The broadcast TV incentive auction officially kicked off last week with the deadline for stations to declare their participation in the auction. This triggered a number of pieces about what the auction is, how it works, and what the implications of it are. In that vein, I decided to write my own explainer for anyone wondering what this auction thing is they may have heard about.
I’ve heard it suggested that “recent high school and college graduates“, or just members of the generation uncreatively and corporately termed “millennials”, absolutely cannot fathom why the cable bundle even exists, yet I’m only 27 going on 28 and I remember when cable was an absolutely huge deal, an almost mandatory step up from relying on an antenna, and remained so right straight through the 90s and into the new millennium. (During my lifetime, my family never relied on an antenna except when the cable was out.) Cable was the gateway to an explosion of new options far beyond the limited experience (and chintzy reception) of broadcast, where all the cool channels like MTV, ESPN, and Nickelodeon were. This is what the cable industry tries to evoke when it claims that the cable bundle is the best value in entertainment and expresses confidence that cord-cutting isn’t really that big a problem in the long term and those people that have cut the cord will inevitably come crawling back. What has changed to make what once was cable’s key selling point – the relative smorgasbord of channels it made available – into its biggest liability?
Last Monday BTIG’s Rich Greenfield, whose doomsaying on the state of the TV industry I’ve written about before, gave a presentation at an FCC panel on the shifting video marketplace, where among other things he presented his reasons for the decline of the TV industry, especially that of the “price/value equation” of the traditional cable bundle. You can see the entire four-and-a-half-hour workshop here; his presentation begins at the 30-minute mark, which the link should take you directly to, but what I want to focus on is that, rather than simply pointing to shifting consumer behavior or the shortfalls of the cable bundle and leaving it at that, he looked at how the perceived value of cable has actually gone down since those heady days of the 90s and what forces, specifically the inaction of both government and players in the industry, led to that point. As such, he touches on some of the themes I talk about in my book and on other posts on this site, but in my view, he doesn’t go far enough to the degree I talk about them, and ends up pointing the finger at some inappropriate culprits as a result.
Greenfield claims that retransmission consent is “the chief culprit that has ruined the price value of the bundle”, evolving from the system envisioned by the 1992 Cable Act, where a single station in a market negotiates with a single cable provider, into one where a station group controlling multiple network affiliations in a market, and potentially cable networks besides, is negotiating not only with a cable provider, but with satellite and telco providers as well – a familiar story the cable industry likes to repeat and that I touch on in the book, but not the whole story. He also targets retrans as the ultimate culprit to the bundling issue, claiming that it’s the power of retrans, specifically the earliest period where companies used retrans as leverage to carry cable networks rather than demanding cash payments, that allows the major media conglomerates to demand that cable companies deliver all their channels in inflexible bundles, before admitting that companies that don’t own broadcast stations engage in the same practice and, implicitly, that ESPN is at least as much a driver of Disney’s bundle as ABC. Greenfield also blames pay-TV companies for negotiating clauses into contracts that hinder programmers’ ability to move to online distribution and that prevent programmers from collecting different amounts of money from different distributors, resulting in a situation where everyone is too invested in the traditional, bloated bundle, and takes steps to ensure that none of the others can do anything to distance themselves from it, keeping everyone tied in to the bundle and in turn keeping consumers ensnared in it – so long as a Netflix doesn’t come along to provide an alternative.
The problem with this narrative is that the problems that have developed in the retransmission consent landscape are a reaction to and symptom of the larger bundling issue, not the other way around, and cannot be looked at in isolation, separate from the larger issue of pay-TV programming fees. It’s true that the introduction of satellite and telco providers have tipped the leverage balance towards broadcasters, but what has motivated them to take advantage of that imbalance, to the point of threatening to abandon broadcast entirely if they didn’t get their way with Aereo, is the much larger imbalance between broadcasters and the subscription fees collected by cable networks, the problem that retransmission consent was intended to fix in the first place. If you look at retransmission consent as merely a subset of the larger cable programming marketplace, many of the “imbalances” tipping the scale towards broadcast stations are really just ways to give broadcasters the same tools as cable channels, or ways to keep broadcasters from losing leverage or potential revenue as a result of offering their wares over the air, and in that view retransmission consent has been working exactly as intended, preventing the broadcast industry from losing all their most valuable content to cable networks that charge high prices and muscle their way into the vast majority of homes.
In particular, Fox explicitly cited the desire to keep from losing sports to cable outlets like ESPN and Turner when it began to make a harder push on the retransmission consent issue in 2009 and 2010, shortly after ESPN took the Bowl Championship Series away from it and moved it to cable. Right now the most expensive cable networks by a mile are ESPN and regional sports networks in some order. Other than those, the next biggest contributors to your high cable bill, at least nominally, include TNT, the Disney Channel, and NFL Network, then Fox News, USA, and FS1, then TBS and ESPN2. On a per-station basis for the major networks, broadcast retransmission fees are probably on the low end of the TNT/Disney/NFLN group, so before you get to retransmission consent’s impact on prices you have to go through all the much more expensive RSNs, plus four national cable networks, three of which have substantial investments in sports that both motivate and fuel those high prices. But broadcast stations are in that same exact category, in that like ESPN, TNT, and regional sports networks, it is the need and desire for sports content that drives broadcast stations to set and keep retransmission fees high and to fight tooth and nail against anything that might break up the cable bundle.
More than anything else, it is sports that is driving the high cost of the cable bundle; between highly-distributed national sports networks, regional sports networks, and the major broadcast networks, probably at least $20 of your over-$100 cable bill is ultimately paying for sports. That’s because everyone vying for sports rights knows that nothing motivates people to sign up for and remain signed up for cable like sports, and absolutely nothing motivates people to sit through commercials like live sports. So more networks come along looking for their own piece of the sports pie, passing that cost along to cable companies, and bidding the cost of sports ever higher and passing that along to cable companies and their customers. Add all of that to the non-sports component of the bundle, and you have a recipe for a cable bundle that once brought consumers unprecedented choice and value now being too highly priced to serve anyone well.
The FCC can’t get a good idea of what undermined the value of the cable bundle from a 12-minute presentation, certainly not without appreciating the factors that led the industry’s actors to behave the way they did; for that, they’ll need to read my book, which will help them appreciate not only the plight of broadcasters but why it’s so important to get this issue right. At the end of the panel, at about the hour-53 mark, Greenfield proclaims that he believes the entire medium of linear TV is dying, that what will end up complementing on-demand services like Netflix will be services that offer “live on-demand”. I still have my doubts that the Internet will ever be able to deliver the Super Bowl to 50 million households, or even that it’ll do that well at delivering a regular-season NFL game to 15 million, especially as higher-quality technologies like 4K become the norm, and especially especially to mobile devices with higher bandwidth and spectrum constraints. Linear TV will not die, but only if it recognizes that it is transitioning into a specialized service, one that efficiently delivers content to the largest audiences, especially live content that, precisely because of its unique ability to attract eyeballs to commercials, is most able to be monetized without need to charge subscription fees. That is what the commission needs to keep an eye on going forward: not merely the transition from a video landscape rooted in linear TV to one based in online streaming, but linear television’s own ability to change its role in response to that, without people being blinded by the present-day depredations of the cable bundle to what that role is and how it’s already filling it, and whether broadcast television will survive to take its place as the area of linear TV where that role is most needed without being undermined by its own actions or those of the commission.
