One Good Reason Disney Sacrificed Freeform in its New Charter Deal

Disney may have sacrificed carriage of Freeform (nee ABC Family, Fox Family, The Family Channel, CBN, Christian Broadcasting Network) in part because it was easier to give up carriage of a linear channel which had an "ironclad" obligation to carry The 700 Club, the conservative evangelical Christian talk show for 2 hours every day (currently 11PM and 9AM ET).

In the recent past, "shelf space" for fully distributed basic cable TV channels was perhaps the most valuable asset in the media. Basic cable networks with inexpensive programming like MTV, could run at greater than 50% margins. Cable cord cutting has reduced those margins, in some cases pretty dramatically. Programming companies, like Disney, have been prioritizing entertainment investments in growing on-demand services like Disney+ and Hulu over the declining "linear" TV business of 24 hour scheduled channels. Disney CEO Bob Iger has discussed its options for the linear services in a recent interview on CNBC; they "might not be core to Disney".

The Disney-Charter deal, which saw the inclusion of Disney+ and ESPN+ in Charter's Spectrum "cable TV" packages, despite the fact that they had not, to date, been considered cable TV services. The services clearly have some attractive programming. Charter had asked for it to be included in its deal for free for Charter customers; the announcement of the deal made it clear that Charter is paying a "wholesale" rate for them. Depending on what that rate is, the inclusion of these services in Spectrum's cable video packages could represent a lot of value to Charter or a lot of value to Disney. Most likely, it is a little bit of both.

What is clear is that the Disney linear services that were carried by Spectrum systems in its expired deal, but not in the new one (Baby TV, Disney Junior, Disney XD, Freeform, FXM, FXX, Nat Geo Wild, and Nat Geo Mundo), were no longer growing assets for Disney nor highly valued by Spectrum. 

Cable operators have been pruning their cable lineups to control the cost of their video service which have looked expensive and bloated next to the much cheaper streaming services over the last decade. It was very clear that the streaming services were also getting more and more of the high profile new original programming, because the programming companies had been rewarded by the stock market for the growth of their streaming services, despite the fact that these services were all highly unprofitable.

Whether these straight-line trends towards streaming and away from cable video will continue now that the fast growth of streaming has ended, investment in streaming programming is being cut back, and streaming retail prices are going up sharply, is less clear.

I believe consumers' move from cable to streaming was much more about the relative value they offered than the "inevitability" of the newer technology.

Since we were so rudely interrupted, a summary of the last year's developments

The impact of the coronavirus and the changes to daily life in response to trying to slow the spread of it need no further discussion from me, hence a short list:

• movie theatres closed
• sports suspended at all levels
• lots of people at home
• much more online shopping
• nearly complete shutdown of typical professional television and movie production

In my professional neck-of-the-woods, there's three big things to talk about:

1. The continued ascension of non-linear Internet-delivered video
2. The resultant continued demise of "cable TV" (a/k/a "pay TV" or multichannel subscription video) be it delivered by a cable, satellite, telco or "non-facilities-based" provider like Sling TV
3. Perhaps the most interesting -- how the coronavirus lockdown has forced experimentation with new forms of video production

Streaming video

These last fourteen months have shown continued big subscriber growth by Netflix, and much bigger growth since the pandemic was declared, but that's just the start of the streaming video developments.

Disney+ launched on November 12, 2019 at a price of $6.99 per month (less than Netflix's cheapest plan) and showed better-than-expected take-up right away. Disney programmed the new streaming service aggressively. Its billion dollar first year original programming budget is considerably more than an entertainment basic cable network would spent. And that expenditure showed up right away to consumers in the form of Star Wars spin-off The Mandalorian, a project that in earlier times would have found its way to theatres or home video or ABC. Disney+ was marketed aggressively as was expected. The consumer take-up with strong right out-of-the-box with 26.5 million subscribers by December 28. Less expected was the Black Friday discount offer $60 for one year. 

The quick take-up of Disney+ thoroughly demolished the theory that streaming is a special business that the incumbents cannot be competitive in. In retrospect, perhaps it shouldn't have been a surprise -- none of the tactics that Disney employed were significantly outside its core competence in marketing movies and cable TV networks.

Hulu joined Disney with a very aggressive Black Friday discount offer -- $1.99 per month for 12 months (versus regular retail of $4.99 per month).

AT&T saw Disney's successful launch of Disney+ and looks to be following its playbook. It started with aggressive pre-launch pricing by HBO Max -- $11.99 per month for 12 months (versus typical retail of $14.99 per month for HBO alone). As noted in Multichannel News, this is $1 per month less than the most popular Netflix service package. It probably puts a lot of pressure on incumbent cable operators, as it offers more content than the cable version of HBO at what is in most cases a lower retail price. As we get closer to HBO Max's launch on May 27, we'll see if AT&T manages a programming splash as big as The Mandalorian. It doesn't look like any of their launch shows have that kind of profile and the shutdown of production due to the pandemic is probably part of that.

Part of the success of Netflix is that it has expanded the range of its offerings. It has had significant success expanding into unscripted entertainment - lowbrow, middlebrow, and high(ish)brow: Tiger King, Tidying Up with Marie Kondo, Salt, Fat, Acid, Heat. As a Netflix subscription is a household subscription, having a greater variety of programming should lower churn, as dropping the service affects more people in the household (and/or the children away at college who use the household login).

