I’m a huge fan of Mark Cuban, and his blog – Blog Maverick. I’ve known Mark for ages, and he’s smarter and more thoughtful than almost anyone commenting on the emerging video, Internet, HD, cable world. Yet I sometimes disagree with him.
I left him a comment on his blog, over his latest post insisting that the multi-channel cable world will continue, mostly intact, in an IP world. He was inspired by a comment made by Boxee CEO Avner Ronen, on a panel that we both sat on – where I was even more cable-negative than Avner!
I disagree with Mark’s assertions. Here’s the comment I left on his blog, for your consideration. Read his post, and then check this out – and remember that I’m a content person, but also an Internet person, with of course no guarantees that I’m not stupid.
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I always go back to what customers want. The average consumer watches something like 15 different channels. they don’t want, nor do they need, all the other 485 channels that are delivered to them in a multi-channel world. At $50 a month, that works out to more than $3 a channel.
$3, interestingly enough, is about what ESPN gets for every household that gets its channel – which is just about everyone. I love ESPN, but I really don’t need Hallmark, FoxNews, Animal Planet, or many, many other channels I currently support via affiliate fees.
Many of my customers, and employees, are the RipCord generation – they have canceled cable and use a combination of legal and illegal services to get the programming they want. And they want traditional media
(along with our stuff at Revision3, but web-only isn’t going to dominate the video-viewing world anytime soon – it’s a good adjunct and expansion… but I digress).
I often ask these cable cutters what they would pay for an Internet-delivered service that gave them 15 of the top channels that THEY want, and it is usually around $10 to $15 a month. That pays to eliminate the hassles, and also to let them watch those specials and other programs that aren’t always on Torrent, at least not regularly.
So forget 500 channels for $50. What if we could deliver them 15 channels. ANY 15 channels, for $10-$15 a month. They pick. ESPN would eat up $3, but I’ll bet most of the others would be far, far less.
It’s still a “bundled” world, but the consumer chooses the bundle. Want a movie bundle? Another $5 gets you Starz, etc. or maybe you give them another $5 and they can pick and choose ANYTHING they want, drag and drop channels into their TV window, until they hit the $5 number.
AND, here’s where it gets interesting. Give them the ability to swap out any or all of their channels each month. Food getting boring? Replace it with Discovery. Current no longer, well, relevant? Replace with OLN.
Bundles are nice. But they are nice for the established way we do business now, which is a technology constrained world – ie there are only so many channels that can fit in a 750mhz pipe, or on a 24-transponder satellite.
The Internet eliminates those constraints. And thus business models built on that artificial scarcity will have to change.
Feel free to comment here, or on Mark’s blog directly.
50 Comments
Great ideas Jim.
Ideally, the service would allow you to watch all the shows on-demand, at any time. Also on multiple devices, like the iPhone. Or your PC.
Add to that a VOD service, from companies like NetFlix or Vudu or Amazon, and it looks very compelling.
Now add the ability to download apps on your TV, like the iPhone App store to enable interactive applications.
I would imagine that providers might want to charge extra for time-shifting and place-shifting.
There must be a stealth start-up (or maybe Apple) that is already thinking of doing this.
Jose Alvear
I agree with this I have never thought that cable has been a consumer driven industry. A la carte service is more what most people want, the old adage is 500 channel with nothing on. How many times have you flipped through channels to find the same crap on day after day. I have cable only to have myself and my son watching maybe only 5 channels on a regular basis; my husband is glued to his computer watching things he missed because of work. For $14.00 a month if we need a movie we have Netflix on demand, hulu for old show and revision 3 for our tech fix. I would pay for an a-la-carte cable and be satisfied; but alas I am stuck with 500 channels and Attention Deficit Order.
Change is painful but if they don’t adapt I think they risk losing control of their media in a very similar fashion to the music industry. The only difference is bandwidth, which won’t be a factor before long. If you don’t deliver value, people will facilitate it on their own. See @chews’ rant from Feb. 18th (edit: once he renews his freaking domain.. did this guy really go to Oxford? 🙂 google cache: http://bit.ly/BoxeeHuluRant)
Hulu has proven there’s a real appetite for a well-executed online model. Once you deliver content on demand for free (or at a much lower price point that can only be achieved by going a la carte), you can’t really go back. The content providers ignoring this are only delaying their pain. I download the previous night’s NBC news on my iPhone every morning over wifi, drop it in a dock and watch it during breakfast, and I love it. Only the content I want, where I want it, when I want it. You’re either with us, or your against us.
I agree with Jim that our real TV world is only a few channels. Our affinity is for the programming, not the distribution method. If IP-based VOD is comparable, which in many cases it is today, why would I want or need a cable subscription? Truth is I don’t.
