Follow Up: All Cash Or All Stock – The Battle Between Disney & Comcast For 21st Century Fox Assets

In a follow up to an earlier full-length piece on this same subject, the bidding war between two media titans: Comcast and Disney have intensified with the assets of 21st Century FOX clearly in the crosshairs.

The business news media outlets were all buzzing on Tuesday morning with the news that Comcast is looking to attempt a move in mergers & acquisitions known as “crashing the gate”. This maneuver involves putting together, through a variety of ways, a huge amount of cash to put a premium level bid on the table which will change the valuation of the assets involved (in this case FOX assets) to sway those involved to go with that bid over a competitive bid.

The Disney bid which has been known to the public for a while now involves an all stock proposal for the FOX assets. The shareholders of FOX would get Disney stock shares at a level commensurate with their level of involvement in FOX stock ownership. There is a formula for all stock bids of this type which I will not go into further detail, plenty of other writers have covered that component of this deal and have done amazing work in that area.

My focus is two-fold: the bids for this deal as it relates to other media acquisitions and the impact on the media industry which also relates back to the consumers. This method of “crashing the gate” that Comcast is now seeking to employ in this merger is somewhat risky. In past M&A activity it has either worked very well, or failed in spectacular fashion.

The contrasting strategy by Disney, the all stock bid, is a more traditional approach; it is an “old school” method which has a more reliable historical track record. The bid by Disney is seen as a very important acquisition in terms of content ownership in an increasingly competitive landscape.

It should be noted that Fox prefers the Disney bid because the all stock approach would be more favorable for their shareholders. The Comcast bid being all cash would create a scenario where Fox shareholders would have to pay taxes on that in the short term, which is not a desirable position for a corporation to have to pass along a tax increase to shareholders.

The backdrop to this is the impending launch of the Disney streaming app service where the company spent an immense amount of money developing the app which will be a subscription based streaming service. Disney needs the consumers to enroll in their subscription- based app in massive numbers to “break even” on the outlay of dollars they sunk into the project.

The best way to ensure the enrollment of that scale and magnitude is to have a very broad based and extensive content collection. Disney plans to pull their content off of Netflix, with whom they had a partnership to exclusively stream Disney content prior to their own app being developed. The potential acquisition of the 21st Century Fox assets would provide a huge assortment of content for Disney to feature on their new streaming service.

Comcast is trying to also stay in prime position in the race for control of content in the new landscape of the television medium today. The efforts by Comcast to pull together a reported bid of $60 billion for the FOX assets is proof of their strategic importance to the media and cable TV giant.

However, according to Reuters and other outlets, the Comcast “crash the gate” strategy has one caveat that many find curious. Comcast will only pursue the full process of acquiring the FOX assets with an all cash bid if the banking and government entities involved in the AT&T bid for Time Warner allow that merger to take place.

Some found it strange that Comcast would make this request and would be that interested in the outcome of another merger within the industry. I thought about it and realized that Comcast is adding this caveat to the proposal because they want some legal precedent for a large scale merger of this type before they go “all in” on investing time and resources into taking it through the process.

The legal team for Comcast can use the decision in the AT&T / Time Warner merger to alleviate hurdles and a protracted legal suit with government ant-trust regulators if they have a precedent to utilize in their defense. The AT&T proposed merger with Time Warner has been tied up in courts for several months with significant costs to AT&T. Comcast does not want to fall victim to the same fate.

The case for Disney could be made because of the benefits of the all stock transaction but anti-trust oversight will be certainly a factor in either transaction whether it is Comcast or Disney with the winning bid.

However, in order to relieve some of that anti-trust scrutiny, Fox announced that they will take Fox News, Fox Business, and their cable sports division comprised of channels known as FS1 and FS2 ; and they will form a separate company that will be not part of this deal with either Disney or Comcast. The new company will be a spin-off of Fox and will have shares divided up among current Fox stockholders.

In my view, I was concerned about the cable news and cable sports divisions of the company being owned by either Disney (which owns ABC and ESPN) or Comcast (which owns NBC and NBC Sports). The major sports and news divisions would be run by one single entity if that spin-off company was not created. The impact on the viewer would have been significant and created concerns about the control of news and the cost of those cable subscriptions for both news and sports programming.

It remains to be seen what Comcast would plan to do with the content it could potentially wrestle control of from Disney that would represent the assets of the former 21st Century Fox properties. Comcast does not have a streaming app, but it could bolster the VOD (video on demand) offerings for their customers with such an acquisition.