Amazon made its number of Prime subscribers public in 2018 (100 million! considerably more than analysts had estimated) and by year end 2019 it was over 150 million. At a retail of $119 annually, that's an annual revenue stream of nearly $19 billion dollars. By media standards that's a lot of money, even if most of its value for customers is in free shipping, rather than video. However, for some perspective, in 2019, Comcast's cable unit had just over $22 billion in video revenue, and that represented a slight decline from the prior year.

Pulling back, the big advantage that Netflix and similar streaming services have with consumers relative to cable TV is that they are, still, much, much less expensive than the incumbent service. The big basic cable package provides good value to a household that wants and uses all of that programming, but at $75 or so, it's price dwarfs Netflix at $8 (for a single person household). No one has time to watch all of the programming on Netflix, so the greater volume and variety of basic cable is simply expensive overkill for many households, particularly those of young people, who, at least in the recent past, go out a lot. Add in an antenna (or Locast) to get the major broadcasters and that's a very attractive offering for young adults or households that don't highly value cable exclusive national and regional sports services like ESPN/Fox Sports 1/NBCSN and YES/NESN/MASN.

It's unclear if the availability of these streaming services on computers, tablets, and phones is a big deal or not, but it is certainly a plus.

The Achilles heel of these services was thought to be bandwidth caps from Internet Service Providers (typically the cable operator), but these haven't shown up that widely or onerously. As the cable operators know better than anyone, steaming video helps sell a fast Internet connection and their business delivering that service is far more valuable than the legacy business of delivering packaged video services as it has both faster growth and higher margins.

Changes with cable TV subscriptions

Continued video subscriber losses by MVPDs (multichannel video programming distributors a/k/a cable and satellite TV providers). It is ugly. vMVPDs growth slows, then the leaders, DirecTV and Dish's Sling start losing subscribers. One analyst described the possibility of "a rapid death spiral for the category", with the category being "linear subscription TV".

Given that people are spending much more time at home and are bored, these should be the best of times for cable TV. So, why the potential death spiral? Cable TV has always been positioned in the market as a premium product -- something you buy if you want more/better than what you can get free over-the-air. Now, it is considerably less premium on two fronts:

First, new high-profile programming by cable networks is being cut back (because of declining numbers of cable subscribers) and a lot of those marquee new shows are...going to streaming instead. Television producers see streaming providers (Netflix, Amazon Prime, Apple TV+, HBO Max) as a more attractive destination for a new show than cable network -- they may pay more in license fees and they definitely support the shows with a lot of off-air promotion (e.g., billboards in NYC). 

Second, losing sports is painful. It is a key driver of the cable bundle's value and there may be no good programming substitute. We'll see how the Korean Baseball Organization fares on ESPN. Even if the games are compelling, it's hard to imagine there's a way to instantly have a country develop a rooting interest in the Korean teams. Baseball, among all major sports, is the one whose interest falls off the most below the top professional level. College football is nearly as popular as the NFL. College basketball and the NBA have a similar relationship, but that's far from the relative popularity of college baseball or minor league baseball relative to MLB.

What have we learned?

• Stock market valuations of streaming (i.e., Netflix) created huge economic incentive for Disney and others to get into streaming, even if it will cost significant short term profitability, the public markets will reward it. 
• It is unlikely that net-net that Disney will come out ahead during this crisis since coronavirus may have a great negative impact on so many of its lines of business (theme parks, movies in cinemas, sports, and advertising). No other media and entertainment company may be hit on so many fronts, as Rich Greenfield of LightShed describes very well.
• Retransmission consent fees may be going up dramatically -- mostly from deals negotiated over the preceding years, but the decline in multichannel subs is a threat to that revenue stream
• Locast's free broadcast TV service is still operating and has expanded into new markets. It has also finally been sued by broadcasters and sued back. Its existential question remains: will it win its case or lose and suffer the fate of Aereo?

Changes in video production

To me the most interesting development in the TV industry in the last fourteen months is less what we don't have, than the new things that we have gotten. We've had a crash course in new ways of producing television (at home instead of on a set in a studio, using a webcam or phone in lieu of a multiple pro camera setup) and most of it is pretty OK. Local news doesn't seem to suffer a lot by having their anchors at home instead of bantering at a desk. And that's also revealing -- making a more personal relationship between viewer and "talent", as noted in Vogue (with its first link from this blog).

The NFL draft, which for years has been in a dogged pursuit to amp up its production values -- they were planning to use boats to ferry the picks to the stage this year, really -- actually got some great reviews of its home-based draft this year, probably in part to the fact that the stars of that show are regular people (as far as TV skills go) and seeing them in a home environment made them more relatable to the audience, especially NFL Commissioner Roger Goodell who appeared largely human. This fascinating Forbes article, by my friend and former colleague Howard Homonoff, describes the very interesting and innovative video production tech the NFL used.

Seeing musicians perform at home had much that same charm, irrespective of the genre of the music. Billie Eilish in her bedroom with her brother from iHeart's concert of pop stars to a show tune reconceived for Zoom in broadway.com's Sondheim concert.

full clip of Billie's performance is no longer available on YouTube, sadly

full disclosure: that's my office chair that Ann Harada is sitting on in this clip

The music videos produced during this period -- I'd put forward CHVRCHES "Forever" (Separate but Together) as an archetype -- remind me of the simple and fun music videos of the early video age...and we get to see the artists in their homes (or something like it) and that's often fun.

There will be a huge impact on commercial production as well. Given the upheaval in consumer's lives, the advertising messages suitable for before the coronavirus are often ill suited to our lives now (sometimes frighteningly so).