I have been toying with killing my cable TV bill, but keeping Internet and VoIP with my cable company. I believe I would save over $1,000/yr.
The biggest problem I see with this tho is the reason ESPN is $3 is because everyone who has cable has espn, so the cost is evenly distributed between millions of people, but when you start giving the option of ESPN not being included, their costs of operation stay the same but not they are getting less money because not everyone wants ESPN… so that $3 may jump up to $10.. $15.. even $30 just so the channel can cover the same costs that they use to cover with only $3 per person
thats the same problem with every channel
As a consumer, I think you’re right on target with the idea of a la carte programming. The ability to pick and choose channels for a more modest fee would be consumer heaven!
But cable and satellite companies are in business to make money – as much as they can. I don’t claim to understand their business model, but I have to believe the current setup is what is netting them the most profit.
Besides ESPN at $3, does anyone know how much other channels get? It has to be well under $1 for the numbers to work out. The problem with this idea is these little guys would cease creating content because too few customers would opt for their channel and their revenue stream would dry up. This would lead to fewer choices for consumers and give the big guys room to drive up prices.
Cable and satellite providers will gladly take your $50 in whatever manner you like, but I highly doubt we’ll see that number go down.
The flaw in both Avner Ronen’s comments and most proponents of mandatory “a la carte” is that they start with phrase “consumers want.” Sure they do. I would like that too. I would like to buy a package of 5 baseball games and only pay 10 bucks a game for decent seats.
The problems is that in the Internet world, we tend to think that bits are bits. We focus on moving those bits more cheaply with IP than we could otherwise. But talent isn’t bits. An actor doesn’t cost less in the digital space. Production doesn’t cost less. Revision3 is great, but compare that to the overhead of producing Battlestar Galactica or Burn Notice.
The broadcast networks are largely, but not entirely, putting their content online for free. But the bulk of their revenue comes from on-air viewing. It doesn’t go online until the next day, because that’s ancillary revenue.
Finally I would direct you to this 2007 Forrester Research report, which addresses the key question: Are consumer expectations realistic?
Jim, I agree with your view. Certainly I have a more European perspective on this topic but in essence the trends are the same.
The underlying reason for the current developments is the unbundling effect that you describe and which is valid for nearly all of the traditional media segments. First music was hit, next came newspapers and now it will be Cable TV.
Interestingly enough it might even hit the internet (or internet services) itself…
I agree with your ideas, Jim. Its good to finally hear someone in the industry talking about these concepts, as well. I am of the RipCord generation (26 years old) and have been living without cable TV for over 5 years now. I can’t say that I miss it, at all. I truly believe in a la carte programming as a business model for the future. I see it working with ITunes/Amazon’s model for music sales. I used to download music illegally, because no one offered the content I wanted, in a format I wanted. Once these services became available, I started purchasing all of my music legally again. In fact, I spend at least $15/month on legally purchased music… compared to the $0/month I spent during the 2001-2005 period. I feel the same can be said for many others, and I also feel that I would legally obtain all of my video programming if the industry gave me an option to purchase it in the format I wish to consume, and at a price I feel is fair.
In regards to the comment made by PJ Rodriguez, I believe that you, and the current industry, aren’t looking at the problem with a fresh perspective. Yes, if we use current delivery methods and current payscale concepts, it won’t work because you are correct… the consumer expects to pay less than what it costs to produce/distribute the content. However, that has been a problem in many industries that has been a stumbling block for these large old school corporations. Then someone else comes along, and figures out an innovative way to bring the production costs down, and makes a ton of profit in the end.
I can’t say that torrent technology is the ultimate way to distribute video content, but it certainly could be leveraged in some capacity to bring the distribution costs down. Look at what Trent Reznor has done with his last couple albums. How is it that Netflix is able to only charge me $14.99 a month and still let me stream 10-20 movies a month, and turn a profit? They’ve obviously worked it out, and so I challenge the cable TV providers to do the same. Until then, you’re leaving another $20/month from me on the table.
Alright, People want ale carte, but it may not be possible with the current model of how the content creators get paid. Easy answer is then the model needs to change. Hard question, how?
Well lets start with the basics. Lower overhead. Reduce the numbers hours of programing produced. Shrink the organization. We need creative people and people to handle the other stuff, but a smaller company means fewer salaries. Less costs means less needs for people to sell ads.
Basically I’m proposing to break the system. It would no longer matter who you know, but what you produce. Aggregation still needs to happen. Shows and channels will be supported by those that appreciate it.