I have argued in my comments with the FCC (especially here) that the commission should, at the very least, hold off on the broadcast incentive auctions until it completes its ownership review and determines what the rules will be for the post-auction landscape; the fact that the auction process is currently slated to begin at the end of March, but the FCC doesn’t plan to wrap up its ownership review until June, is to me just one more piece of evidence that the FCC is trying to shove the auction down broadcasting’s throat before people catch on to just how valuable it can still be. Recently I saw something that puts in stark relief just why this is so, and makes me realize just how much the incentive auction could terminally cripple broadcasting.
A week ago the RabbitEars site I’ve written guest posts for in the past posted a rundown of what companies and stations have signaled their participation in the auction. Most of it was information available elsewhere and much of it I had seen earlier piecemeal, but it was still stunning to see it all in one place. Three of the four major broadcast networks have plans to participate in the auction to some degree, and most of the other largest station owners are at least considering either a channel-share or full-fledged participation. I might have been willing to accept the incentive auction if the only stations surrendering spectrum turned out to be a small handful of operations that weren’t doing much of worth anyway, causing the whole thing to come crashing down and forcing the FCC to reassess, but that possibility now looks decidedly remote.
One thing many of the big station group owners considering participating have in common are their heavy interests in duopolies. In many large markets, CBS owns both its own station and a CW or independent station; Fox owns its own station and a MyNetworkTV station; and NBC owns its own station and a Telemundo station. Any of these companies could easily surrender one station and effectively keep running it on the signal of the other station, as could Univision in markets where it owns both its own station and a UniMas station, or companies like Sinclair that could effectively make its “virtual duopolies” legal by merging them into a single signal, something that’s already started. Indeed, a company like Sinclair could, completely legally, control four times the amount of spectrum as a smaller outfit that elected to channel-share; the only downside would be that they would have must-carry rights for only two of them, but if they had valuable enough content on the channels that would mean little as they could pressure cable operators to carry them anyway. Big station group owners, in other words, could come away from the auction with that much more of an advantage than they have now.
Since a single station could either take up an entire channel’s width or share with another station, and because wireless providers are going to be voraciously gobbling up as much spectrum as they can to the point of potentially taking different amounts of spectrum in different markets, the effect would be to “lock in” the competitive landscape that’s in place now, regardless of how priorities might change, if for example the FCC decides the post-auction landscape should be governed by ownership rules based on the amount of spectrum controlled instead of the number of “stations”, or if Congress passes legislation that has the effect of weaning broadcasting off its dependence on retransmission consent and thus makes it more viable for a small station owner to exist and compete with larger owners. But by that point, the structure of how spectrum is divvied up will effectively favor whoever owns multiple stations, for whatever reason, right now, effectively making it impossible to break up today’s oligopolies; if someone decides they have a better programming concept than what’s on the air right now (and our vision for broadcasting allows it), it’s not clear there will be any room to launch a new station, and I doubt a station that’s taking up a full channel’s width can be subdivided and turned into a channel-share operation even if the incumbent owner is willing to do so and even if the programming in the leftover space used to be a separate station to begin with – at best, the new owner might find themselves having to rent the space from the old. Even if the current consolidation trend continues, it’s going to be much harder to make it work after the auction, when existing station combinations are neatly combined onto a single signal, but potential new duopolies could be on very different parts of spectrum or even sharing with different stations, and it may be impossible to turn one signal in and reap the benefits from owning one licence.
That’s just one way the incentive auction could make it much harder for broadcasting to compete and claim its full value should it realize just what that value is; it’s not clear broadcasting ends up being viable at all given the interference potential of the variable band plan and the effect the lack of flexibility will have on broadcasting’s ability to improve its reach that’s currently based on unrealistic expectations of what equipment people would be willing to acquire and what the future use of broadcasting actually is. It is one of the bigger ways, however. Perhaps more than anything else, it contributes to the sense that as far as the FCC and most parties that aren’t broadcasters themselves are concerned, the incentive auction is about carving out a little niche for those legacy fossils that aren’t willing to take our gracious check to cease their wasteful, spectrum-hogging, outdated activities, allowing them to keep going as long as they want to and as long as it remains viable, but with the expectation that it’s only a matter of time before they end up bailing out too. If this assumption turns out to be wrong, if those legacy fossils turn out to be performing a critical service that the auction has left underprepared and inefficiently organized and that people that might not have given it a second look or even gotten out of the business now want a part of, it’s going to be very difficult if not impossible to correct for it. The FCC has promoted the auction by proclaiming it a once-in-a-lifetime opportunity, that there will not be another auction once this one is over. But that also makes it the FCC’s one and only chance to set the post-auction landscape, and right now they look set to make a number of huge mistakes on that front it’ll be impossible to correct later – and I fear it may already be too late to convince them of such.
According to SNL Kagan estimates from last spring (listed here), here are the most expensive channels on cable (not counting broadcast retransmission fees or regional sports networks):
- ESPN ($6.61)
- TNT ($1.65)
- Disney Channel ($1.34)
- NFL Network ($1.31)
- Fox News ($1.12)
- USA Network ($1.00)
- FS1 ($.99)
- TBS ($.85)
- ESPN2 ($.83)
- Nickelodeon ($.73)
The heavy presence of sports channels on the list, topped by ESPN having several times the figure of the next most expensive network, may be the most obvious thing that jumps out at you, but there’s something else remarkable about this list. I mention in the book that the vast majority of channels on your cable lineup are controlled by nine companies, but seven of the ten most expensive networks are controlled by just three companies: Disney, Fox, and Time Warner, who also represent two of the four major broadcast networks and the largest owner of regional sports networks. An eighth, NFL Network, isn’t controlled by any of the Big Nine. The remaining six members of the Big Nine account for just two of the ten most expensive networks, USA and Nickelodeon. Add Comcast to that group of three and you have three major broadcast networks, most of the country’s regional sports networks, and eight of the top nine most expensive national cable networks, not to mention HBO, with Showtime owned by the remaining broadcast network.
Last month I suggested that ESPN actually benefits from having as many companies as possible invested in sports, keeping them tied to the cable bundle and preventing any attempt to defect from it from being much use for sports fans. But only those four companies – Disney, Comcast, Fox, and Time Warner – have any serious investment in sports on cable, with CBS the only other Big Nine member with any stateside presence in sports at all. I talk about the Big Nine, but the reality is there’s a divide within the Big Nine between the Sports Four-and-a-Half – which as it happens, make up the most valuable members of the Big Nine according to the Fortune 500, in rough order of the level of their investment in sports aside from Comcast being propelled by its cable-operator business ahead of the rest – and the remaining members with no presence in sports. What would happen if those four companies – Viacom, Discovery, AMC, and Scripps – decided to defect from the cable bundle themselves, on their own or individually?