The other industry rumor is that Comcast would seek to create a platform of channels that it could package out at lower rates to their subscribers as well as put together some sort of streaming package of channels like Hulu and YouTube have released recently.

Conversely, this brings about another potential issue with the Comcast bid, that it would benefit only the subscribers to Comcast cable services and not to the rest of the public. The same could be stated for Disney with their streaming app, but the argument could be made that everyone has the opportunity to join the app, but not everyone has the ability to become Comcast customers.

The precursor to the Disney app is the ESPN+ streaming app which just launched about a month ago. I was “grandfathered” into the ESPN+ membership because I held a subscription to MLS Live to watch all the soccer games from my days of covering the New York Red Bulls and the league.

The ESPN+ app is $4.99 per month and it is a tremendous value for a sports fan in my opinion. The amount of content on the app is robust and truly impressive. The ability to live stream games, watch archived games from earlier in a season, and the access to exclusive new programming is worth the cost. The average and the die hard sports fan would have several options and the addition of NHL hockey (which ESPN does not broadcast) streaming on the service is outstanding, especially with the Stanley Cup Playoff games currently ongoing.

A report from CNN later on Tuesday refuted some earlier reports saying that the Fox news and financial news assets would be spun off separately, but the sports division (FS1 and FS2) would go to the winning bid along with the other 21st Century Fox assets. That would be of interest to Disney to gain Fox Sports portfolio to bolster the ESPN+ app service even further.

The launch of the ESPN+ app was a smart business decision by Disney because if their streaming service is going to be on par or better than the ESPN+ service, then that could be a game changer for the industry, no pun intended.

The groundwork has been laid for a bidding war and it will be interesting to see what Disney will do and how they could counter this maneuver from Comcast. The viewers have a lot at stake as the cost that you pay for content could be impacted significantly but what transpires in the next several months.

CBS & Viacom Explore Merger Again

The news on Wednesday that CBS and Viacom were once again exploring a merger opportunity should come as no surprise given that the same person, Shari Redstone, is “running the show” at both corporations because her father, who is the chairman of CBS is very ill.

The potential merger is being driven by a strategy to get ahead of the likely merger of AT&T and Time Warner which would create an enormous media conglomerate. The recent merger that is likely to meet full approval between Disney and FOX is another reason for CBS and Viacom to view each other as a potential “port in the storm” scenario.

The combination of the two entities would combine television/media content creation and broadcasting with the expertise Viacom has in distribution of that content. The ability to have expertise in both areas is becoming a necessity in the mainstream media in order to be able to negotiate profitable distribution agreements.

Furthermore, the synergy of content creation/broadcasting and distribution is becoming crucial for the smaller players in the industry to be able to stay relevant with the competition from Disney/FOX and AT&T – Time Warner (AT&T also owns DirecTV).

This is especially relevant when you consider that AT&T has a market cap of over $200 billion and CBS has a market cap of $23 billion. In the event that AT&T merges with Time Warner that number could be close to $300 billion. The Disney and FOX deal will put that combined corporation at around $250 billion in market cap.
The CBS – Viacom deal might become a necessary move to ensure their own survival in the changing media landscape. The distribution of content is critical, and control of content is also an integral part of the connection between content and profitability. The two companies have several areas of cross-compatibility which is suitable for a merger opportunity.

The merger, if approved, would potentially bring together a more robust stable of networks that are widely available on basic cable packages that would provide leverage for CBS & Viacom when negotiating the carriage fee agreements.

This same principle would apply outside of the U.S. domestic market where a combined entity would be a serious player in the international media / television broadcasting space. My own depth of knowledge is not in the international market but plenty of coverage is out there on that area of this potential deal.

The streaming service that CBS operates called CBS All Access would gain a significant increase in content by merging with Viacom. CBS would also obtain the control of the Viacom owned Paramount movie studio, which should be noted is struggling at this point.

Wall Street is not keen on this deal, according to Forbes they do not see the synergies or the market caps of the combined entity being significant enough to make a difference in the media industry at this point. It also notes, as other major financial news outlets have noted, that CBS is a ripe target for being obtained themselves by Verizon.

The Verizon-CBS rumor has been long running now and it remains to be seen if Verizon wants to take that strategic dive into the network television arm of the industry. The resources of Verizon would be a significant deal within the media industry that would create some serious ripple effect.
However, for now, at least for the next few weeks the focus will remain on CBS and Viacom and if they can determine the parameters of a deal. The combination will not reshape their industry segment but it will have an impact on the way content is controlled and distributed. In that sense, this deal is significant because with the meteoric rise in streaming television programs, content rights are king. CBS would hold the keys to some important properties. Stay tuned.