I think Dr. Horrible’s Sing-Along-Blog is a good example of the change starting.
as always jim, i love our back and forth. Its amazing how long its been going on, what 20 plus years ? scary.
i actually just updated my post. Basically applying the same logic you propose to the internet.
If I only go to 10 sites and rss another 50, why should i pay for any of the other 10zillion ?
AFter all, like cable or sat, my internet subscription gives me access to everything, which i obviously have no need for. So why should i pay for it ?
On the flipside, I agree and am happy that Rev3 can be successful. But as you have learned, its about costs vs revenues. You have to be more precise in your programming, because you want to stay in business.
For a lot of sites its going to be survival vs their internet religion. The smart thing for proprietary sites to do is adopt the cable model and become part of the TV Everywhere proposal.
if Rev3 could get consistent monthly revenue by being available exclusively to cable/sat/telco subscribers online and via their VOD to TV services, which would in turn increase your revenues, which in turn would allow you to expand your programming and marketing, why wouldnt you ?
Smart indie programmers, IMHO, will do just that.
Mark, its very simple why you can’t treat the internet the same way. The sites aren’t getting money from the internet provider, as the television channels are from the broadcast provider. The internet provider simply provides the means to obtain access to the product.
Also, while I can see how your arguments for TV Everywhere would benefit the indie programmer, however, I don’t think its the entire answer. More forms of availability is always a benefit, but independent purchase is attractive to consumers, as well.
Yes, i agree that if less people selected ESPN, the dollar per user would have to go up.. but maybe we don’t actually need ESPN? Why do we now have an MLB network and an NFL network? Because someday I’ll pay $10 a month for each – in season – get the games I want, and be done with it.
I don’t need ESPN. What I do need are the Mets games and Patriots games, and that’s about it.
The internet is going to change the business model of all television. And that means that a lot of people will get paid a lot less, and we will have fewer blockbuster big things out there to watch. But we’ll have more things that appeal to us.
IP-based delivery is beginning to overcome the technology limitations that created the scarcity-driven TV model – whether it’s the physical limitations of broadcast signals or the channel capacity of a TV cable. So far, as far as I can tell, the internet has blown up scarcity-based models (see newspapers, music, magazines, stores). TV is next.
Right now, cable bundles are a type of “socialized content”. Distributed costs. Enough people jump ship then the cost isn’t so evenly spread, that those who stay on-board are paying a bunch more.
The internet has been around for a while and since the very beginning has been grooming us for an a-la-carte menu. No doubt about it. Sure we pay to access the internet as a whole, but we are’nt so willing to pay additional fees to visit NBC.com, Hulu.com, or Google.com. Our notions of how internet content is supposed to behave is too established to be changed now.
BUT production costs are dropping, distribution costs are plummeting, and advertisers are WAY smarter than most people think. It’ll work itself out.
jim
magazines, newspapers, stores, music, the change hasnt been because of scarcity. The change has been because of ease of use. Its easier to get music, news,stories online. You read in a newspaper, you read on a pc. You listen on a CD, you listen from your Ipod. Not dramatically different, but the internet and ipod is easier more often than not.
Not the case for video and tv. No question the internet provided the advantage of the long tail for video content. But there are no economic or qualitative advantages of the internet over traditional tv. in fact, its the opposite. Your picture is bigger and better on an HDTV and its easier to watch shows you already like on that HDTV than to hulu or youtube it on or through your PC.
thats a huge difference and why more dollars are being spent on HDTVs than any other CE device. Why people are still spending more and more money to buy DVRs. If the internet for video was the end all be all, we would see declines in those sales as a result
Mark,
The fact that I own several HDTVs that are 46 inches or larger, that were purchased exclusively for use with a computer (to watch video content), negates your argument. While most of my 40+ friends think its crazy, many of my 20 something friends understand it, and have done the same.
Your argument is like saying that people would rather watch movies at the theater than in their own home. Again, might be true for the older generation, but mine doesn’t see it that way.
So I read over Marks Post and You’re Reply. Now I must states I like you ideas and I want the industry to follow your ideas but I gotta say Mark is right.
This is key part “They won’t. They arent’t that stupid.”
See you are looking for what the consumer wants. Very New Business / Sort IT thinking (sad, but I fail to see a lot of business especially older business caring for what the customers want. They might use corp jargon to make it seem like they care but they dont.) Old business objective maximize profit!
Lets face it, a lot of us want your option to work so we can consolidate bills and still get what we want. I know this is true because their have been lots of national spots on the news about media center pcs, apple TV, and ect. Anything to cut the bill. TV Everywhere helps prevent that from happening. They make money and content get sent all your devices. They consider it a win, win.