Let’s do some back-of-the-napkin math. Let’s start by assuming that the average American sees $50 of their cable bill go towards programming costs. Just getting rid of every network that’s not Nickelodeon on the list above takes out $15.70 of that total. Take out another 87 cents for ESPNU, NBCSN, and Golf Channel (based on numbers here). Take out another $5 for retransmission fees for broadcast stations, and another $3 for regional sports networks. Take out another $2.28 for another seven networks listed here, and around 10-20 cents for each additional network owned by one of these five companies in over 75 million households, so about 14-ish – let’s say that comes out to $2.15 so we get a nice, round number of dollars. That comes out to $29 in savings, over half of that $50 figure. That would mean a service from those four companies could cost as little as $21, about the same as Sling TV, though realistically in order to make up for the consequences it would charge at least $25. On the other hand, that figure also includes networks not owned by any of the Big Nine, as well as networks in under 75 million homes (which is still a substantial majority of homes), and it also undercounts the total for markets with multiple RSNs not counting college conference networks and might undercount the retransmission haul as well (not to mention the price for the remaining networks being taken out), so it’s possible the true figure might come down below $20. Viacom is the only company not already present in Sling TV, so if you take that as a baseline our service might cost as little as $10 just from taking Sling and removing the Disney networks, and if necessary Viacom has both the most expensive single network and a suite performing weak enough small cable operators are increasingly comfortable going without it and shareholders are questioning Sumner Redstone’s mental fitness to run the company, so jettisoning them would probably shave at least $2.40.
Whether $10, $20, or $25, what would that give the consumer? Well, there’d be an eclectic mix of documentary and lifestyle programming from the Discovery and Scripps networks. If you kept Viacom in the mix you’d have kids and family programming from Nickelodeon and Discovery Family, plus popular reality and other shows from MTV, VH1, and Spike, some of which might complement the Discovery/Scripps selection. Viacom would also have a back library of TV shows and it and AMC would have a decent movie selection, though maybe not on-demand, while AMC might also contribute some popular British shows from BBC America. And of course you’d have The Walking Dead and other popular and critically-acclaimed original shows from AMC, plus other original shows from OWN and the Viacom networks including South Park. Other than sports, the main thing you’d be lacking would be news or anything from the last decade that wasn’t originally produced for one of these networks (the main exceptions probably being on Comedy Central), and if you’re looking for anything specific associated with a network owned by one of the Sports Five you’d be out of luck, but as a complement to other services that exist such as Netflix and Hulu it could be a decently valuable collection, especially if you can price it substantially lower than Sling TV’s $20, and/or if Viacom brings enough value to the table to make up for the loss of the Disney and Turner networks.
Perhaps more important than the raw price, however, would be the fact anyone signed up for such a service would not be paying any form of sports tax. Unlike Sling TV, our service would allow anyone without a lick of interest in sports to get valuable cable content previously unavailable outside of a cable bundle without subsidizing a single sports network of any kind. That means even if it’s less popular than a Sling TV, if it gained any kind of traction whatsoever it would be a much bigger existential threat to the cable bundle and ESPN’s business model than anything else that exists so far. For the record, in the piece I linked to in my post a month ago about how a standalone ESPN would break up the cable bundle, the analyst in that piece specifically talks about a service consisting of precisely these four companies plus Turner, priced at $15 a month, suggesting $10 for these four companies alone is quite reasonable.
When talking about the cable-bundle business model, sports writers often note that just as non-sports fans subsidize sports networks, so do sports fans subsidize networks like AMC. Of course, this attempt at equivocation, even if it comes down to a single sentence in an article, seems way overblown; if you believe the total amount being spent on the cable bundle reflects fair market value for whatever each consumer gets out of it, then if some networks are getting more than their open-market value others are getting less, and it seems likely that by and large, sports networks fall into the former category and most non-sports networks the latter. But in this area, the notion that non-sports networks are receiving some value from remaining attached to the cable bundle, and being subsidized by its sports fans, seems to be an important one. It is quite telling that while only two of the Sports Five are associated with Sling TV, three of the non-sports four are part of it. How much do Discovery, AMC, and Scripps continue to value remaining tied at the hip with ESPN, or at least keeping the cable bundle stable? Were they already aligned with Sling TV and either ESPN felt obligated to join them or Dish felt obligated to recruit them? Conversely, if ESPN came first, did they have any say in what other companies would be part of Sling TV? And how long until the calculus changes and these companies decide they have enough to gain to be worth defecting from, and thus potentially destroying, the cable bundle? Right now ESPN and the non-sports four need each other enough to be tied at the hip even into their ventures into OTT, even more than the companies with sports investments, but one day the time will come where ESPN needs them more than they need ESPN – or worse, they come to see their association with ESPN as a liability – and that may well be the day the cable bundle dies, or is at least terminally injured.
In its highfalutin’ ideals, the Internet is dedicated to the notion of delivering a world of information to all for free, accessible for all to contribute to, available whenever and wherever you want it. Cable television, by contrast, delivers only the content the cable company sees fit to provide you, the vast majority of it from nine companies and laid out on a rigid linear-television schedule, and forcing you to pay for all of it to get just the few programs you want. It is, in short, the antithesis of net neutrality, and as I laid out earlier, the cord-cutting debate is effectively a clash between the outdated vision for the provision of content and the new vision sweeping it aside.
It is therefore tempting to conclude that traditional, wired linear television has not only outlived its usefulness but needs to be actively destroyed to preserve the ideal of net neutrality, that any future it might have is only in schemes such as Comcast’s “Stream TV” that use the existence of linear television over traditional wires to circumvent net neutrality by providing preferential treatment to certain types of video content. But as I’ve chronicled, at least in the wireless context, linear television can not only play a key role in network management, traditional broadcast linear television can actually benefit net neutrality by allowing those tools to be accessible to as many potential programmers as possible and delivering it to everyone regardless of carrier.
Not all of these benefits can be directly transferred to the wired context. Most obviously, wired connections are inherently dominated by whatever company owns the wires and processes the connection; they are inherently going to have some control over what content can use the linear television wires. And if you believe that at some point, everyone is going to be fed by a direct fiber-optic connection, fiber-optics sees no benefits to linear television at all; each customer has its own fiber leading directly to the node and the rest of the system without being impacted by anyone else’s activity. Unless, that is, it’s set up in something like a passive optical network, which reduces the cost and amount of fiber needed to go into business by splitting one fiber to serve multiple endpoints, effectively delivering each customer’s content to every customer on the same splitter. It requires end-terminals to sort out what content belongs to which customer and encrypting content to prevent eavesdropping, but if I were running such a network I would look into a way to actually foster eavesdropping for live streaming video, so if someone is watching a game on ESPN3, anyone else on the same splitter that wants to watch the same game can ride on the first person’s stream, freeing up network capacity for everyone else.
This hints at what the future of wired linear television might look like on both coaxial cable and fiber-optic networks, blurring the lines between online and linear content so thoroughly it may be impossible for the end user to tell which is which; some WWE Network content might be delivered linearly, while in some areas a network like Logo might be delivered via IP. It doesn’t have to look like Stream TV, but it might have to adopt some of the less savory elements of T-Mobile’s Binge On, finding some way to identify live streams so they can be isolated and delivered once. It may also be beyond the capability of some providers to pull this off dynamically, certainly while minimizing lag; linear delivery may be something that has to be arranged ahead of time in some way. The key, then, is to figure out how to foster such a system while preserving the principle of net neutrality.