(some background provided by CNBC, Recode, Forbes, CNN Money.com)

How Cable and Satellite TV Providers Stay Relevant

I am contemplating switching cable TV providers, and I was thinking about how most of the people I know still have basic cable type packages; while others have done what is called “cord cutting” by eliminating cable.

Those people who cancelled their cable subscriptions stream content over the internet through one of the ever-growing number of streaming device options or Smart TV platforms. They utilize amplified antennas to get broadcast channels locally to supplement their program options.

I was at the gym running on the elliptical machine last week when a commercial came on while I had ESPN on during my workout. It was for the NHL Center Ice package which provides access to over 40 out of market games per week and works out to about $150 paid out over four installments for the season.

The advertisement put an emphasis on the ability to stream games from tablets or other devices as well, since that has become a critical value add for certain consumer demographics when it comes to media products such as this NHL package.

However, the flip side of that situation popped an idea into my head: who has time to watch 40 out of market hockey games a week? I would venture to guess that not too many people could do so, while affording the cost of the package and working. This is where cable remains relevant, and in the paragraphs to follow I will qualify that statement.

The NHL Center Ice or Game Center app does not allow full access to game highlights or condensed game packages without a subscription to the package or without a link to your cable subscription. Those who do not want to pay for the package or have cut their cable service completely lose out on hockey coverage or access to hockey content. This same example can be used for other programming or content available through cable and protected by those cable or satellite providers from those who have decided to “cord cut”.

The NHL Network channel is available only through cable or with a subscription purchased and offers the best alternative for those with a busy lifestyle because you can get all the highlights just by flipping to that channel on your cable box. It provides the ability for more casual viewing of the games as well.

The cable companies also stay relevant because having a cable subscription active allows for the best access to content from live programming that would air on a delay on a streaming device or app, to the ability to “live stream” certain content.

The implications of the Disney – Fox mega media merger as well as the proposed merger of AT&T with Time Warner can and will have an impact on the access to content of all types. The access to content and “protection” and restriction to content is going to shape the media in the next 5 years.
The handwriting is already on the wall, so to speak, with Disney spending truckloads of money to design their own streaming app that they will charge a monthly membership fee to allow access to their content. The recent proposed merger with Fox will expand the amount of content that they can potentially add to this application and restrict from distribution to other outlets.

The individual Time Warner group channels such as CNN, TBS, and TNT have all developed their own streaming content apps to appeal to a wider audience of those who have cut the cord.

The membership payment type apps for streaming are expanding as well with HBO, Showtime, CBS All Access, and the Hallmark Channel app called Hallmark Now ; these apps are all charging fees for access to their exclusive content.

The future of streaming television is going to consist of paying for the content from a multitude of different subscription based app content providers. The cable subscription will offer a potential “value add” because it will allow for access to the streaming content while potentially circumventing some of those subscription fees.

The future of cable and satellite television is unclear at this point as well. The “al a carte” approach that has been a concept that has been enticing to certain viewers is gaining a resurgence. This concept, where each individual household would pay only for the channels they would watch consistently, is largely cost prohibitive within the current cable/satellite TV business model.

The carriage fees (which is the amount the networks charge the cable companies to carry the channel) on some of these channels are a major barrier to this proposed solution. A good example is if your family would watch CNN, ESPN, and Disney channel to provide a mix of news, sports, and family programs. In the current model, the carriage fee is divided among all the subscribers for a respective cable provider whether it is Comcast or Verizon Fios.

The “al a carte” model would create a formula with a lot less subscribers so the fees would go up and your cable bill will follow suit. I have seen sample models where the earlier example provided would break down like this: CNN would cost $35 per month, ESPN would cost between $60 and $65 per month, and Disney would cost between $25 to $35 per month. That means for three channels plus your free network channels, your cable bill would be upwards of $125 to $130.

The carriage fees would have to change or the providers would have to offer more packages to bundle down costs.

In the end, as we approach the New Year, the way we watch TV will continue to evolve. The growing consensus from the consumer perspective is to cut the cord with cable. However, the cable companies and the media companies are largely becoming the same entities with all of the mergers happening in the media landscape.

This translates into a combination of a cable subscription (at least one cable box in your home) and streaming devices or Smart TVs that can stream content. This combination will provide access to the most wide- ranging amount of programming and provide a good value to the consumer.

Return To Football & Media Companies Protection Of Live Sports Content

The NFL preseason is already three weeks old, and college football will begin traditionally on Labor Day weekend; football is back and for many Americans that means that they have something to watch on TV again. The excitement for the start of both a new college football season as well as a new NFL football season is tempered by the continued movement of media companies to protect live sports content.