Personally I dont like your model either. First off if companies did provide this model what are the odd that they exploit it and over charge for channels and ect. I only watch one or two shows off of one channel. I want strictly on demand content. Why would I want to pay 3 dollars a month for ESPN where there will be 16 hours of sport center when all I want to watch is a red wings game. I love boxee because I can get what I want when I want.
If CBS had the type of content that Fox and NBC had and put it open available then the market might start to look at ideas like boxee with more of a possibility but CBS just doesn’t have it.
If I could get the on demand model I want I would be willing to supply lots of marketing information to the companies. We know we are going to have to watch ads, so I give you my information so you can advertise things that I like. Plus it wouldn’t benefit me to lie either… If I put that I was a 65yr old male in marketing information I might get lots of ads for viagra and I dont want that and I doubt a 65yr old guy wants tampon commercial. Maybe that model has been tried but I think it could work.
Mark,
The debate shouldnt be whether people watch on their tv or on the internet or on their cell phone. It’ll be on all those things together.
The real question should be what happens if (on a large scale with big players) a-la-carte becomes the norm? A guy like Shelly Palmer would say that destroying the walled gardens of cable distributors will put producers and consumers in direct contact with each other. And if that happens then….
A-la-carte would also improve incentives for creating better content. It means that the rib-eye on the menu is competing with the shrimp scampi. If the rib-eye is a beater meal then its good for both parties.
Why are all-you-can-eat buffets notorious for crap food? So if a show or a movie or a short or whatever is better than the other, thats what people will buy (either with $$ or their attention.) It wont be long before the networks start really caving under the pressure.
As far as increased spending on DVRs goes, I only see that as indicating that consumers are increasingly getting used to consuming specific content, when they want to, not when its broadcast. This is the same reason I prefer internet distribution.
a couple thoughts.
1. MLB Network is there to provide incremental out of market coverage. They will kill it before they kill the dollars from ESPN/TBS/Local cable. A la Carte games has been tried and failed.
2. as far as treating the internet and video the same, you absolutely have to look at them through the same lense because fundamentally they are the same thing. Bits in a bidirectional environment. Its video over a digital network. One network has 3gbs plus and is designed for delivering video, switched, broadcast and on demand. The other is not
3. as far as using HDTVs as a monitor, why would you not. Its not a big step.
Of course dedicating a PC to be a set top box for boxee access, that wouldnt define you as young. That would define you as single and definitely not having kids. Or very lucky that your significant other only wants to watch what you want to. Dedicating more than 1 Laptop as a settop box means thats you are trying to prove something rather than being rational.
4. As far as going to the movies and “your generation”, you obviously dont pay attention to the Box Office numbers and what movies are working. Im guessing maybe you are older than the “Twilight or Miley Cyrus or Jonas Brothers generation” that are flocking to the theaters. Maybe you are too old and out of touch ?
5. And as far as a direct connection between consumers and content producers, its been there for years. First rental, then VHS and DVD sales. I promise you, as some one in that business, that if we made more money selling content “al a carte” meaning 1 dvd or even download at a time, we would provide exclusivity or move it to the front of the window parade and grab every nickel we could.
Again, the content companies are not stupid. We follow the money. People want content where and when they want it. The reality is that there are far fewer people that see the internet as the ultimate delivery platform than there are people who see it as a complimentary, 2ndary platform.
Let me give you one other element of perspective. Digital Cable is a newer platform and its technology is evolving far faster than the internet. Directv and satellite delivery was launched in 1994. Its naive to think its a stable platform as well.
We are long past the days where “the internet is a driving force”.
Nice thought – bundling would definitely be the way to go. However, I’m not sure people would want to restrict their choice to such a small amount. While I may have 400 channels and watch 20, at least I have the option to watch the other 380. It’s sort of like a tourist visiting my city – they have limited time and so visit as many places as possible. I can visit these sites anytime, therefore I don’t, since they will always be there…
Mark,
To respond to #5.
You could also argue that a direct producer/consumer connection existed since the very beginning of moving pictures. It didnt start 20 years ago with VHS. But the producer/distributor/retail system evolved out of necessity. It wasnt easy to scale a self-distributed film (even harder, if not impossible for a tv show). You had to have a ton of $$ to make DVD copies, VHS copies, posters, etc. Not to mention be a genious a guerilla marketing. You get the idea.
BUT, now comes the internet and all of a sudden it doesnt cost a thing to make a billion copies of your show, film, whatever. Buy some bandwidth on a CDN (pay by the GB, no upfront cost) and figure out a way to get the word out. And you can decide how you want want your audience to pay (attention or $$). If you were smart though, you’d ask them to PAY attention, because if there is a wealth of content that consumers could get for free (and there is) they wont pay $$. Which I think is the reason for decline in DVD sales (which even bluray couldnt help).
