retransmission consent will cost the cable/telco $Bill in additional programming fees per year in the next year or two without getting one more piece of content for us, its subscribers. Are we saying we’re pissed at Cablecos because they won’t absorb all that? Will we expect Boxee to?So, cable companies are making less per video customer every year despite rate increases to consumers – that pretty much tells me that the content owners are winning the standoff and cablecos lose. And consumers are losing because they’re also paying some of it. Sure, an a la carte world will be better for consumers (except ESPN lovers who will have to bear ALL the costs of ESPN, not the subsidized cost ESPN enables today by charging the sports-indifferent), but its not clear that CONTENT OWNERS want that. Replace Cablevision with Boxee and do you really have a different dynamic with the content juggernaut, or just a different interface on your TV? Yes, your video subscription might drop from $80 to $40, but there will be less choice and your broadband will cost $100. What was gained?

    1. fredwilson

      boxee won’t absorb it because they won’t be a distributor. they’ll be a retailer in the three tier model.consumers either will absorb it or they won’t. but at least it will be transparent to them. they’ll decide if they want to pay another $1/month to watch the oscars. some will. some won’t.

      1. Economics101

        Fred, as an Internet VC, you’re advocating inserting a 3-tiered model in an industry that is currently 2-tiered? I thought the Internet was all about DISINTERMEDIATION. Sounds like all that does is LESSEN the power of the consumer and the retailer in fighting the bullying tactics of the content owners who have all the power right now. I know why that would help Boxee, but not sure why that helps me.

  22. thewalrus

    comcast has exclusive rights to the celtics games….therefore they ‘force’ me into their cable+internet package. should be decoupled so i can buy the content i want….not the zillion other useless channels i have no use for.i thought the dems were going to take action on this stuff….guess they have a few other irons in the fire 🙂

  23. Chris Voss

    Hopefully Boxee and my friends who are now buying Netflix incorporated hardware will change this power monopolies. Interestingly just like happened with land line phones, a few of my friends have cancelled their cable and moved to netflix type boxes. Control of content will be more huge.Chris Voss

  24. sigmaalgebra

    You hit a spot that is very sore for me personally but also, to some extent, positive for the business I am starting.You have to be correct that the ‘content’ now provided via cable MUST become available on demand over the Internet. I’ve recently watched some movies over the Internet from Hulu and Veoh, and the quality is fine.ABC, NBC, MSNBC, CNBC, CBS, CNN, PBS, and Fox may be shocked to learn how little I think of their content, how little I watch them, and how often they make me angry where I click away. Actually, about all I ever watch is Fox News, Fox movies, TCM, and PBS. While I can like a good movie, the rest I regard as at the bottom of the barrel or lower. I’d very much like some science programming, but I’ve found nothing worth watching on science on TV for years. On the Internet, sure! Prime time TV dramas? Haven’t watched one this century. TV has NO IDEA how little I think of their ‘prime time line up’.I liked the Olympics until Bob Costas came on trying to turn it all into his favorite ‘drama’; having the Olympics presented as drama I hate, bitterly. The Olympics as described by former Olympic medal winners — terrific! What I REALLY want to see are the astounding accomplishments of the athletes. The South Korean girl skating to “Meditation” from Massenet’s ‘Thaïs’ was fantastic, one of the best few minutes in years. Costas, why don’t you go write a great American novel and f’get about sports.Uh, on violin I only made it through the first page or so of that piece, but there is an excellent performance, without the skating, at…Yup, I LIKE the Internet! Now I’m listening to Milstein’s performance at…Wish I had a violin that good! Maybe!A big, HUGE, irony is that the standby for over 100 years for getting attention for ads has been various cases of ‘drama’; right, even the ‘news’ has been presented nearly always just as drama. But, now the attention and ad revenue are moving to a very simple, little screen with a text box, no sound, characters, audience identification, or drama and just text. As the drama people have denied for over 100 years, actually people like information more than drama. And the ads? No actors, music, costumes, sets, or beautifully produced, little 30 second dramas. Instead, just still images as ‘banner’ ads that, net, work better for the advertisers. A big, HUGE, shocking change.Gee, if I cancel my cable TV, then I’ll type software faster!Dolan: Tell Iger to take his content and stuff it. Same for the Food Network. Same for all the sports. Same for the ‘business’ channels CNBC, Bloomberg, and BBC since they have nothing significant to do with business. AVC DOES have to do with business and, thus, Fred, alone, with a few paragraphs a day, has more to do with business than all of cable TV. For more, DID watch Fred’s 12 little video pieces of his talk at NYU and Columbia, and they had to do with business. Uh, get rid of Bartiromo (what has she actually done in business except tell people how to avoid the pitfalls in business she avoided by becoming a TV ‘personality’) and put on Fred’s 12 clips instead.For something good, be INFORMATIVE and INSTRUCTIONAL. E.g., have a channel on mathematical physics, from classical mechanics and Maxwell’s equations through quantum mechanics, descriptive particle physics, quantum field theory, general relativity, and string theory with the math done in full, correct detail! Put on a nice college course in music appreciation, say, from Juilliard.Uh, Dolan, I can find and listen to Milstein playing “Meditation” on YouTUBE easier than I can find what’s on TCM. In a word, cable TV SUCKS.For traditional cable TV, an asteroid is about to strike Chicxulub. Big changes.