The trend towards eliminating cable television service, or “cord-cutting”, is gaining momentum each year as Americans look to trim the monthly expenses in order to pay for rising costs for other services, such as healthcare. The “cord-cutting” trend has been aided by the prevalence of streaming television products and platforms available to the consumer.

However, the consumer that is looking to still utilize “live TV” can do so through a few different pathways: HD antenna, streaming devices, and hybrid streaming services. The HD antenna is very simple: it attaches next to your TV and provides the broadcast channels within the mileage range on the box. The antenna would provide CBS, NBC, FOX, ABC, CW, and PBS as well as a few more local stations.

The antenna would provide you access to live sports broadcast on the national networks, and would not include any games broadcast on cable television. This option would work very well for NFL football, and some college football games. It would be of little use to obtain access to any other major sports, other than an occasional game.

The local baseball, basketball, and hockey games are almost exclusively aired on cable regional sports networks or on national cable sports networks such as ESPN or NBC Sports Network. This leads us to option two: streaming devices.

The streaming device route or Smart TV route can provide access to a huge amount of live sports content, but most of that content is not free of charge. The NBA, NHL, and MLB all have streaming “apps” but they require a subscription to access. The streaming device route can also support “live streaming” of certain networks but most of that would require either a cable subscription or another type of payment arrangement to access that content.

The hybrid streaming device route would be a DirecTV now, Sling box, or a few other smaller services that allow for the content available on a very large package of channels to be viewed in other rooms in your home. This would require a subscription and at least one box connected from either a cable or satellite provider. This route may also require the purchase of additional equipment.

However, this setup would enable access to a significant amount of live sports content. The other service is through Hulu which will feature a package of channels for $40.00 per month which would allow for live streaming of network and cable television, including live sports.

The networks pay such a high premium for the live sporting events that it is, in some ways, understandable that they have put in place certain measures to make it more difficult to stream the content without a cable or satellite subscription. The challenge will be in adapting their content providing platforms to attract other audience/fan base demographics.

The younger generation is conditioned toward streaming versus watching any regular television programming. The advertising around some of the streaming services and apps can be a bit misleading. Some of the sports related streaming apps will give you access to certain content for free and require a fee or cable subscription for access to the most important content: the live game or archived game broadcasts.

The NFL has partnered with e-commerce giant, Amazon, to stream 10 games this year as part of the Thursday Night Football package. This exclusive opportunity with the NFL and their coveted live game content cost Amazon $50 million. The broadcasts are free for all those with an Amazon Prime membership which runs at $99.00 per year.

This agreement with Amazon is different than the agreement they had last year with Twitter for the Thursday night games because Twitter streamed them live for free to everyone with an account, Amazon requires a Prime membership for access. It will remain to be seen if that will have an impact on live stream viewership, either positively or negatively.

The future of sports content on TV, and other content on TV is trending more toward a structure where the consumer will pay to have all sorts of content streamed on a customized basis. The consumer access to a broad range of content will require membership to a wide range of services, similar to the premium channel cable TV subscriptions currently (HBO, Showtime, Starz, Encore). It is important to note that whatever service or method you use it is like the old adage: “there is no free lunch”.

A good example of this trend is the decision by Disney recently to end their partnership with Netflix to start their own streaming service. This translates into a scenario where in order to gain access to Disney content you will have to purchase their streaming service. I think that many other major media companies are going to follow suit.

The return to football means some exciting weekends relaxing with family and friends. It conjures up memories of past football weekends with the big college games on Saturday nights, and the CBS games at 4 o’clock on the East Coast with the aroma of a home cooked dinner in the background.

It is time for many of us to watch TV again, and I hope that this piece informed you on the best options that you have to access this content. I wish you all a happy and safe football season.

Merger News: Discovery Purchases Scripps Networks

During the past four years here on Frank’s Forum I have focused on mergers in the business world, television ratings/business side of television, and news that impacts the consumer. The news on a Monday morning that Discovery purchased Scripps Networks combines elements from all three of those sub-themes.

First, the merger itself is worth over $11 billion and will combine the networks under the Discovery umbrella (Animal Planet, TLC, Discovery, ID network, and a stake in the OWN Network) with that of the Scripps portfolio (HGTV, Food Network, DIY Network, and Travel Channel). This merger will give the new Discovery Communications ownership of about 20% of the “basic cable” landscape.

This will provide them with leverage when negotiating carriage rights with the cable and satellite providers because they will have much more content and be able to split the channels up into different packages to promote to those providers in order to attract new customers.

