13 June 2013

ESPN 3D Is Dead, Here Comes Ultra HD

With the announcement yesterday that ESPN is shutting down its 3D service, it appears that any chance that 3DTV would catch on with consumers has bitten the dust.
My view is that what doomed 3DTV was less the glasses required for 3D viewing -- which are a significant issue -- but more the fact that 3DTV simply wasn't that compelling a viewing experience. 

I remember heading to the 2010 Cable Show in Los Angeles, convinced that I was going to buy a 3D TV upon my return home -- industry interest in 3D was sky high and it looked like a very promising new business opportunity. However, after seeing every single 3D demo on the exhibit floor -- maybe 25 in all -- I though that the experience was underwhelming, when it wasn't actually bad.
What is most interesting about the experiment with 3DTV is how it completely tracked the initial enthusiasm for 3D movies in the 1950s and then their subsequent fall from favor. Around 1980 or so I saw the 3D Creature from the Black Lagoon and Dial M for Murder, but they didn't make me wish that the big films of that period, like Jaws or Star Wars, were in 3D.
In contrast with that experience, this year I saw Ultra HD (also known as 4K) sets on the exhibit floor this year (in Comcast's and Samsung's booths) and both looked pretty spectacular. I don't know if Ultra HD's combination of price, content availability and quality will ever get sufficient traction to be successful in the market, but I do know that the quality is uniformly very good and readily apparent.
Ultra HD set from Samsung booth -- photo does not do it justice; Van Gogh's CafĂ© Terrace at Night
Interestingly, the content that might first make a difference on these sets may be consumers own still photographs. Still pictures of masterpiece paintings were used on the demo by Samsung. Consumers' photos are already available in resolutions far beyond that of a 1080p set. An Ultra HD Apple TV device might be a great early use case. Apple already has experience with greater than 1080p resolution displays from their experience with the "Retina" displays in both the iPad and certain MacBook Pros.

More on this: Brian Stelter, New York Times

04 June 2013

Cord Cutting Is Real and the Wisdom of Howard Beale

After a few almost breathless articles today about the "it's here, finally" prevalence of cord cutting (from Peter Kafka at AllThingsD and Todd Spangler at Variety), I felt it might be useful to pull back a little from the trees and look at the forest of multichannel television.
scissors are clearly not the right tool for this job
There are a two major points. First, the cost of the most popular cable packages (here meaning multichannel video whether from cable, DBS or telco providers) have increased for a long time at a rate much greater than inflation. Second, the penetration of multichannel television is very high -- 85-90% depending on who is doing the measuring. Both of these facts are acknowledged by everyone in the multichannel television industry.

In this context, the only ways for there to be no cord-cutting (defined here to mean someone who had a multichannel subscription and then gave it up -- whether or not he or she used online video as a substitute), would be if:
  1. the value of the multichannel subscription were going up faster than its price -- more and better original programming, HDTV, VOD, TV Everywhere and DVR do support this; and
  2. the price was still modest relative to household income -- uh, not so much; and
  3. few decent substitutes existed for the service
A lot of discussion of cord-cutting to date has focused almost exclusively on the latter point -- are Netflix, Hulu Plus and YouTube a good substitute for a multichannel subscription? The short answer is, it depends. If you are a big fan of live sports, the answer is "no" -- none of these outlets provide much high-value live sports programming. However, big sports fans typically represent less than 40% of all households, far less than the multichannel penetration level (SkySports is about 1/3 penetrated to Sky in the UK; as a premium service, NESN's peak penetration in Boston was similar).

Still that leaves pesky point 2 and the issue of the other 60% of households. Maybe they look at multichannel television a bit differently than sports fans.

Maybe they look at it a bit like anchorman-cum-showman Howard Beale in the movie Network: "we are in the boredom-killing business".

Boredom can be pretty effectively killed in 60%+ of households without live sports. On some level, it is that simple.

As the inspiration for the articles, work by analysts Craig Moffett and Bruce Leichtman very clearly makes this point -- the increasingly high price of multichannel television is the biggest driver for canceling a multichannel subscription. Even with all of the most devoted and price-insensitive sports fans in the world locked in, the multichannel business would look at a lot different without those simply seeking relief from their boredom, sometimes in "unscripted entertainment" often not that unlike Howard Beale's show.

03 June 2013

UK Retransmission Consent Dispute: BBC versus Sky

The BBC is in a retransmission consent dispute with British Sky Broadcasting in the UK which will seem positively quaint compared to the current status in the US. The BBC, which operates the most popular broadcast channel, BBC One which has an average viewing share of about 20%, actually pays Sky, the Murdoch-controlled dominant UK DBS provider £10m a year (approximately $15.3m at today's exchange rate) for the carriage of this service and its many other television and radio services on Sky. There are significant differences between the US and UK pay and broadcast television structures, but, taking all of them into account, the current arrangement seems incredibly favorable to Sky by the standards of the US.

  • Sky has approximately 10.36 million television subscribers (making the payment from the BBC to Sky approximately $0.123 pspm).
  • Sky has roughly two-thirds of the UK pay TV market; Virgin Media, the dominant cable operator has most of the rest.
  • The BBC used to pay Sky considerably more on an annual basis.
  • Virgin Media does not receive carriage payments from the BBC.
  • BBC One and BBC 2, which has over 5% of the viewing audience, are commercial-free services.
  • The BBC is funded by the public through a mandatory tax (on each UK household that has a television set) called the "license fee".
Sky's leverage over programmers is much greater than any US distributor's over any US programmer, still it seems hard to see how the UK consumers are well-served by a public service broadcaster funded by the taxpayers paying a for-profit pay TV company for carriage of popular services that clearly make its pay TV offering more attractive.

In the US, it is fair to say that the distributors typically are paying the top programmers more than double the amount that Sky is receiving from the BBC.

I found this an eye-opener about how much the business terms of pay-TV are determined by historical and regulatory legacy issues.

I originally stumbled across this story on the Media Talk podcast from The Guardian.