  25. Morgan Warstler

    Except Comcast is buying NBCU. And Viacom is pulling back shows from HULU. And TV Everywhere is just getting started. And Project Canoe is finally standing on baby legs.I see only one way for Boxee to fight the tide, and over the top isn’t it. There’ only one spot chink in the armor I see… Tivo and Sling prove it. And until there is a standards based app layer written into 20% of the TVs (years away)…it is all about the IR blaster.

  26. JenC

    Fred – you mention unbundled internet below..I have always wondered what would happen if consumers could simply choose the specific programming they want directly from the networks. Of course, the channels through which the content is delivered is currently controlled by a small group that stands to lose a great deal of money if they don’t rethink their business models. But as companies like Apple enter into discussions with networks to provide consumers with choice, I think we will see more options.I did away with Time Warner a few months ago (still stuck for broadband access though). I now have an antenna, which provides me with the major networks and several other channels, Apple TV so I can customize my own content – on demand – and a BluRay DVD player that happily streams Netflix and YouTube. The next step will make my content choices even better – connect a MacMini to my flatscreen, add a wireless mouse and keyboard and then I have full access to Boxee, Hulu, and whatever programming is online that all can be viewed “on the big screen”.Could not be happier with my choice – and the fact that it is MY choice.

    1. fredwilson


  27. Anthony Ortenzi

    Something’s wrong after posting logged in via twitter which makes it appear as though one has double posted. I edited my initial response away, unfortunately.One of the things to look for in a fight like this is how to come out as the good guy.The cable companies are asking us to validate their business model in this fight, which is centered around selling us licenses to view content in packages and tiers. When one of the licensors changes its terms, it cries to its consumers about how its business model is unfair to them.Cablevision, Time Warner, and Comcast/xfinity can turn this around if they recognize where their business model isn’t focused upon providing transparent value, and that they can change from good guys to bad guys.They need to refocus, in this internet age, on three things, internet access, content distribution, and an open licensing platform. They can give us the pipe. I have Time Warner’s Wideband (50/5) service, and it’s wonderful. Do I need TV channels? The only problem with moving to an all-IP platform is providing a good video experience (higher bandwidth than HD streaming now, which typically maxes out at 3.5Mbps) and the destruction of their licensing model. But the licensing model is about to crush them. Time to move to an open licensing and authorization platform, to layer atop traditional on-demand and live content CDN services. Be in the business of providing a superior customer experience, and being paid more for it when you do, by licensors, aggregators, and end-users.I’ve written a post about my ideas here:

  28. raycote

    Yes indeed, the content providers have a classic chicken or the egg problem.Transitioning their revenue stream away from the small inner circle of greedy, monopolistic, cable industry middle men into a more distributed organic revenue stream that retails digital content directly to consumers via digital network distributors would give content providers a leaner, less expensive, more transparent digital distribution system. Such a system gives them a much more direct relationship with a new retail digital media consumers with all the potential value added that flow from working a front line customer relationship. The chicken or the egg in the ointment, for content providers, is making this transition without experiencing a serious revenue squeeze, power play, headlock at the hands of the ruthlessly powerful, last mile, cable pudes(similar to dudes but smellier).Setting a side the lack of bandwidth problem, hopefully a little time will take that out of the formula, the content provider’s real challenge is getting it’s new distributed organic array of retail digital consumers to consistently pay up. What ever else content providers may dislike about Cable/Satellite Operators, they have been very efficient at enforcing end user payment. You could think of the Cable/Satellite Operators as running a “protection racket” that shakes down the content industry and to some degree that may be true but to be fair the content industry, both software and media, have a very soft underbelly. Retail level customers shoplifting digital content has become a acceptable social meme. The sheer ease of digital duplication along with the absence of any legitimate, course of least resistance, fair value, alternative coming directly from the content industry has turned digital shoplifting into an acceptable life style.Like everybody else living through the last decade, I have been seduced into the freetard mentality. I want all their media and software services for free. They may try to take their payment via advertising to my eyeballs? Not so fast there, let me introduce you to my ad blocker. Mindless Macho Talk! In the end, we all know this stuff must be paid for by someone, preferably some one else, not us, we’re special. Here is a snippet from an older post I made that attempts to hammer home this point.———————————Warning this post was made by my alter ego, a grumpy old man, lashing out in frustration at hearing the same old, macho talk, I DON’T PAY comment, one too many times………..”most of these comment are by young spoiled little weenies who are not able to frame the bigger reality that engulfs their lives. OK I will cut you some slack here. Many of you are young adults whom by the accident of your birth dates have grown up amidst an era when a transitional business model has been temporarily force on the corporate money crowd. New digital models for doing business are changing so quickly that many companies have understood the need to establish themselves as a known brand and toure-de-force before all the main web-based services are already established by some other FACE-BOOK or FLICKR or GOOGLE or TWITTER (you get the idea). So they have been willing to eat all the up front costs and give you all this stuff you take for granted for free. Many of these services are not actually free as you pay for the web-services they provide by putting up with their embedded ads. The winners in this Web-Services BRANDING-GOLD-RUSH are now becoming well established. This means the smorgasbord of benevolent corporate freebies you all have mistakenly assumed to be some form of basic human right granted magically to your special generation is about to be so rudely pulled from under your feet by the stark fist of reality, that stark reality being the re-assertion of the historically overarching truth that corporate shareholder’s need to make a profit or they will disappear along with your free services.The future is coming to get you and the corporate shareholders will have their way with you! The everything for free, all the time, for everybody, is a transitional, anomalous, business model forced on them by temporary, shot term, circumstances. We will ultimately, as a group, have to pay for all this stuff! I personally hate ads and would rather have the option to pay for all my services instead(given reasonable rates). But my bet is many of you will prefer to pay via your eyeballs. That means some mechanism to enforce ad placement, so content providers can get paid by advertisers and continue to provide long time services at competitive rates!———————————-Now to get to my main point! This is always a struggle for me. I’m just not that good at synopsis, sorry.Digital content providers desperately need an end to end digital retail distribution technology capable of successfully minding the cash registers in a way that equals or even surpasses the dogged success of their present hired hands, the cable industry thieves.I noticed this post about an Apple patent, outlining just such a digital retail distribution lockdown technology. The post does a clear simple job of outlining how powerfully flexible such a systems can be. I am not defending Apples right to patent such a system or speaking to the potential 1984 like disservices inherent in such systems. Many others are undoubtedly working on similar systems.This is worth reading. It fires up your imagination on all the possibilities surrounding what will, sooner or lated IMHO, become the dominant digital content distribution model. It provides the ultimate in accurate usage metrics. It enables a payment model that offers very customer a complete spectrum of payment choices, from fully ad supported through to full customer payment without ads. It empowers the content producer’s relationship with end consumers. It cut out the unnecessary middle men leaving more room for profit, competition and fair value for everybody else in the value chain. At least read the “Advertisement Insertion Scheme” part!

  29. Ralph Rivera

    Fred, I agree with the thrust of your argument and believe in a future where I can create and pay for my own bundles of TV. With that said, I would be more sympathetic towards ABC if they weren’t trying to have it both ways – public spectrum as a broadcast network and cable fees like a cable network.