Second, the ratings side is a big component of this deal as well. The ratings for basic cable programs are held to a different metric than the national broadcast or premium cable programs, but ratings are still crucial. This is made even more significant by the decreasing viewership levels for cable television programs due to the large number of consumers cancelling their cable service.

The ratings for certain programs that air on Scripps channels are significant, and the combination of the two entities helps their overall combined ratings compared to if they remained two separate units. The reality series, Fixer Upper on HGTV is the #2 rated overall cable program, so that is a huge addition to the Discovery Networks stable when the time comes for contract renewals with the cable and satellite providers.

This ties in nicely to the third component: the impact for the consumer. The combined Discovery/Scripps unit will now be able to offer more content and more value to the cable /satellite providers. They will also be offering their channels in different bundle packages which will benefit the consumer. These factors should lead to lower costs to the consumer for those particular channels.

The additional benefit will most likely be that the content from the new Discovery Networks combined entity will become more readily available in the “On Demand” functions of your cable or satellite provider.

The last component which impacts both the consumer and the business side of the television landscape is that the Discovery executives have discussed the development of their own streaming application. The proposed application would feature a range of content from this newly formed group of popular cable channels.

However, some industry experts remain skeptical of Discovery creating their own streaming service application because it is expensive to develop properly. Many of those same experts also counter that the combined Discovery/Scripps is going to cost more to operate because it is going to be a larger company with more expenses. That is going to require some adjustments by the senior management structure to run efficiently.

In the end, the merger of Discovery with Scripps Networks is an indication of the direction that those types of media companies are going to take in the future. The trend toward consolidation is going to be a necessity in order to compete with NBCUniversal (Comcast), Disney/ABC, and AT&T (DirecTV) especially with AT&T set to purchase Time Warner.

The management at both Discovery and Scripps knew that in order to survive in this new world order in cable television they had to combine forces. The increase in streaming content and consumers trending toward “cutting the cord” with cable services is going to further consolidate the industry in the years ahead. The landscape will change and only the strong will survive.

This merger should have a few benefits to the consumer especially if Discovery could get a streaming application launched. The changes will continue and how it will all turn out in the end is anyone’s guess, we will all just have to stay tuned, literally.

Call Waiting: Verizon Back Peddles On Merger Rumors

The news out of Verizon on Thursday is that the comments made by their CEO, Lowell McAdam, were taken out of context regarding a potential merger involving the telecommunications giant.

The CFO of Verizon, Matthew Ellis, attempted on Thursday to clarify earlier remarks made by Mr. McAdam to the media. Those comments alluded to a potential merger of Verizon with Disney, Comcast, or CBS.

However, Mr. Ellis today offered a different explanation in stating that Mr. McAdam was answering a question about whether or not he would “take a call” from Disney, Comcast, or CBS. The comments are now being walked back by Verizon, today they clarified that they would be open to strategic partnerships with those entities and not an actual merger.

This clarifying statement from Verizon comes after several financial news sources ran with a story that Verizon was exploring a merger, and the stock prices of those three entities involved: Disney, Comcast, and CBS all saw increased trading activity.

It is no secret that Verizon is looking to grow certain aspects of their business, the acquisition recently of Yahoo is proof of that strategy. The senior management at Verizon have steered away from obtaining other large media companies, which is unlike their other competitors in this space. The deal between AT&T and DirecTV jumps to mind as the type of avenue to growth that Verizon has repeatedly avoided.

The earnings call with Mr. Ellis today described what Verizon calls “organic growth” of the company. The exact definition of that strategy is not completely defined, but like any other communications provider and internet service provider, Verizon is consistently looking for content. The old “content is king” mantra is still paramount in this industry space.

In an increasingly visual world, the demand for video content is at the core of what Verizon needs to fill within their own content pipeline. It is in this vein that a strategic partnership or some sort of partnership agreement with Disney, Comcast, or CBS would make sense for Verizon. Those entities have their own exclusive content or partnerships to provide content for other entities such as Major League Baseball, the National Football League, and the National Hockey League.

The demand for sports content is always robust and the demand for other types of entertainment in digital platforms is a demand curve that Verizon is going to be relentless in trying to meet over the next several months. The earnings call also came on Thursday amidst reports that the Verizon FIOS television service has lost over thirteen thousand subscribers in a short amount of time.

The streaming media services and the growth of other platforms to watch content is causing many Americans to “cut the cord” on cable, telco, and satellite TV services. The “on demand” culture and the binge watching patterns of the new ways that consumers expect has caused the drop off in the FIOS subscriptions.