Producing new commercials without the usual camera and sound crew creates new challenges. One actor of my acquaintance shared that she was being asked to film herself at home -- for a national commercial with a DSLR or other similar high end, but decidedly consumer video equipment. (Having the performer supply more of the means of production, apologies to Karl Marx is nothing new -- newspaper reporters don't have to go into the office to type up their stories on the newsroom computer system, and many, perhaps most, audio books are made by voice artists working in home studios. The costs are much lower and the quality difference is much smaller than it once was. Workers' might be a step closer to...emancipation with this ownership.)

So, what's new with you?

Dish-Disney Deal: Parsing the Press Release

MY COMMENTARY IS INLINE, BELOW IN RED

The Walt Disney Company and DISH Network Sign Groundbreaking Long-term, Wide-ranging Agreement

FILED IN: Affiliate, Corporate Announcements, ESPN3, Longhorn Network,WatchESPN TAGGED: authentication, ESPN3, Longhorn Network, SEC Network, WatchESPN

• New Multi-Year Deal to Deliver Best in Sports, News and Entertainment to DISH Customers, In and Out of the Home
• DISH First to Secure Rights to Carry Disney, ABC and ESPN Networks for Over-the-Top, Personal Subscription Service
• Landmark Deal Adds Disney Junior, Fusion, Longhorn Network, ESPN3, To-Be-Launched SEC ESPN Network and the Full Suite of Authenticated WATCH Services
• Expanded Video-On-Demand Content Available to DISH Customers at Home, On-The-Go
• Dismissal of All Legal Proceedings Between the Two Companies

Englewood, Colo. and Burbank, Calif., March 03, 2014 — The Walt Disney Company (NYSE:DIS) and DISH Network Corporation (NASDAQ:DISH) today announced a groundbreaking, long-term, wide-ranging distribution agreement that will provide DISH customers with access to Disney’s robust lineup of top quality sports, news and entertainment content across televisions, computers, smartphones, tablets, gaming consoles and connected devices.

The renewal agreement supports the companies’ mutual goal to deliver the best video content to customers across multiple platforms by strengthening the value of the multichannel video subscription today and by creating the opportunity for DISH to deliver new services in the future.

A KEY PART OF DISNEY'S LEVERAGE IS THE RENEWAL OF ESPN, THE MOST VALUABLE CHANNEL IN MULTICHANNEL TELEVISION.

The extensive and expanded distribution agreement grants DISH rights to stream cleared linear and video-on-demand content from the ABC-owned broadcast stations, ABC Family, Disney Channel, ESPN and ESPN2, as part of an Internet delivered, IP-based multichannel offering.

THIS APPEARS TO BE THE REALLY NEW STUFF. FROM THE SOUND OF THIS SENTENCE, DISH COULD OFFER THESE CHANNELS AS PART OF AN OVER-THE-TOP OFFERING. DISH MAY NOT BE OFFERING THESE CHANNELS ON SUCH A BASIS FOR A WHILE; DISNEY MAY HAVE INSISTED ON SOME "CRITICAL MASS" OF OTHER TOP SERVICES BE INCLUDED IN ANY PACKAGE WHICH INCLUDES THE DISNEY SERVICES. STILL, HAVING ESPN IN THE FOLD MAKES GETTING DEALS DONE FOR OTHER SERVICES MUCH EASIER FOR DISH. THIS IS A MAJOR GET FOR DISH. MORE ON THIS FROM PETER KAFKA AT RE/CODE.

Additionally, for the first time, DISH customers will be able to access Disney’s authenticated live and video-on-demand products, including WatchESPN, WATCH Disney, WATCH ABC Family and WATCH ABC using Internet devices in the home and on the go.

THIS IS STANDARD STUFF -- "TV EVERYWHERE" TO SUBSCRIBERS WHO HAVE AN EXISTING DISH SUBSCRIPTION OF VALUE TO BOTH PARTIES, BUT PROBABLY SLIGHTLY MORE VALUABLE TO DISH.

The agreement will result in dismissal of all pending litigation between the two companies, including disputes over PrimeTime Anytime and AutoHop.  As part of the accord, DISH will disable AutoHop functionality for ABC content within the C3 ratings window.  The deal also provides a structure for other advertising models as the market evolves, including dynamic ad insertion, advertising on mobile devices and extended advertising measurement periods.

THIS IS A BIG DEAL. THE COURTS WERE UNLIKELY TO HELP DISNEY GET RID OF THE AUTOHOP AD-SKIPPING FEATURE, BUT DISNEY WAS ABLE TO NEGOTIATE AWAY AT LEAST A SIGNIFICANT CHUNK OF ITS FUNCTIONALITY. THIS IS A BIG GET FOR DISNEY. LOOKING AT IT MORE BROADLY, DISH CHAIRMAN CHARLIE ERGEN LAUNCHED A FEATURE THAT HE KNEW WOULD UPSET PROGRAMMERS, THEN HE TRADED AWAY PART OF IT TO GET A DEAL DONE. SAVVY GUY. MORE ON THIS FROM JANKO ROETTGERS AT GIGAOM.

“The creation of this agreement has really been about predicting the future of television with a visionary and forward-leaning partner,” said Joseph P. Clayton, DISH chief executive officer and president. “Not only will the exceptional Disney, ABC, ESPN entertainment portfolio continue to delight our customers today, but we have a model from which to deliver exciting new services tomorrow.”