The whole process is only made worse by the fact that contracting distributors (traditional media corps) will take less risk on new content, which pretty much forces those creators to go elsewhere. Where would they go? Straight to the consumer (who is eager to find their stuff anyway) Revision3 is doing it. (I dont watch, but if I was a tech nerd I’d know where to go to get my fix.)
If traditional media is focused on wringing out ever last dollar of their content, then in your view they are doing what they should be doing – not being dumb. But if in the process they lose their focus and resist investing in new and relevant creators then I WOULD call them dumb.
Oh and one more thing.
How much longer do we have to wait to have Google-like searching on our cable boxes. Why the heck do I have to page-down a menu that has 950 channels??
Mark,
you are a funny guy, I’ll admit that. But lets be honest here… movie ticket sales are up 17.5% this year because there were a string of good movies… no other reason. The kids that are seeing the Twilight movie are the children of the kids that went to see The Lost Boys… nothing changed there. Now, those same kids would have paid another $15 to get a copy of Twilight to watch on their iPod, but the movie studios didn’t try to sell it to them. Hell, I would have bought one for my niece.
I’m not saying the movie theater is dead. It is not. I’m saying money is being left on the table by not offering alternate methods of on-demand consumption. In fact, I admire what you are trying to do with the digital 3D sports technology in theaters… that is innovative… that is a way to squeeze additional revenue out of an existing product (both the theater and your broadcasting rights).
Btw, who’s old? You got your Bachelors before I was born, old man 😉
Mark, definitely see your point on ease of consumption. But back in the early days of music online, and even websites, it was harder too.
I used to tape a lot of concerts, and trade them online. It was hard. Geeky. Tough to do. Now it’s simple.
I think we’ll see the same thing happen here, but it’ll take time. 5-10 years, not immediately.
But – and here’s a test I’m doing myself this baseball season. I’ve been a DirecTV subscriber ever since we launched ZDTV in 1997. I’ve paid big bucks for the major league package each year to watch the Mets in San Francisco. I LOVE the HD.
But now MLB.com is offering a “near HD” experience, and because they are all available on demand I’ll even get to see the blacked-out Tuesday games. I can easily get what’s on my PC into my 52″ flat screen – but yes, I am a geek.
I’m paying for both this year. Which will I start using more?
I’ll let you know in October.
jim
I write for the cable industry’s blog and we’ve spent a good deal of time debunking your argument. The problem you have is with this sentence:
The trouble is, your “bet” is wrong.
TV isn’t like music where the incremental cost of producing an additional track is the same as the track before it. Television channel costs vary widely based on the type of content (sports, as you note is much more expensive due to licensing) and the specific programming (an episode of Burn Notice costs a lot more to produce than Trading Spaces).
So it’s not possible to simply divide by the number of channels and say that is an accurate “per channel” cost.
Most estimates I have seen for ESPN’s cost in an a la carte world peg it at closer to $15 or more for that one channel alone.
Since subscriptions are currently based on a larger universe and spread evenly, you get an economy of scale. Think of it as a Chinese buffet restaurant.
You can go to an all you can eat buffet and pay $9 for a huge array of items (let’s say 20). Or you can order a la carte off the menu (if they even have an a la carte menu).
Do you tell the buffett operator that you should be able to get just the one item for 45 cents because you don’t want the other 19? No. They’d laugh you out of the restaurant.
If you want the one item, and they sell it that way, it’s likely going to cost you as much or more than the buffet would.
Hi Jim,
I’m the founder and CEO of eGuiders.com. Saw your post to Cuban re HD-Internet channel idea. Think we are already on our way to doing it. Check out the site when you have the chance. We should talk.
I suspect that ESPN is a company that would love to fight ala carte. They benefit pretty well from people who want SciFi or other channels who have to pay for a package that comes with ESPN. I for instance delete all of the ESPN channels from my channel line up. Yet they get my $3. $3 I’d rather pay to a channel that produces content of interest to me.
So I wonder if ESPN would be available for $3 a month or if it would have to jack that price up to make up for the lost revenue of everybody paying into their pot even if they don’t want the channel.
I find sites like Hulu and Netflix to be winning me over. If I could easily view them all through a single box on my TV or computer I’d easily go purely to internet based television. I have a TiVo because I got tired of all of the shows I want to watch being on my computer. I have Netflix and watch it through my TiVo but would be thrilled if Hulu was accessible through the TiVo as well.
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