This could create conditions where FIOS, AT&T/DirecTV, and Comcast are forced to reinvent themselves and provide more value to the consumer for the service. The advent of the DirecTV service that allows the viewer to watch at home or on a tablet or smart phone is a step into the future of the television trends to follow.

The question of whether or not Verizon is exploring a merger is a complicated one. It would make some degree of sense on one hand given the complexities facing the industry and the changing dynamics of digital content consumption.

Verizon is also prepared to face rather significant anti-trust regulatory reviews especially if they were to merge with Comcast, which would absolutely create a monopoly in the industry. That merger would have far-reaching implications for both private homes and small businesses as the internet is needed for doing really everything today from shopping, to watching movies, and to work related functions.

It remains to be seen whether Mr. McAdam was taken out of context, or whether there is more than meets the eye with this story. The ambitions of Verizon will come into focus in the near future. The company should, at the very least, consider some kind of partnership with another media company to fill the video content gaps that exist currently.

Verizon also knows that mergers or acquisitions are a complicated process and that ties up time and resources from being able to grow the company in other ways. In the end, only time will tell which direction they choose to grow their business in an increasingly competitive, evolving, and cost driven environment.

Cable Unboxed – President Obama & Consumer Choice

President Obama has asked the FCC to allow the consumer to be able to have more choices in their cable television providers in order to lower prices and increase competition. The average American, according to Reuters, can spend over $1,000 over four years just to rent their cable box. While the price of cell phones, tablets, televisions, and laptop computers have decreased in price; the cost of cable television box rentals has increased.

This increase can be attributed mainly to the fact that there is little to no competition in that marketplace. The manner in which cable television regulations were initiated, the companies have exclusivity in many areas of the country. The ability to provide choices to the consumer is limited due to many other factors such as some telco providers, Verizon Fios for example, needs fiber optic cable lines installed in a neighborhood in order to provide access to their service. If the neighborhood does not have the lines, the families have less choices for cable television.

In certain housing types, the choices are limited because of other regulations. A good example is a condo or townhouse community which has certain rules from their association regarding the installation of satellite dishes (whether they can be installed on the front of a building) and the exposure of the building could limit the installation of Direct TV or Dish Network from being a viable option.

The cable industry needs further competition in order to flatten the costs that they are increasingly passing along to the consumer. America is about choice and the freedom to make choices to select the best possible product or service for your family. Cable television should be no exception to that scenario.

In fair balance, the cable providers are against this change to the regulations saying that it will lead to increased costs and will eventually be a negative to the consumer. They also claim that people are streaming and watching programming through different avenues and services and that this regulatory change will only further that ability of the customer to remove the cable service altogether.

It is an interesting argument and one that will take shape as the FCC weighs the next move in this situation. I only know that many people I know have seen their cable bills increase and they would like to see some remedy or ability to choose their service. I hope that this regulatory change provides that relief.

TV Wars: Aveo Loses Supreme Court Decision – Follow Up

In a follow up to a previous piece I did on this blog entitled “TV Wars”, the Supreme Court ruled today that the service known as Aveo should be required to pay licensing fees to broadcasters in order to display copyrighted programming. Aveo is a service that transmits broadcasts of TV programming over the Internet via their technology, which subscribers pay a fee to utilize.

 

The argument from Aveo’s side was that their service did not broadcast the programming to everyone over the Internet that the programming was provided only to their subscribers, who paid a fee to receive the service. Since it is not a public broadcast, then they should not be required to pay the licensing fee. The argument continued that they merely rented a small broadcast antenna to each of their subscribers to access the copyrighted programming, which should not require that they (Aveo) pay a licensing fee to the broadcasters.

 

The Supreme Court disagreed, they ruled that the Aveo service was just like a cable television service, which under the current system, are required to pay licensing fees to broadcasters in order to display copyrighted programming. Therefore, Aveo will be required to pay licensing fees to the broadcasters, which they cannot afford to do.

 

It is important to note that if the Court had ruled in favor of the current setup of Aveo, it would have completely altered the landscape of the television industry. A favorable ruling for Aveo would most definitely trigger the major cable television players to develop Internet based antenna rental services similar to Aveo in order to circumnavigate the payment of licensing fees.

 

A favorable ruling for Aveo also would have created a situation where the network television broadcasters would stand to lose huge amounts of licensing fee revenues. It would have created an environment where many people would continue to cancel their cable television plans, known as “cord cutting”, which would have created losses of revenue for the big cable television service providers such as Comcast and Time Warner Cable.