Anne Sweeney, Co-Chairman, Disney Media Networks, and President, Disney/ABC Television Group, said, “We knew early on we had a responsibility with this deal to not only do what was best for our business, but to also position our industry for future growth.  After months of hard work and out-of-the box thinking on both sides, led by Bob Iger and Charlie Ergen, this agreement, one of the most complex and comprehensive we’ve ever undertaken, achieves just that.  Not only were innovative business solutions reached on complicated current issues, we also planned for the evolution of our industry.”

Added John Skipper, President, ESPN & Co-Chairman, Disney Media Networks: “We worked with DISH to smartly address the future of the multi-screen world on several levels.  Together, we are adding value to the traditional video subscription by making great content accessible across platforms and delivering new products, including our WatchESPN authenticated networks, the highly anticipated launch of the SEC ESPN Network, expanded distribution for Longhorn Network, and a reimagined ESPN Classic video-on-demand channel.  At the same time, we are creating opportunities to add new subscribers and introducing the value of a multichannel subscription to a small subset of broadband-only consumers.”

“This agreement allows us to bring more innovation to the customer experience, including new marketing, packaging and delivery options,” said Dave Shull, DISH Executive Vice President and Chief Commercial Officer. “This paves the way for more customer choice and control over the viewing experience.”

DISH will make available Disney Junior, Fusion, ESPN Goal Line, ESPN Buzzer Beater, as well as Longhorn Network and the upcoming SEC ESPN Network upon its launch. In addition, DISH, ESPN and ESPN Deportes customers will have access to the live and video-on-demand channel ESPN3.

THESE ARE ALL BENEFITS FOR DISNEY AND THINGS IT IS FAIR TO SAY THAT DISH CONCEDED, PARTICULARLY EXPANDED CARRIAGE OF THE CHANNELS DISH WASN'T ALREADY CARRYING OR CARRYING IN HIGHLY PENETRATED PACKAGES: FUSION, SEC ESPN, LONGHORN NETWORK AND DISNEY JUNIOR LAUNCHES ARE ALL SIGNIFICANT GETS FOR DISNEY. IF THE SERVICES ARE LAUNCHED IN DISH'S MORE HIGHLY PENETRATED PACKAGES (E.G., AMERICA'S TOP 120 AND AMERICA'S TOP 200), THESE LAUNCHES ARE VERY VALUABLE FOR DISNEY AND PROBABLY REPRESENT DISH'S MOST VALUABLE ECONOMIC CONCESSION.

As part of the agreement, DISH will launch ESPNEWS, ESPNU, Disney Channel and ABC Family in high definition. ESPN Classic will be reintroduced as a video-on-demand channel.

IN OTHER WORDS, ESPN CLASSIC HAS BEEN TAKEN OFF THE LINEAR LINEUP. ESPN HAS "DEALT OFF" CLASSIC TO GET MORE DISTRIBUTION FOR ESPNU AND OTHER SERVICE FOR NEARLY A DECADE NOW. THE LACK OF CARRIAGE OF THE HD FEEDS OF DISNEY CHANNEL, ABC FAMILY, ESPNU AND ESPNEWS WAS PROBABLY HURTING DISH MORE THAN THEY WERE HURTING DISNEY. 

The extensive and expanded rights package gives DISH customer access to video-on-demand content at home, on computers and on-the-go through the DISH Anywhere app for tablets and smartphones, including:

• ABC On Demand, a fast forward-disabled service that features a selection of top-rated primetime entertainment programming, including episodes of such popular current ABC shows as “Scandal,” Castle,” “Grey’s Anatomy,” “Once Upon A Time” and “Revenge.”
• ABC Family On Demand, which features a variety of top-rated full episodes, refreshed monthly, from such popular millennial favorites as “The Fosters,” ”Switched at Birth,” “Baby Daddy” and “Melissa & Joey.”
• Disney-branded On Demand offerings, including Disney Channel On Demand, Disney Junior On Demand, and Disney XD On Demand.  Refreshed each month, the Disney Channel On Demand offering will include episodes from such series as “Mickey Mouse Clubhouse,” “Sofia the First” and “Jake and the Never Land Pirates” for preschoolers, as well as variety of episodes from “A.N.T. Farm,” “Liv and Maddie,” “Jessie” and other popular series for older kids.  Select episodes featured on Disney Channel On Demand will be available in innovative new offerings, such as playlists and monthly programming blocks, in addition to a number of episodes available in multiple languages.  A variety of Disney Channel Original Movies will also be available. Disney XD On Demand features a selection of episodes from such series as the Emmy Award-winning animated hit “Phineas and Ferb,” “Pair of Kings” and “Kickin’ It.”
• Expanded On Demand content from ESPN, including content from ESPN Deportes and ESPN’s award-winning original content from ESPN Films.

THIS IS ALSO STANDARD STUFF THAT DISNEY HAS DONE WITH OTHER DISTRIBUTORS. IT IS OF VALUE TO DISH, BUT NOT OF EXTRAORDINARY VALUE.

The companies also renewed carriage agreement for ABC’s eight owned local stations, including WABC-TV in New York City, KABC-TV in Los Angeles, WLS-TV in Chicago, WPVI-TV in Philadelphia, KGO-TV in San Francisco, WTVD-TV in Raleigh-Durham, KTRK-TV in Houston, and KFSN in Fresno.