  30. Fleexee

    “And we’ll be able to subscribe to one or more of those providers over the internet through platforms like Apple TV, our portfolio company Boxee, and many others.”And these many platforms will be able to generate ad revenues in a non-intrusive and efficient way:

  31. phoneranger

    I remember that post. I dug into the Atlantic article and was ummm unimpressed. You say that single payer is your preferred option and if not that some hybrid guided by consumer choice. k. The key assumption is that first there’s going to be a government-run catastrophic health insurance safety net. Then we can bring in consumer choice, transparency et al to refine the system. But getting govt.-financed catastrophic coverage would be enormously difficult. I’m not sure the insurers wd necessarily be against it but the other players in the medical-insuarnce complex definitely don’t want the feds setting prices. For example, last December my father in law spent the last three months of his life being kicked from nursing home to hospital to rehab center. All at enormous cost to Medicare and to his extended pain and suffering. Oh and he contracted MRSA in the hospital before they kicked him to their controlled rehab center. They refused to let him be transferred to a lower cost (out of their network) hospice. He had six weeks to live and they kept him in their high cost “rehab” center even though he had highly contagious MRSA. And we’re talking about Wake Med in Raleigh not some 3rd tier place.But that’s really not the point. After the fiasco of the mortgage crisis, isn’t it obvious that consumers don’t have the information or bargaining power to bargain with hospitals, doctors and insurance companies? The individual consumer is at an even steeper disadvantage when dealing with health crises.So sure bring the consumer into the equation. We’ve seen some press about that the last few weeks. But it’s a tiny part of the solution to the larger problem of health care reform. When someone self-insures, he has a fool for an insurance company. Usually.

  32. enrolled agent exam

    I like the comparison with sneakers at the end– it makes the model a bit more understandable for the layperson. And I agree with the post below, about the triple play bundles. Good point.

  33. Tom Dougherty

    I think I am watching the endgame for cable TV right now. As I stream the NCAA tournament in HQ on my computer, I do wonder, how long can it be until the middle man (read cable and satellite providers) are completely cut out of the equation and all TV content is “streamable”? All the content providers need is a reliable third party to measure the usage and advertisers will fall right in line. I wrote a blog about it just a few minutes ago and you can read it here http://blogs.stealingshare….

    1. fredwilson

      We are going to be in europe for the saturday NCAA semifinal games in two weeks. My son josh said ‘dad, what are we gonna do?’. I said ‘its streaming live on the web’. And he said ‘are we going to have to proxy our IP address to watch?’He’s 14The whole conversation was surreal in terms of how far we’ve come and the hurdles that still existI don’t know the answer to his last question but I sure hope that it is no

  34. George A.

    Hi fred, there is a lot to cover in this debate. you have just touched on part of it. Not sure I agree with you that the current retrans dispute is a result of the monopoly status. more likely the loss of advertising revenues and a change in fcc policy on must-carry obligations. This debate has many ins and outs and neither side is free from greed.personally, I find the most interesting dimension is the fact that content owners are asking for more money with one hand from one distributor and simultaneously offering more and more content online with far lesser economic demands. This is the only element of the debate that doesn’t follow pure economic logic. Cable guys see this and it pisses them off. I would bet that some part of the hulu/boxee was the result of shrapnel in the retrans negotiations.On over the top, I agree on all points except that I wouldn’t expect the middle man role to be nearly as attractive/lucrative with digital goods as it is in the physical economy. In a world where consumers have frictionless access via multiple middlemen with zero marginal costs, there will be no profit in content aggregation. Consumer wins, content wins. It might be three tiered for a while, unless the middle guy adds real value beyond aggregation, not sure it stays that way for long.this is precisely why cable needs to get out of the video business and focus exclusively on the ISP business. Afterall, they do have a monopoly.

  35. George A.

    Fred, there is a lot to cover in this debate. you have just touched on part of it. Not sure I agree with you that the current retrans dispute is a result of the monopoly status. more likely the loss of advertising revenues and a change in fcc policy on must-carry obligations. This debate has many ins and outs and neither side is free from greed.personally, I find the most interesting dimension is the fact that content owners are asking for more money with one hand from one distributor and simultaneously offering the same content online with far lesser economic demands. This is the only element of the debate that doesn’t follow pure economic logic.On over the top, I agree on all points except that I wouldn’t expect the middle man role to be nearly as attractive/lucrative with digital goods as it is in the physical economy. In a world where consumers have frictionless access via multiple middlemen with zero marginal costs, there will be no profit in content aggregation. Consumer wins, content wins. It might be three tiered for a while, unless the middle guy adds real value beyond aggregation, not sure it stays that way for long.this is precisely why cable needs to get out of the video business and focus exclusively on the ISP business. Afterall, they do have a monopoly.