Last year I sent a Congressional committee 13 pages of comments explaining what principles I felt should underlie any revisions to the Communications Act to update its treatment of video for the Internet age. More recently my thoughts have coalesced with regards to how to regulate wired television to bring it into alignment and consistency with the principle of net neutrality and existing rules governing the Internet. To that end, here’s what it might look like:
- No content delivered via linear television, particularly that not delivered over-the-air, can be withheld from delivery over the Internet, whether by the ISP or the content provider. This is a basic way to avoid using linear television as an end-around around net neutrality rules, and it also demonstrates an important difference between linear television now and going forward: it is no longer a prerequisite for the delivery of content. ISPs may no longer find it necessary to carry a linear television service at all. Really, the notion that cable operators are just a backdrop and infrastructure system through which programming is carried, which has little to no role in what programming it is, is one that probably should have taken hold several years ago as digital cable obviated the condition of scarcity that had governed the pay-TV industry, and certainly once Internet streaming became competitive; it’s still impossible for a cable operator to carry every would-be linear network, but the notion that your ability to watch a channel anyone would actually watch would be determined by what pay-TV operator you subscribe to seems not only quaint and outdated, but antithetical to net neutrality. In this vein:
- If linear television is carried over any wired network, it should be controlled at the infrastructural level. I’ve seen suggestions to increase competition for Internet service by decoupling control of the infrastructure from the service delivered over the pipes, recognizing the natural monopoly the pipes themselves represent while still allowing ISPs to compete freely (i.e., without utility regulation) for the service delivered over them. If so, the same principle underlying broadcast television applies: the content allowed to benefit from linear television should be the same for everyone regardless of carrier. Any distinctions between the content available in different areas should be a natural result of the existence of different networks, without individual ISPs controlling what content you can and can’t watch and how easily you can do so.
- Keep the existing must-carry rules. Ideally, broadcast television serves as a means to deliver the most popular content quickly and efficiently to a variety of devices. It’s reasonable to think that the same content would also be most popular over a wired connection. This rule would establish some degree of parity between wired and wireless video, ensuring the same content that benefits from linear television for the one gets the same benefit on the network with more capacity, and recognizes the original purpose of cable TV to deliver broadcast stations to areas their signals couldn’t reach. The increase in capacity may mean it’s actually not necessary to add any further linear channels beyond those provided by broadcast stations, but it’s reasonable to think video consumption would be higher, and be at higher quality, over a wired connection. If there is a need for further linear channels:
- Forbid any monetary transactions as a condition of linear carriage between an ISP (or infrastructure authority) and a content provider, especially per-subscriber or per-viewer fees. Content providers may only charge consumers directly, though they may use any scheme they wish to do so as long as the ISP (or infrastructure authority) is not directly involved. This rule ensures that potential network strain is the only factor going into what channels are carried linearly, and should render retransmission consent unnecessary and contradictory. Net-neutrality foes and general free-market advocates may look at this rule and think it’s cutting off “innovative” business models, but because in this model linear television is a means for smoothing over the transmission of content that is being made available through the Internet anyway, one that should reduce the costs to both parties relative to the alternative as the number of viewers goes up, there should be no relationship between the costs of maintaining a linear feed and the number of subscribers an ISP has that would have access to the feed or the number of people using it; the costs of providing the feed should be the same regardless of how many people are on the network or can view the feed, indeed that’s entirely the point of linear television in the 21st century. The cost of providing and acquiring the content (an issue concerning the consumer) should be a separate issue from the cost of delivering it (an issue concerning the content provider and ISP). There is therefore no good reason to charge ISPs anything other than a flat fee (and even that’s questionable; small ISPs wouldn’t be too hurt by being unable to amortize the cost across more customers because they’d have less need for linear TV to begin with, but any sort of payment scheme might create the same imbalance that made retransmission consent necessary), and for an ISP to charge a content provider would amount to exactly the sort of “paid prioritization” net neutrality advocates fear so much.
- Impose effective protections against discrimination and an effective dispute resolution process. Again, the only factor that should go into whether any programming is or is not offered linearly is its raw popularity, and any content popular enough to warrant it should have the opportunity to use it regardless of their level of resources or connections. This does not mean disadvantaged groups or public entities should have a blanket right to a linear stream; again, a linear channel is not a prerequisite for the delivery of content, and in some cases what they’re looking for no longer even needs to be video. In many cases these entities seek to take advantage of the modern cable-bundle model to acquire production and distribution resources on par with more well-heeled groups they might not be able to attain if they were forced to stand and fall on their own merits. It may be desirable to introduce new programs to benefit minorities and open up the possibility of using franchise fees on ISPs to fund the production of video and other content by public entities (similar to today’s “public, educational, and governmental channel” system), but linear television is irrelevant to that discussion and shouldn’t be hijacked to attain those goals.
- The quality of a linear stream must be the same across all platforms and an ISP (or infrastructure authority) must not degrade it. Because an ISP does not have to carry a channel (except for a broadcast station) for its customers to have access to the programming on it, there is no reason for an ISP to reduce the quality of a stream in order to fit in more streams. If a content provider offers its stream at too high a quality and causes all ISPs to balk at carrying it, that’s a market signal to reduce the quality of the linear stream. There is one exception to this rule: because the main purpose of over-the-air broadcasting is to reach mobile devices, it may be beneficial for broadcasters to offer wired services their content at a higher quality than they broadcast it over the air.
- Consider imposing restrictions on how many streams one entity can control 24/7 (or otherwise beyond particular events) on one set of wires. Ideally, impose some degree of parity in ownership restrictions between broadcast and wired linear networks. In particular, ISPs should be severely restricted in how many linear streams over their own wires they directly control the content of. In general, consider moving to the Canadian system where the FCC has as much latitude to regulate cable networks as they do broadcast networks.
These rules provide a baseline to move wired linear television away from being a marketplace defined by 1990s rules and market realities and towards becoming a tool that enables the benefits of both linear television and the Internet to be available to all, consistent with the ideals of net neutrality. They hold the potential to usher in the dawn of a new era of consumer choice that frees Americans from the paradigm of having one’s entertainment options dictated by the cable company and enables them to choose from a menu of options that provide value to them. It’s my hope that this provides a framework for policymakers to rethink the wired television landscape and for the American public to imagine what it might look like.
An important step in the dissolution of the distinction between linear television and online video content was taken (or at least started) this week when FCC Chairman Tom Wheeler called for the introduction of a new standard to make cable TV content available to devices other than the cable company-provided boxes most people pay handsome monthly rental fees for, allowing people to watch both pay TV content and streaming video on a single box.
Immediately, the cable industry tore into Wheeler’s proposal, forming something called the Future of TV Coalition to be the public front to its opposition. Most of the critiques I’ve seen of their criticisms don’t seem to go much further than just dismissing it as whining about potentially losing their lucrative set-top-box rental fees, but that may be because it comes off as completely unhinged, seemingly attacking a completely different plan than what consumer groups and Wheeler are advocating and making points the proposal has already addressed or that make no sense, a strawman bearing no resemblance to what’s actually on the table. They claim the proposal would allow tech companies to cut up and resell pay TV content as their own, but it makes no sense and there’s no reason to believe that people wouldn’t still pay their cable company to deliver content, only having a choice in what device would deliver that content. They claim the proposal would allow tech companies to muck with channel ordering and numbering in violation of contractural agreements, when it would be trivial to require any interface to leave the channel lineup alone (or at best to leave any reordering to the consumer). They claim the proposal would mandate the installation of an additional box when the proposal specifically advocates a software-based solution, the whole idea of which is to allow the provision of pay-TV content on boxes that already exist (including cable companies’ own boxes) or on no box at all. They claim the proposal would strip out security and privacy protections when the whole point of it is to arrive at some sort of solution to deliver those protections and credentials to independent boxes for them to process just as today’s cable boxes do.