THIS WAS A BIG SOURCE OF DISNEY'S LEVERAGE. RETRANSMISSION OF ITS STATION GROUP IS THE ONLY WAY TO GET ABC FOR DISH CUSTOMERS IN APPROXIMATELY 20% OF THE US. THIS WAS A LARGE SOURCE OF DISNEY'S LEVERAGE.

About DISH

DISH Network Corporation (NASDAQ: DISH), through its subsidiary DISH Network L.L.C., provides approximately 14.057 million satellite TV customers, as of Dec. 31, 2013, with the highest quality programming and technology with the most choices at the best value. Subscribers enjoy a high definition line-up with more than 200 national HD channels, the most international channels, and award-winning HD and DVR technology. DISH Network Corporation is a Fortune 200 company.Visit www.dish.com.

About The Walt Disney Company

The Walt Disney Company, together with its subsidiaries and affiliates, is a leading diversified international entertainment and media enterprise with five business segments: media networks, parks and resorts, studio entertainment, consumer products and interactive. Disney is a Dow 30 company and had annual revenues of $45 billion in its Fiscal Year 2013.

Disney Takes the Pay TV Window to Netflix

Disney has chosen to sell its movies for the pay TV window to Netflix. Netflix, in effect, replaces Starz, Disney's output home since 1994. While some have described this as a watershed moment for over-the-top or a "game changer", it seems far simpler -- a seller of a product, unhappy with the prices offered by its current buyer, seeks a new buyer.

In 2008, instead of accepting the output terms offered by Showtime, Lion's Gate, Paramount and MGM formed Epix. Epix hasn't been a huge hit with traditional pay TV operators, but had turned a profit on the basis of deals with Netflix and Amazon.

Looking at the dynamic from the other side, why didn't Starz and Showtime pay up to renew these pay TV window theatrical output deals? The short answer is that they see a better return on investments in original programming. Showtime gets a lot more bang from creating a series like Homeland or Dexter or Californication than it gets from airing The Dictator after it is available in theatres, airlines, Blu-Rays, DVDs, iTunes and pay-per-view/on demand. Theatrical movies have value -- subscribers to premium networks watch them and like them -- but theatricals don't build a premium network's brand.

The Disney studio really couldn't care less about Starz except as a source of revenue. After all, in 1994 Disney rejected the more established premium service Showtime to go with Starz, which was the upstart premium service from the company then known as Encore, after its second-run movie service.

It appears that Disney takes little risk in leaving the traditional premium TV buyers. If Disney's movies on Netflix are thinly viewed, that information won't be public and to the extent the movies are not watched that much, presumably they would have more value for Disney's other buyers. If a content provider like the NFL took a package of games to Netflix, if the games were unsuccessful and thinly viewed on the new platform, it could damage the value of the NFL brand when the league returned to its traditional buyers (the networks and the advertisers); at a minimum, it would be in a poorer bargaining position. Major League Baseball experienced this with the ill-fated The Baseball Network.

Disney has some special value to Netflix versus its value to Starz. Netflix gets more value out of children's library programming than a cable premium service does (in fact, Starz might not have had such rights from Disney and Starz faces an increasingly crowded cable TV shelf which often also offers the subscription video on demand service Disney Family Movies). For Netflix the deal has obvious benefits. This Disney deal replaces much of the high value content that Netflix was getting from Disney via Netflix's since expired Starz deal. Losing the Starz brand means little in Netflix's environment -- where the title of the movie is the brand in the mind of the consumer and the only prominent exception to that is when Disney or Disney-owned Pixar's name is attached to a movie for children. If this deal is a game changer, it is hard to see what has materially changed from the perspective of Netflix subscribers.

The change, if anything, is to the mindset of the movie studios -- there's another way to play the pay TV window. Going direct to a distributor to end-users like Netflix also allows Disney a more direct path to negotiate how its content is displayed to end users. Disney was not happy when Starz did a year-long "free preview" with Dish Network.

Netflix is the 800-pound gorilla of over-the-top services, right now, and getting high profile content on an exclusive basis creates less short-term opportunity for its competitors, be they Amazon Instant Video/Prime or the launching-in-2013, clumsily named Redbox Instant by Verizon. From a business strategy standpoint, Netflix's primary advantage is that it is the first-mover in OTT. Making entry into the market much more expensive for a joint venture like Redbox-Verizon's is a great business strategy -- 50/50 partners are never as committed to a new venture. (Ted Turner pulled this trick on the ABC-Westinghouse Broadcasting joint venture Satellite News Channel in the earliest days of CNN by creating Headline News and giving it to operators for free with CNN.)

So, what's not to like if you are Netflix? Potentially, the price. More than one analyst has looked at Netflix's content payment obligations and not liked what he has seen. Netflix may need to continue very strong subscriber growth to makes this and its other expensive content deals pay off for its investors.

Updated (6 December 2012): Ted Sarandos, Netflix's Chief Content Officer said yesterday that he has no intention of releasing any numbers for the viewing of Netflix's original shows. "It's really an irrelevant number" for a subscription service. It's a slightly different context, but it is consistent with the "no publicity" benefit of the deal to Disney. Note the argument that subscription services don't care about ratings, they care about satisfaction, is an old one -- originally cable TV operators and programmers identified it as a reason that they would triumph over broadcasters.

Related post: Starz Walks Away from Netflix

The Future of Current

The New York Post reports today that Current TV, the network best known as the brief post-CNBC home of available-now Keith Olbermann, is on the block.