 

Status Quo

 

Instead, the ruling today effectively retains the current system and most likely marks the end of the Aveo service. Their CEO essentially stated that the ruling makes their business model unviable moving forward. The technology that Aveo developed does have an inherent value, which the ownership of Aveo will have to determine if they are going to sell off to an interested party in the future.

 

The ruling today by the highest court in the land also purposefully went out of the way to create a distinguishable difference between the Aveo service and other Internet based entertainment providing services and cloud based services. It is unclear at this point if they went far enough to make that differentiation and only future judiciary activity will determine that scenario.

 

This portion of the ruling opinion of the high court would deal with only certain new technologies and not others that I had mentioned in my original article on this topic. The larger internet based entertainment programming services providers such as Netflix and Amazon already pay huge licensing fees to the broadcasters and movie production companies to obtain the rights to stream copyrighted programming to their subscribers.

 

Big Business

 

In fact, the recent agreement between Amazon and HBO which provides the Amazon Direct internet streaming service with the exclusive rights to a huge catalog of HBO produced series was a deal with significant impact for everyone involved. Those types of exclusive streaming rights deals will only continue in the future, as the popularity of services such as Netflix, Amazon, and now Google’s Fire TV will continue to increase their respective subscriber bases.

 

These types of exclusive rights deals with the big internet streaming services provide a huge injection of revenue dollars to the broadcasters and the networks involved such as HBO or CBS. In fact, CBS syndicates and produces so many different series across a variety of networks that their stock increased on the news of the favorable Supreme Court ruling today.

 

In my view, that is what I take away from the decision today by the Supreme Court that the consumer in some ways is the loser here too. The Aveo service, as the dissenting opinion of the Court explained, was not providing a public display of content rather the service was provided to subscribers. Therefore, the three dissenting and more conservative justices felt that the subscription fee negated the need for Aveo to pay licensing fees to the broadcasters.

 

The Dissent

 

I would tend to agree with the dissenting opinion, the Aveo service was providing the consumer with another option to view broadcast television programming. It was providing choice and fostering competition in the Internet subscription based entertainment space. This decision is going to dismantle Aveo, and in many ways destroys the very ingenuity and entrepreneurial spirit which America should espouse.

 

I think of all the time, money, and energy that the employees and developers at Aveo dedicated to designing and marketing their service, which is a unique technology, and I think the Court ruling sends the wrong message to the small business owner or the entrepreneur. This type of service should be promoted and not dismantled, other business owners could see this news today and decide not to move forward with a new product or an idea for a new service, and that can and will be detrimental to our collective best interest in American society.

 

However, it should also be noted that I am in no way in favor of a service that would infringe upon the copyright protections that these broadcasters and networks operate within. The networks and television broadcasting industry spends a significant amount of money on the production and the copyright legal protections for their programming. I am in no way promoting a service which would violate any copyrighted programming and broadcast these programs to a general public audience in violation of federal laws.

 

In relative terms, as a writer, if someone took my copyrighted written material and put it out into the general public in a way which misrepresented me and violated my rights that would be a huge issue. However, that was not the issue at hand here, because the subscription fee and the manner in which the programming was presented by Aveo with integrity made this case a difficult one for the judiciary system necessitating a ruling from the Supreme Court.

 

This decision effectively rewards the big broadcasting companies and eliminates a source of competition for the huge cable television operators. We should be fostering competition in the marketplace, yet between mergers and acquisitions and increased regulatory activity, the government is eliminating competition from our marketplace. This type of activity could prove ultimately detrimental, as we have seen in the course of history with monopolies in various industries in the past.

 

This ruling today is being reported by the media that it has moved the TV landscape into a state of clarity and removed some ambiguity. I disagree with that sentiment, I think the ruling today was only the beginning of another mountain of litigation driven by the broadcasters and networks and the groups which represent their collective interests with the goal of elimination of competition from the marketplace.

 

This ruling did not push our court system towards the end of the TV wars, in fact, I would argue, it is just the beginning.

 

 

(Some background information courtesy of Yahoo! News)

Television Wars: The Future of Home Entertainment

The rapid technological advancements in the mass media are causing a shift in the way in which the general public will utilize their home entertainment. The advent of Apple TV changed the landscape when it hit the market, and other streaming services and content providers are looking to continue to shape the market in the future.

 

In order to compete in the marketplace with Apple, Google launched their own product, Google TV, back in October 2010. In the years since then, the number of content providers and subscription services for the distribution of television programs and movies exploded. Google has since renamed their product after their “Chrome” product platform.