Though the cable industry has publicly supported past and present efforts to open up the set-top box market, and claims to be all for opening up access to a wide variety of devices, they spend a lot more time bashing the FCC’s proposal than suggesting their own alternative, despite claiming not to know exactly what the FCC’s proposal is. Instead, the closest they come to suggesting an alternative is to repeat the word “apps” over and over. The commission’s proposal, they claim, is unnecessary because Tim Cook says “the future of TV is apps” reflecting the “apps revolution” of consumers, programmers, and cable companies embracing the “apps-based model” making “apps” available to millions of devices and apps apps apps apps apps.
If it seems odd that consumer groups, tech companies, and the FCC would be against television delivered through apps, given the entire backdrop under which this whole thing is taking place, that’s because they aren’t; indeed, the proposal specifically names “app developers” as being among those that would have access to the necessary data to effectively and securely deliver pay-TV content. So it’s not clear what the cable industry means by the “app-based approach” that wouldn’t include the very concept they’re contrasting it to. What they seem to be trying to say is that the FCC doesn’t need to do anything at all, because the existing apps available already deliver pay-TV content to the sorts of devices that would benefit under the proposal (not that that would keep them from pushing expensive cable box rentals on people) – though it’s not clear what kind of apps they mean, because they alternately cite both TV Everywhere apps provided by programmers as well as cable companies’ own apps, all in order to support letting the market do its work rather than an actual, concrete proposal. Certainly what they say sounds reasonable enough at first glance, but what sort of “apps-based approach” do they actually advocate, and what exactly is the problem consumer groups and the FCC have with it?
Well, according to the report released by the FCC’s Downloadable Security Committee, cable companies’ proposal would involve delivering content to devices using an app and user interface provided by the cable company, leaving consumer groups concerned about precluding other entities from innovating with their own user interfaces. Of course, forcing people to use a single app to access all linear cable TV content is precisely the opposite of what the “apps revolution” is actually about: decentralizing access to content and allowing content providers to offer their wares to consumers directly, with an experience they can control themselves.
The cable industry seems to believe, or wants the FCC or public to believe, that cable companies’ services themselves are the product, rather than the content offered through those services, even though that content is mostly the same from one cable company to another. This belief is betrayed in their listing of the top “video subscription services”, which lists the streaming services Netflix and Hulu alongside the top cable operators and satellite providers, as though Netflix and Hulu’s primary competition were cable companies themselves, not, as Netflix itself has identified, content providers like HBO. Perhaps cable companies’ greatest fear isn’t losing the billions of dollars in set-top box rental fees, but that in divorcing them of that the FCC might recognize that the real “future of TV” is one dominated and identified by content providers, with cable companies merely providing the backbone through which that content is delivered, and that they might accelerate that future by providing the tools for their wares to be offered through an experience completely divorced from the cable companies’ control. To be sure, content providers might feed this misconception; the contractural concerns such as channel placement cable companies worry about the FCC’s proposal undermining are rooted in a notion of a single lineup of numerical channels defined by the cable company, and perhaps a proposal that makes it irrelevant is one that should be considered and adopted. Content providers would no longer be able to get cable companies to try to force-feed their content by placing it near content that’s actually popular, but even their own TV Everywhere apps (which would seem to have little reason to exist on smart TVs and devices like Roku as it stands) would stand to benefit by being able to access the cable company’s linear feeds directly, strengthening their own brand by making it easier for those apps to become the primary gateway to their content.
The cable industry is right that the “apps revolution” is changing the way we watch TV. The reason they’re opposing the FCC’s proposal so strenuously is that they know it holds the potential to make it all the more successful at it.
A common line of argument used to support policies that hurt broadcasters is that broadcasters received their spectrum for free. Cable companies complaining about how slanted retransmission consent supposedly is towards broadcasters claim the government requires them to carry all broadcast stations on the basic tier – broadcasters, they point out, who receive their spectrum for free. Whenever broadcasters complain about the many, many problems with the incentive auction, they are told they received their spectrum for free and they should count themselves lucky they’re receiving anything for it now. The government itself, in the form of the FCC and Congress, justify imposing regulations on content, such as decency restrictions and the E/I and public interest requirements, as part of the deal broadcasters have: they received their spectrum for free, and this is what they must do in return to serve the public interest.
That deal is the one that was struck all the way back in the Communications Act of 1934, and even back in the Radio Act of 1927 that established the FCC’s predecessor and put television under its purview back when it was still just an experiment. The idea back then was that, since no one could truly “own” the airwaves, the government would grant licences to stations to broadcast over them to serve the public interest, paid for by ads and available for anyone with a receiver to tune in for free. This was in contrast to the model taking shape in most other countries, especially Europe, where the government controlled most broadcasting and ran, or at least supported, the dominant broadcaster(s). America, by contrast, allowed the private sector to control the airwaves for free, so long as they used it to serve the public interest and made it available to everyone for free.
This worked well for a time when broadcasters had a monopoly on video content outside the movie theater, and when there were only three major networks providing programming. Some questioned the quality of the entertainment programming, but broadcasters provided high-quality news and affairs programming, and while the First Amendment meant the government couldn’t outright crack down on criticism of the government – it’s doubtful Walter Cronkite would have been able to criticize America’s involvement in Vietnam if he worked for a government broadcaster – the public-interest obligation and government licences allowed the FCC to crack down on stations that attempted to use their valuable spectrum to disseminate propaganda, which it used on several Southern stations that broadcast an anti-civil-rights message.
It began to break down, though, with the dawn of cable television networks. Since cable networks didn’t use the public airwaves, Congress decided it fell outside the FCC’s purview, meaning they didn’t have to follow any of the restrictions on content applied to broadcast stations. Rather than repeal those restrictions, though, Congress added more of them, especially in response to complaints over the “30-minute toy commercials” that took over Saturday mornings in the 80s, which only hastened the slow demise of Saturday morning children’s television completely as the shows kids actually wanted to watch moved to channels like Nickelodeon. The existence of “narrowcast” channels like Nickelodeon and ESPN themselves were increasingly not possible on broadcast television even as the digital transition expanded the number of channels available; subchannels had to earn their public-interest and E/I keep even if they had no interest in forwarding them or were trying to compete with networks that didn’t have to follow them. The idea, presumably, is to ensure some channels are furthering the public interest, educating and informing the public while serving as a safe haven from the sex and violence on cable, but by forcing every broadcast station to meet that standard, while expecting them to compete for advertising dollars with cable networks not so constrained and requiring them to offer their wares for free, Congress and the FCC are effectively forcing every broadcast station to follow the public-television model to some degree.
Perhaps that might be a fair price to pay for broadcasters’ “free spectrum”… except that as I’ve chronicled time and time again over the past few years, the technology of broadcasting is valuable in its own right as the Internet takes over the distribution of video, as the best, most efficient way to deliver content to a bunch of people trying to watch the same thing at the same time, especially to mobile devices where using over-the-air spectrum is the only way to deliver content, over-the-air spectrum that is inherently more constrained than a wired Internet connection. The FCC is about to auction off broadcast television spectrum to wireless carriers that need it, to the extent they need it at all, to deliver video, and AT&T and Verizon are working on technologies to use their own spectrum to effectively build their own broadcast networks, which will likely deliver much the same content between them but force you to sign up for one of their carriers to receive it. It would seem the public interest today is served by some sort of platform-, device- and carrier-agnostic service to deliver video, especially video people want to watch at the same time, without running up against data caps, but as it stands no one would want to buy a broadcast station for the purpose of such a service – it’d be useless for something like Game of Thrones that would run afoul of the decency standards, and they would need to meet the public-interest and E/I requirements even if they have no interest or ability to do so, and even if such content would have no reason to have a place on a linear television schedule, not to mention that they would need to operate such a service on the back of advertising (or donations) alone, unless they wanted to take retransmission consent, and if they did why are they running a broadcast station and not a cable network?