A 60-million subscriber network is usually worth at least $15 per subscriber or $750 million, sometimes considerably more. However, one wonders what, exactly, is the programming opportunity for Current. Fox News is the news service on the right, MSNBC is the news service on the left and CNN is the news service in the middle. Not that Current is, strictly speaking, a news service, being more about talk shows than newscasts. Headline News has also morphed from a news service into a talk show channel.

Despite the attractive qualities of news programming (original, live and essentially DVR-proof), there is little evidence to suggest that television distributors are looking for more news channels. CNBC, Bloomberg, Fox Business, Weather Channel and C-SPAN's services also cover the news in various ways, as well as every major broadcaster. If distributors want another news channel, there are many to be had, particularly international services like BBC World News (which Comcast has rolled out in a big way, in the aftermath of its acquisition of NBC), France 24 (an English-language service widely carried by Time Warner Cable in New York), RT (the former Russia Today, with the Russian perspective on the news, also in English) and, Al Jazeera English.

That said, Current's "shelf space" has value. If Current were to be acquired by an existing US programmer, it could be bundled with their existing portfolio of channels and rebranded. Perhaps the best fit of all would be for Disney/ABC and Univision to acquire Current to jumpstart the distribution of their new English-language, Latino-targeted news service. That service current-ly exists as a website, but is planned to launch for cable distribution in 2013 from a base in Miami.

Another take: USA Today's Michael Wolff sees Current going into the hands of an online media company like Huffington Post or TMZ

Broadcast TV comes to Time Warner's iOS app

The big news in the new version of TWC TV, the iPad/iPhone/iPod touch app from Time Warner Cable is the addition of the broadcast stations to the channel lineup, at least for the New York DMA. The app is also available for Android phones and web browsers at www.twctv.com. This conquers one of the big remaining holes in the channel lineup of the app (the holes that continue are most of the top sports services -- ESPN's main channels are available to authenticated Time Warner Cable customers on their own WatchESPN app and website -- and the services owned by Viacom). You can follow the progress of the app via my earlier posts on it (first version, second version and third version).

The post about the app on TWC's corporate blog Untangled notes the channels being carried, but interestingly doesn't identify them by the station of origin, just by the name of the channel (e.g., Living Well HD is not identified as being a services broadcast over the airwaves of WABC-DT) and isn't entirely accurate (see below). Other notable things:

• The broadcast channels are organized alphabetically, not given the priority of their over-the-air channel postions.
• The channels are not identified by call letters, but by a mix of network affiliation (e.g., NBC, not WNBC, Fox, not WNYW) and nickname (PIX11, not WPIX or CW); although that is how they are identified on the Untangled blog.
• All of the primary feeds of all of the stations and some of their digital multicast feeds are carried on the app.
• All of the channels carried on the app are carried on the cable system's channel lineup, except for the SD versions of the services which are carried in HD (which are carried on cable, but not on the app).

The broadcasters likely did not not enter into new agreements with Time Warner Cable; TWC likely put them on and is seeing what happens. TWC probably has no retransmission consent agreement with some of these stations; they are likely carried under the "must carry" rules, which do not address the in-home Wi-Fi carriage that the app utilizes, but do address channel placement. WMBC, which primarily carries ethnic programming likely elected must carry. It would be surprising that CBS would agree that WCBS could be carried, but that the app would not also carry its thinly-distributed CBS Sports Network, which would certainly benefit from additional exposure.

TWC's blog post 26 broadcast channels as part of this addition, but one of them, ABC News Now, is not a broadcast service (it is not carried over the air on WABC)  and I can't find it in the app. Create (on the 21.2 digital channel of WLIW/PBS Long Island) and WNJN HD (50.1 PBS/Montclair NJ) are supposedly available, but, I have not found them on the app or web browser version of the service.

WNBC HD - an actual broadcast station on the TWC App as seen on iPhone

The list below is channels in the order they appear on the app (sprinkled in more-or-less-alphabetical-order among the channels that were already carried, of course) along with their over-the-air channel numbers.

1. ABC HD 7.1
2. CBS HD 2.1
3. Fox HD 5.1
4. Ion HD 31.1
5. Kids Thirteen 13.2
6. Live Well HD 7.2
7. My9 HD 9.1
8. NBC HD 4.1
9. NBC NY Nonstop 4.2
10. NYCTV Life 25.1
11. PBS 21.1
12. PIX11 HD 11.1
13. Rise/Al Jazeera English 48.2
14. RNN 48.1
15. Telefutura HD 68.1
16. Telemundo HD 47.1
17. Thirteen HD 13.1
18. TV 10/55 55.1
19. Univision HD 41.1
20. V-Me 13.3
21. WMFE 66.1
22. WMBC 63.1
23. World 21.3

The branding of these services is seems kind of mixed up and inconsistent. That suggests that it wasn't entirely in the control of TWC or that TWC is not completely on top of it or both. "PBS" takes you to WLIW's SD feed, not the flagship WNET HD feed (which is under "Thirteen"). I don't think either TWC or WNET (which runs also WLIW would have chosen to do it that way). More confusingly, the graphic on the guide says WLIW, even though it is filed under PBS. Al Jazeera English does share a channel with a service called Rise, but Rise programs one hour per day, while AJE programs 23 hours. (AJE is likely leasing the space from WRNN the station that controls the frequency). TV 10/55 is WLNY, a Long Island-based TV station that is usually on Channel 55 on Time Warner Cable, but Channel 10 on Cablevision (where most of its distribution is); it an app without channel numbers, I would think WLNY would want to be listed as TV55 on the app (or better still, Channel 55, to be higher in the alphabetical order). Also, if the services are in alphabetical order, why is WMFE before WMBC?