 

Now the landscape is crowded with systems such as Aveo, Roku, and Slingbox as well as subscription content providers in Netflix, Hulu, and Amazon Direct Video. These products and services coupled with the telecom companies’ movement into the television market with products such as Verizon’s FIOS, and AT&T’s UVerse, and the television wars have officially begun.

 

All of this content is transmitted by a signal today, and these companies and service providers are going to compete for the right to send their signal to your home. It happens every day if you have cable television service through a company such as Comcast, and you receive calls and emails from Verizon trying to entice you to switch to their FIOS service.

 

“Binge watching”

 

I have written about the evolution in the medium of television in the past, but I was thinking about all of these changes again over the Christmas/ New Year’s holidays when I had some time to unwind and watch a couple of movies.

 

It is still incredible to me that through a service such as, Amazon Direct, you can watch whatever movie you want in their catalog, or you could “binge watch” a television series you may have never seen before from the start of the series all the way through to the end, in sequence, with no commercials.

 

This approach to watching a series is the new trend in television viewing, and the broadcast networks as well as the cable, satellite, and telecom providers are increasingly aware of this viewer preference. They are providing their viewers or subscribers with several different ways to “binge watch” their favorite programs through video-on-demand services, streaming of both old and new episodes on the network website, and providing access to the show via subscription content providers such as Netflix or Hulu.

 

This method of viewing an entire season or an entire series run of episodes is very appealing to Americans, who like the freedom to watch whatever they want, at whatever time they want to watch it. The days of “appointment TV,” when you had to be home at a certain time on a certain night because the show was something the viewer could not miss, are over. The average person is too busy today with all of the new technology and the demands of their respective careers or families for that approach to be viable anymore.

 

In this case the network and cable television broadcast companies got it right to capitalize on the marketing of these new platforms available to stream content and expand the viewership of their programming. These same executives have missed the mark at other points and have alienated viewers in the past. The networks, at another point in time, would have considered restricting access to their programming to their own detriment; though they continue to favor subscription services rather than Aveo and some other services that tend to provide the content for less money.

 

Some say the networks were smart to provide their programming content via the Internet and other platforms. However, I think they really had no choice because if they did not provide the content, they would have lost many viewers, so they did so for their own survival.

 

In fact, some people have already “cut the cable cord” and are using these other devices and services rather than paying for a cable or satellite service for television in their homes.

 

Original Programming

 

The other trend which will also serve to further accentuate the competition for viewers is the push toward the development of more original programming for the new age outlets such as Netflix, Amazon Direct, and Chrome TV.   The appeal for the high profile actors and actresses in Hollywood to sign on for original programs on these new formats is two-fold:

  1. The content providers have lots of cash to shell out to produce their own programming and pay the stars associated – so money is a key factor
  2. The rules for the content they can produce are different than if they did a mainstream show on a major network or a basic cable program. The rules for what they can display are similar to a series produced for a premium tier cable channel such as HBO or Showtime. That freedom from normal regulatory constraints is very compelling to certain stars to be able to work on a show that is unvarnished and bold.

 

Some of these programs have been successful already in their limited runs, which has only served to fill the pipeline with more concepts for future development. Netflix recently announced that they are developing original programming for children, which opens up a whole new avenue to market their service to families.  Amazon is working a few new original programming concepts as well.

 

The two other recent developments that have further continued this trend of original programming is the news of the Disney deal with Netflix, and the potential for exclusive sports programming moving to these new media service providers.

 

The Disney deal with Netflix will eventually provide for Disney movies to be available exclusively through a subscription to Netflix in probably about four years from now. However, Disney owns Marvel Studios and the rights to most of their comic book characters. Marvel and Netflix will be producing at least four original series, each focused on a single character, for release in the near future (www.usatoday.com).

 

The recent announcement by the NFL that they are strongly considering the addition of another tier of playoffs is rumored to be driven by the strong interest and deep pockets of Apple TV and Google to land the digital rights to sporting events, particularly the NFL (www.money.cnn.com).

 

These types of digital rights deals are going to be the future of professional sports viewing as well, and it serves as another reminder that the world is rapidly changing. The business activity and marketing campaigns have also made it abundantly clear: these changes are here to stay.

 

In addition, as these properties continue to advance they will get monetized differently, and as some have seen with certain programs on Hulu, you will have commercial interruptions on certain programs. The advertising agencies and the networks will find ways to deliver their sponsor’s message as these services grow more prevalent in the future.

 

So whether you have Netflix, Hulu, Amazon Direct, or all three services; I hope you enjoy the viewing options for content that they provide because in the future it is only going to get bigger and better.