Clearly, the old broadcast television compact is outdated in an age where broadcasting is expected to compete with platforms not bound by it, and if we want broadcasting to continue to survive and thrive for years to come, we need a new compact. We need a service that serves as a complement to the Internet at large and a means to further our goals for it, a vision of over-the-air broadcasting as a fundamental part of the Internet, not merely an alternative as broadcasting was expected to be for cable. What we need from broadcasters today is to serve as a platform for any content that wishes to minimize the cost, whether to itself or to Internet providers, of reaching a large number of people, a means of ensuring a high-quality stream for all customers regardless of provider or the content producer’s resources while minimizing the demand for spectrum, simultaneously a control on and release valve for the big wireless carriers.
This platform can’t be placed under the control of those big wireless carriers or wired Internet providers, but to the greatest degree possible, should be open to whoever wishes to take advantage of it. The principle of the free market should apply here; neither the government, Internet providers, or a single large corporation or group of corporations should control what content gets to use this platform, but rather it should be decentralized among as diverse a collection of voices as is possible. Because the existence of this platform is valuable in its own right, there is plenty of reason to offer it to those already taking advantage of it for no greater cost than the opportunity cost of not surrendering it to wireless providers and without further strings attached, and doing the same for new entrants if there is enough spectrum available for all of them, but if there is enough demand to warrant auctioning off new channels the government can certainly do so.
The principle of the free market, and of fostering a vital technology within the overall system for the distribution of content, also means that requiring certain kinds of content on every channel, and certainly prohibiting certain kinds of content that might otherwise warrant taking advantage of the platform, makes no sense and at best bears no relevance to the goal or the technology; leave the furtherance of whatever specific public-interest goals interest groups want to the public stations and let the free market reign on the remaining stations. And as much as it pains me to say this, it also means letting go of the notion that broadcast television needs to be made available to consumers for free. If a pay-per-view event or something on a subscription service would still attract a large enough audience to warrant taking advantage of the broadcast platform, it should be able to do so, although the government may want a piece of the resulting fees. I have no doubt that in most cases the free market will reward content targeted at the broadest possible audience with the lowest barriers to entry.
The success of any platform depends on its attractiveness to the most popular content that can take advantage of it, which usually means the largest players in the space. Right now broadcasting is only marginally popular by that standard, even though it is tailor-made for popularity. We need to let go of outdated regulations holding broadcast back in order to create the video distribution system of the 21st century, and that means not being led astray by the 20th century vision of broadcasting that spawned them.
As promised, this week I’ll be posting supplementary material consisting of content excised from the book before publication or that I just didn’t have time to write before getting the book out the door, as we prepare for the book’s availability in paperback. This week I’ll try to have one outtake from each chapter from 2 to 8, in order; in coming weeks I hope to have further outtakes ready, some on topics that didn’t fit the structure of the book.
Though his father Ralph may have been the founder of Comcast, Brian Roberts was not groomed to take over the company at an early age – though not for lack of his trying. The elder Roberts attempted to gently steer his son away from the business, but Brian remained persistent and began working for Comcast full-time in 1981, shortly after graduating from his father’s alma mater, the University of Pennsylvania’s Wharton School of Finance. It took a decade for him to prove himself to the point of being named the heir apparent in 1990, when he became president of the company.
Both before and after that point, Roberts found time to pursue his other passion: squash. An All-American at the sport, Roberts helped lead the United States to silver medals at the Maccabiah Games in 1981, 1985, 1997, and 2009, winning the whole thing in 2005. As my book chronicles, sports was a big driver for the cable industry from the beginning, even before the launch of ESPN, with boxing on HBO and Braves games on TBS, and many cable companies had interests in regional sports networks and other sports programming interests. But during the late 90s and early 2000s, as cable companies such as TCI and Cablevision surrendered their RSNs to Fox and as they chafed under ESPN’s post-1998 rate increases, Comcast under Roberts’ leadership set out to build its own sports empire that would make it as much a beneficiary of the latter-day sports boom as a victim.
During the decade from Brian Roberts’ ascension to the president spot in 1990 to when his father transferred him his voting stock in 2000, Comcast was involved in the launches of Speedvision, the Outdoor Life Network, and the Golf Channel, and acquired the Philadelphia Flyers and 76ers in 1996 to launch its own Philadelphia-area RSN along with the Phillies, soon acquiring a second RSN in Home Team Sports in the Washington, DC area. As chronicled in Chapter 6 of the book, after Roberts spearheaded the acquisition of AT&T Broadband, Comcast set out to expand its RSN empire by selling stakes in its RSNs to teams, using the template laid out by YES Network to its advantage. But Comcast had its eyes on a far bigger prize.
In 2004, with Disney CEO Michael Eisner under fire for questionable performance and decision-making, Comcast launched a hostile takeover bid of the company worth $54 billion in stock and assuming nearly $12 billion of Disney’s debt, with ESPN, whose agreement with Comcast was slated to expire the following year, widely figured to be a key motivator of the deal. But the offer popped Disney’s stock price above what Comcast’s offer valued it at, Comcast refused to raise its offer, and less than three months later the offer was withdrawn.
Rebuffed in its attempt to own ESPN, Comcast began to focus on competing with it. Comcast held talks with the NFL about forming a new sports network, possibly in combination with other cable companies, or putting NFL games on OLN, and the NFL hadn’t yet decided to put its Thursday night package on its own network – and Comcast was considered the favorite among non-league bidders – when the NHL fell into Comcast’s lap. Though the casual sports fan may have scoffed at the notion of the NHL moving to the Outdoor Life Network, Comcast had already been talking about transitioning OLN into a general sports network, potentially competing with ESPN, and while there were few paying attention to the sports television business at the time that weren’t in that business, those that were had at least an inkling of Comcast’s plans.
By 2009, though, any dreams of OLN, now Versus, competing with ESPN had become a distant memory. At least publicly, Versus President Jamie Davis disclaimed any notion of trying to compete with ESPN, instead focusing on “super-serving” fans of those sports Versus held the rights to. Though Comcast had never been as bombastic about competing with ESPN as Fox would be, nonetheless Comcast had learned firsthand how difficult it could be, especially after failing to get NFL or (in 2006) MLB rights.
NBC Universal was a prime target for another takeover attempt. It was never particularly on-brand for owner General Electric, with most other broadcast and cable networks owned by companies focused on being media conglomerates, and 2009 seemed like a particularly ripe time for GE to get out of the media business. It was the aftermath of the BCS deal, broadcast advertising had been battered in the Great Recession, and the retransmission consent market had not yet heated up. NBC in particular had become a laughingstock, mired in last place for years and going through the Jay Leno Show fiasco, and the Universal movie studio wasn’t much better. Cable networks, though, backed by the stability of their subscription fee revenue streams, were thriving, with NBC Universal’s outlets like USA, SyFy, and MSNBC gaining in viewership. By most accounts, it was those cable networks, which would give Comcast control over more of the content it would deliver over its pipes, that was Roberts’ main target when he set out to acquire NBC Universal, with the broadcast network being heavily de-emphasized and potentially spun off if regulators put up objections strenuous enough to seeing one of the Big Four broadcast networks owned by over-the-air broadcasting’s nominal competitor.