Intel-evision?

According to an article in the Wall Street Journal, Intel is looking to develop at web-based video service to compete with cable and satellite. Intel's plan is to create a virtual MSO, a business idea that many have been kicking around in one form or another.

Consumers would welcome another choice of video provider. As one measure of customer satisfaction, Consumerist's cheeky "Worst Company in America" 2012 bracket features eight providers of multichannel television (Comcast, DirecTV, Dish, Time Warner Cable, Charter, Verizon, AT&T and CenturyLink), among its 32 "contestants".

However, facts are stubborn things (hat tip, John Adams). Multichannel penetration is very high ~90% -- there are relatively few households who do not see it  as a worthwhile purchase, despite the fact that subscription prices increase every year. That suggests that the customer satisfaction issue is likely less the service itself (not that it doesn't have its frustrations - long times on hold, among them), than frustration with the price and general lack of choice. (If it didn't, Charter wouldn't be doing things like this.)

If Intel were to offer a me-too service (i.e., a comparable package of services) at a lower price, it would likely attract some customers. However, multichannel providers are already cutting prices in a de facto way, as they offer sweetheart deals for new customers, particularly in areas of high competition. It isn't easy to compete on the low end with customers churning through the introductory offers in search of the best deal.

The me-too offering would have a competitive advantage if its operating cost of delivering the service were lower than the incumbents. It won't be because of lower programming costs. A new entrant into the market, like Intel, can expect to pay 20% or more greater programming costs than the incumbents. Intel wouldn't have to build the expensive distribution system (laying cable, launching satellites) that the incumbents did, but would be on the hook for the variable cost of delivering bits to its customers. The jury is still out on how much less expensive that would be. However, that does make Intel, like Netflix, highly dependent on the ISPs (who are the cable and telephone companies) to continue to provide unlimited service to their customers.

There are alternatives to a me-too service, of course. A la carte offerings of channels is a popular request, but one that it is hard to imagine the programming community embracing. (LA Times: Don't hold your breath for a la carte cable -- is that clear enough?) Given the high penetration of multichannel television, there isn't much reason for the programmers to look at a different, potentially less lucrative business model, unless they have to do so (as the music industry had to, after rampant piracy ended their chokehold on packaging and pricing). However, the multichannel subscription television market probably has less piracy today than it did in the past, due to the changeover from less-secure analog systems to more-secure digital ones). So, it won't be driven by piracy, at least not today's piracy, but maybe tomorrow's.

This is not the first Intel over-the-top story. GigaOm reported earlier this year that Intel was "in talks to buy Roku". BTW, Roku is now looking to raise some $50 million to expand...hmmm.

It is always interesting to see new entrants to an industry as that's often the origin of the new ideas that shake things up (Walt Disney's theme parks, Apple's iPod, iPhone and iPad). If Intel has that sort of idea, there will be a place in the market for them. There is certainly room for innovation in the distribution of television.

TV Everywhere is the New Normal - The Comcast-Disney Deal

Last week Comcast cut a new long term deal with Disney and ESPN (full press release below) which gives a wide view to two major trends in the multichannel television business.

The first is that the programmers' hand in programmer-distributor negotiations is improving and looks to continue to improve. That's a reason that Comcast went long on its commitments, and, for that matter, acquired NBC Universal. The programmers' hand is improving because the telcos successfully entered the distribution market and basic economics says that new successful entrants mean more competition among the distributors. One of the ways that plays out is that a distributor now has more to lose from being without a top programmer for a period of time than than the distributor had to lose when there wasn't as much competition.

The second trend is that TV Everywhere is the new normal.

The last time the distributors attempted to rewrite the basic terms of distribution was nearly a decade ago when Comcast started taking the postion that they wanted VOD rights to all of a channel's top programs and that they didn't want to pay anything extra for it. Generally speaking, that didn't work out. The programmers had a number of problems with that approach: they didn't have VOD rights from their suppliers, providing VOD effectively favored cable distributors over DBS and programmers did not want to do that, Nielsen was ill-equipped to measure VOD viewing, so the risk of VOD diluting the programmers' advertising stream was potentially very significant and finally, Comcast wasn't offering anything more that business-as-usual rate increases on the core channel. The predictable result was that biggest basic cable programmers dragged their feet on VOD and looked for ways to make it work for them (e.g., sampling for new shows).

VOD also required separate delivery and preparation of the content that was available (another cost for the programmer) and VOD delivery was either very expensive or pointless for content that has a short "shelf life" (e.g., live sports, news, American Idol, weather forecasts).

What has changed since then is...nearly everything.

• The programmers have been increasing license fees because of their stronger bargaining position and the distributors have complained about it. 
• The distributors wanted additional value and the programmers were generally sympathetic to that position. 
• Nielsen gradually made progress on the measurement issues and recognized they needed to track viewing in a more holistic way than with a meter on the set. 
• The advertisers came around and adopted C3 as the accepted viewership currency, creating the precedent of accepting something other than 1970s-era traditional viewing as having value.
• Internet-delivered video drove much higher broadband penetrations. 
• Netflix did a lot of great pioneering work and made live streaming into a value-add and then a business. 
• OTT video is the looming threat to both programmers and distributors.

TV Everywhere is a way to benefit the existing system, which is in both of their interests, at least for now.