But for those in the sports field, it was NBC’s broadcast operation and its bucket of sports rights, led by the legendary Dick Ebersol, that seemed to be the most valuable part of the deal. Ebersol’s expertise at producing top-notch productions of big events, especially the Olympics, would raise the quality and prestige of Comcast’s sports operations, and NBC would both be able to share its existing sports rights with Versus and provide much-needed muscle, and an attractive broadcast outlet, to acquire higher-profile rights for the network, while Comcast could integrate its regional sports networks in Chicago, Philadelphia, the Bay Area, and Washington, DC with NBC’s owned-and-operated stations in those markets. In turn, having an all-sports cable outlet and its subscription fees would in turn help NBC acquire rights it might not otherwise be able to score; Ebersol made comments both before and after the deal closed suggesting he had long looked wistfully at ESPN’s subscriber-fee income and welcomed the opportunity to play with a sports network that could take advantage of it. For many, a merger would create the most credible competitor to ESPN yet, at least until Fox’s Fox Sports 1 plans came to light. Just how valuable sports really was to Comcast in making the deal became apparent shortly after the deal closed in early 2011, when Ebersol began making sweeping changes to both sides of the newly-formed NBC Sports Group, including promising a name change for Versus – it would eventually become the NBC Sports Network, leaving no doubt as to the impact the merger had on Comcast’s sports operations – and re-branding NBC’s golf coverage as “Golf Channel on NBC”, much as ABC’s sports operations had become “ESPN on ABC”.
But barely four months after the deal closed, and less than three weeks before the International Olympic Committee was set to accept bids for Ebersol’s beloved Olympics, Ebersol abruptly resigned after he and Comcast were unable to reach terms on a contract extension and following much friction between Ebersol and Comcast, especially over how much they were willing to pay for sports rights, in the interim. Without Ebersol and his passion for the Olympics and relationships with the IOC, it was widely believed Comcast would be less willing to bid as much for an Olympic contract, especially given how much money the last contract was losing, and ESPN and Fox smelled a golden opportunity to steal the Games. CBS and Turner, which had previously met with the IOC but had little interest, even started talking about making a joint bid, though didn’t make the trip to Lausanne, Switzerland. The IOC had told bidders it expected to at least match the $2 billion NBC had paid for 2010 and 2012, but with NBC’s losses and Comcast expected to be more responsible, ESPN and Fox prepared to give the IOC lowball offers.
Three days after Ebersol’s resignation, Roberts and Steve Burke, the man he’d installed at the head of NBC Universal, as well as Mark Lazarus, Ebersol’s replacement, met with the people that had been working on NBC’s presentation to the IOC. The executives sat through the presentation that had been prepared and listened to the employees tell them what the Olympics meant to them and to NBC. By the end of the meeting, the employees were fully reassured of Comcast’s commitment to the Games.
The final presentation included a video of NBC employees talking about their Olympic memories and what the Games meant to them, which had IOC officials tearing up. It had also, apparently, moved Comcast executives. When the sealed bids were opened, ESPN and Fox offered up bids in the $1.4-1.5 billion range for two Olympics, not much higher than Fox’s bid from last time, which had IOC officials wondering whether Fox was even serious about pursuing the property. Comcast, on the other hand, bid nearly $2.4 billion. The IOC also gave networks the option of bidding on four Games, an option ESPN didn’t even take; Fox bid $3.4 billion for that package, but NBC paid a billion more than that in the bid the IOC ended up taking.
Comcast would end up bringing back Ebersol for the 2012 Games in an advisory capacity, and unexpectedly announced a stunning, no-bid 12-year extension of their agreement in 2014, ensuring NBC and Comcast will continue delivering the Games into American households into the 2030s. But other than the Premier League and a brief, two-year spell with MLS, NBC has acquired few other sporting events it didn’t already have the rights to before the merger; ESPN and Fox beginning to tag-team on sports rights made Comcast’s climb even more uphill than it was already, and the advent of Fox Sports 1 meant a more attractive alternative to ESPN for sports leagues. There are still hopes for NBCSN to acquire the NFL’s Thursday Night Football package, but they have become increasingly distant since the NFL’s broadcast-centric negotiations awarded it to CBS in 2014. NBC knows just how hard it is for them to compete with ESPN for sports rights. But at the very least, they’ve ensured that Comcast has some sports muscle of its own to flex with other cable operators.
Before I left for Seattle for a week and a half, I had reason to start thinking about the possibility of our household becoming a cord-cutting household, because as we were wrapping up the book my Dad mentioned that he had thought about cutting the cord, and maybe that he should cut the cord, but something was keeping him from pulling the trigger. What immediately leapt to my mind (besides the fact that our “TV” is not only SD, but an old-fashioned tube with dials that’s older than me and has decayed enough to be really fuzzy, especially with our cable box letterboxing literally every channel) was the fact he’s a pretty decent-sized sports fan, and an absolute soccer fanatic. (This is one reason Chapter 3 of the book spends three sections on soccer.) His favorite team is Italian, his second favorite is the Seattle Sounders, and near as I can tell his third favorite is Barcelona. So you might think he’d be able to get by with a subscription to Sling TV, which carries beIN Sport for games from Italy and Spain and ESPN3 for any Sounders games that aren’t nationally televised. His second favorite sport is basketball, specifically the NBA, and Sling TV works very well for an NBA fan, since it carries both ESPN and TNT (but not, apparently, NBA TV, despite what I say in the book).
But in order to catch every Sounders game, namely a substantial percentage of the biggest ones (such as playoff games and games against rivals Los Angeles and Portland), he would also need access to MLS’ other English-language TV partner, FS1, which he would also need to catch most of his favorite European teams’ UEFA Champions League games, most of the World Cup, and half the baseball playoffs (which is another sport he follows). Since the Sonics left Seattle and he’s spent more time in LA, he’s become attracted to the Clippers as they’ve actually become good and lost their incompetent, racist owner, and regularly turns the TV on to their non-nationally-televised games on Fox Sports Prime Ticket, another Fox Sports outlet he would need access to. And while he’s not that big a fan of the Premier League, he has taken to watching a good number of their games given their wide availability under NBC’s contract, so he wouldn’t mind getting NBCSN as well.
While none of those channels are on Sling TV, all of them are on PlayStation Vue, the streaming service Sony introduced last year, and Los Angeles is one of PS Vue’s few launch markets (as the presence of Prime Ticket indicates). But a year ago, when Sling TV was announced, I mentioned that it was preserving the cable bundle, not breaking it up, and PS Vue is that much more so – once it adds the Disney networks, as it’s slated to do soon, it will have channels from all nine of the companies I mention in Chapter 7 as controlling most of your cable lineup – so it hardly represents breaking free of the cable bundle or in line with the real spirit of cord-cutting, as Cord-Cutters News recently pointed out. A package of channels containing beIN Sport and Prime Ticket would set him back $59.99 a month, $54.99 a month under a promo offer, assuming those prices don’t go up when the service adds ESPN, and he still wouldn’t be able to catch non-nationally-televised Galaxy or Laker games on Time Warner Cable SportsNet, let alone Dodger games on SportsNet LA. Time Warner Cable, by my calculation, will be charging him about $125 once their rate hikes take effect, while offering the Internet speed he’s currently getting standalone for $45 for the first 12 months; throw in a $10 fee for modem leasing, and under all promotional offers he’d be paying $110, the same price he pays now, to essentially switch television providers and lose access to any channel not programmed by the Big Nine (or the Epix he receives in a promotional deal), before even picking up any other streaming services he might want like Netflix, or any other fees he’d still be paying.
In October, Todd Juenger, an analyst for an investment firm, laid out the exact process for how a standalone ESPN would dismantle the cable bundle. It wouldn’t be because sports fans would dump cable en masse to sign up for ESPN – like my dad, they would want to watch their local team on regional sports networks and other sports on FS1, NBCSN, TNT, and numerous other networks. Rather, it would be because ESPN’s defection would trigger a massive move to similar streaming services by all the other networks in the bundle, making it that much easier for non-sports fans to cut the cord and break free of the cable bundle – without sending $100 a year to ESPN. It’s a delicate balance holding the cable bundle together: ESPN needs everyone who wants to watch The Walking Dead, The O’Reilly Factor, Naked and Afraid, or Adventure Time to take part in some sort of bundle that forces them to pay the ESPN tax, but in order to justify that bundle’s existence, they need sports fans to need the entire bloated cable bundle. Look at it this way: sports fans whose cable companies are members of the NCTC wouldn’t cut the cord if the NCTC and its members followed through on their threat to drop AMC and deprive them of The Walking Dead, but losing the NCTC as a distribution partner would make it much more attractive for AMC to launch some sort of standalone service that would make it a lot easier for Walking Dead fans to stop paying the ESPN tax (especially if they could team up with Viacom, which has been missing from Suddenlink for over a year, as mentioned in the book), while doing the same to Fox or some other outfit with valuable sports might just set off a chain of events that causes the cable bundle to collapse surprisingly rapidly. ESPN is effectively ransoming all the other members of the Big Nine to remain tied at the hip with them, and the more of them that are themselves invested in sports on cable, the better.
A while back, after wondering why ESPN kept helping Fox win sports rights in order to box out NBC when Fox was already looking like a more credible challenger to ESPN’s throne, I seized on a throwaway comment in a post on the Frank the Tank site to write a post of my own suggesting that, while ESPN may not have wanted competition, what they really didn’t want was for that competitor to be associated with one of their distribution partners, making it that much easier for Comcast to drive them a harder bargain on distribution fees, to the point of building FS1 as their own competitor in order to keep NBCSN down. In turn, Dave Warner, proprietor of the What You Pay For Sports website, seized on that post and made it an important piece of his own message, even as I became uncomfortable with building too much of a theory on a one-paragraph comment that may not even have reflected its author’s full thoughts on the issue, or even necessarily was held all that strongly by its original author (especially after NBC’s original Premier League deal, made shortly after my post, re-raised the spectre that Comcast just wasn’t that interested in running down ESPN). My post led Warner to believe that there was no way ESPN would let NBC re-up with the Premier League when that contract came up for renewal last year, that NBC had built the value of the property so much and had picked up enough momentum from it that ESPN would have to bring it to a screeching halt. Obviously, that didn’t happen; in fact, even before that ESPN decided it didn’t want to keep NASCAR any more, which combined with Turner’s own decision to that effect basically placed perhaps the most valuable property NBCSN has yet attained into their lap. Clearly, there’s more to the story of why ESPN would help out Fox so much than just “we need to keep NBC out at all costs”.
Part of the explanation, as suggested in the book, might be that companies are willing to team up to keep their own price down. But perhaps a more accurate explanation might be that ESPN doesn’t want to have a complete monopoly on sports on television – if it were, everyone else could team up to create a service without it (which, ultimately, is why ESPN and Disney signed up for PS Vue, a deal only announced in November). Instead, ESPN is willing to sprinkle just enough sports throughout the rest of the cable bundle to give sports fans a decent enough reason to keep giving money to as much of the Big Nine as possible, without giving up so much to actually allow anyone to challenge them (or raise their fees enough to accelerate cord-cutting, or dilute ESPN’s own value). ESPN is fine with staying out of the regional sports network business and letting Fox and Comcast be the dominant players there, and they’re willing to let Fox and Comcast have enough content to build their own national sports networks without getting anything truly valuable. It’s true they would rather have Fox be stronger than Comcast be strong enough to drive a hard bargain with them, but that doesn’t mean they don’t want Comcast to have anything valuable, just that they’d rather have NBCSN remain a niche sports network (and in some very real senses, the Premier League and NASCAR are still niches) and help Fox get the stuff on the higher end of the value scale that ESPN is willing to give up. After all, as more sports (like, say, the half of the LCS that wasn’t there already) move to cable, regardless of the network that airs it, giving sports fans more of a reason to stay tied into the cable bundle, ESPN benefits more than anyone. As Awful Announcing’s Matt Yoder put it, “In what other industry can you still get 24 times as much money from a customer who chooses your competitor’s product over your own?”
This turns pretty much everything I’ve written about the sports TV wars – including the big book I just put out – upside down. I’ve framed the war as ESPN protecting their hegemony against insurgents, but cord-cutting is the real insurgency, and it may be that ESPN (maybe without even initially realizing it) has actually used Fox and Comcast to protect their hegemony by fortifying the resiliency of the cable bundle. The title of my book, The Game To Show The Games, may have been more accurate than I realized – for ESPN, it’s just another game for them to benefit from, perhaps even more so than college football or the NFL. The cable bundle truly is ESPN’s world, and everyone else is just paying the rent – literally.
The only real developments to come out of this week came from ABC, which announced their midseason schedule, which includes a number of shows taking time off until February or March… including a few shows premiering in March, which will have difficulty truly establishing themselves before ABC has to make a decision on their future. ABC also pulled the plug on “Wicked City” after some truly terrible ratings, which some are calling the first “official” cancellation of the season. But if “Wicked City” had done well enough to last another week or two, would “The Player” have been the first “official” cancellation after it aired all the episodes in its cut order, even if it was never quite pulled off the schedule in the typical sense? Come on.
At the other end of the spectrum, NBC bows rookie “Chicago Med” this week, which is filling me with a serious feeling of dread. Scroll down to the bottom to see why.
How to read the chart: First box shows current time slot, second box current season number. Eps: Total number of episodes aired / total number of episodes ordered (if known). Last: 18-49 rating of the most recent episode. Raw: Average of first-run 18-49 ratings. Adj.: Average of the most recent episode and the previous Adj. rating. WklIdx: Last divided by the network scripted show average for the week. RawIdx: Raw divided by the network scripted show average for the season. Index: Adj. divided by the network scripted show average for the season. In general, >1.1=certain renewal, .85-1.1=probable renewal, .7-.85=on the bubble, .6-.7=probably cancelled. Anything substantially less than .6 for rookie shows indicates a dead show walking. Prod: Production company that produces the show (ABC=ABC Studios, CBS=CBS Television, Fox=20th Television, NBCU=Universal Television, Sony=Sony Pictures Television, WB=Warner Bros. Television). Incorporates ratings through Sunday, November 15; write-ups do not take into account Monday’s ratings. Weekly averages used: CBS 1.57, ABC 1.56, NBC 1.4, FOX 1.39, CW .64. Network averages used: ABC 1.71, CBS 1.67, FOX 1.57, NBC 1.37, CW .65.