TV Everywhere won't be the future forever --

• at some future date, perhaps the programmers will be able to monetize over-the-top OTT video without killing the core multichannel business, the goose that laid the golden egg
• the rising cost of the multichannel subscription is creating a "price umbrella" for nascent OTT alternatives
• video piracy might undermine both core multichannel subscriptions and nascent OTT alternatives

 -- but it should be the dominant multichannel trend of at least the next five years.

PRESS RELEASE

The Walt Disney Company and Comcast Corporation Announce a Long-Term, Comprehensive Distribution Agreement That Advances the Successful Multichannel Business Model

Deal Provides Xfinity TV Customers Broad Access to Top Sports, News and Entertainment Content Across Multiple Screens in and Out of the Home

PHILADELPHIA, PA and BURBANK, CA  -  January 4, 2012

Comcast Corporation (Nasdaq: CMCSA, CMCSK) and The Walt Disney Company (NYSE: DIS) today announced a long-term, comprehensive distribution agreement that will deliver Disney’s top quality sports, news and entertainment content to Comcast’s Xfinity TV customers into the next decade on television, online, on tablets and handheld devices. The new agreement enhances the multichannel business model and supports the companies’ mutual goal to deliver the best video content to customers across multiple platforms using the latest technology and cloud innovation.  For the first time ever, Comcast’s Xfinity TV customers will be able to watch ESPN, ABC or Disney shows live or on demand and across multiple screens.  The companies also agreed to collaborate over the term of the deal to create new, innovative viewing experiences for Xfinity TV customers.

The networks and services covered by the agreement include: ABC, ABC Family, Disney Channel, Disney XD, ESPN, ESPN2, ESPNU, ESPN Deportes, ESPNEWS, ESPN Classic, ESPN Goal Line, ESPN Buzzer Beater, ESPN 3D, ESPN GamePlan, ESPN FullCourt and ESPN3; retransmission consent for seven ABC-owned broadcast television stations (WABC-TV New York, WLS-TV Chicago, WPVI-TV Philadelphia, KGO-TV San Francisco, KTRK-TV Houston, KTVD-TV Raleigh-Durham, and KFSN-TV Fresno) as well as more than 10 high-definition networks.  Additionally, Comcast will launch Disney Junior, a new 24-hour basic channel for preschool-age children, parents and caregivers.  Comcast will also provide its Xfinity TV customers with broad access to a suite of live Disney networks on an authenticated basis and expanded Xfinity On Demand content through Disney’s comprehensive TV+ initiative.  In total, 70 services are covered by the broad scope of this new agreement.  License fee schedules for different services under the deal will be phased in over time.

“Comcast was the first video provider to create technology that enabled us to deliver content to customers where and when they want it across any viewing experience,” said Neil Smit, President and Chief Executive Officer, Comcast Cable. “We are very pleased to have reached this unprecedented and innovative, long-term agreement with Disney which embraces the future of entertainment and allows Comcast to continue to bring our vision of TV Everywhere to Xfinity customers whether at home or on the go.”

Anne Sweeney, Co-Chairman, Disney Media Networks and President, Disney/ABC Television Group, added, “This landmark deal is a great example of what can be achieved when programmers and distributors collaborate and innovate together to meet the ever-evolving needs of consumers and enhance the viewing experience. By combining the best news, sports and entertainment content available today with cutting-edge technologies, we’re able to fully realize our comprehensive TV+ initiative, and introduce a brand new suite of authenticated services to Comcast subscribers.”

Added George Bodenheimer, Executive Chairman, ESPN, Inc., “Given the scope of assets Comcast and Disney/ABC/ESPN are making available to consumers, this agreement is unprecedented in our industry. It reinforces the value of the multichannel subscription and takes full advantage of new technologies, which serve all of our viewers.”

The extensive and expanded rights package for Comcast’s Xfinity TV customers includes rights across multiple platforms for:

• Comcast’s Xfinity TV customers will receive more ABC, ABC Family, Disney and ESPN content through their set-top-box and, at this time, Disney and ESPN content online, including:
• ABC On Demand, ABC’s fast-forward-disabled On Demand service, which currently features a selection of top-rated primetime entertainment programming, including episodes of such popular current ABC shows as “Castle,” “Grey's Anatomy,” “Once Upon A Time,” “Private Practice” and “Revenge.”  Full current seasons will be made available on a number of shows.  Additionally, Xfinity TV customers will have access to a variety of ABC News programming as well as some local ABC owned-station content.
• ABC Family On Demand, which features a variety of top-rated full episodes, refreshed monthly, from such popular millennial favorites as “The Secret Life of the American Teenager,” “Switched at Birth,” and “Melissa & Joey.”  Full current seasons will be made available on a number of shows.  ABC Family original movies like “12 Dates of Christmas” will also be available.
• Disney-branded On Demand offerings, including Disney Channel On Demand, Disney Junior On Demand, and Disney XD On Demand.  Refreshed each month, the Disney Channel On Demand offering will include episodes from such series as “Handy Manny,” “Mickey Mouse Clubhouse,” and “Jake and the Never Land Pirates” for preschoolers, as well as variety of episodes from “A.N.T. Farm,” “Good Luck Charlie,” “Wizards of Waverly Place,” and other popular series for older kids.  Select episodes featured on Disney Channel On Demand will be available in innovative new offerings, such as playlists and monthly programming blocks, in addition to a number of episodes available in multiple languages.  Disney Channel Original Movies such as “Lemonade Mouth,” “Geek Charming” and “Phineas and Ferb:  Across the Second Dimension” will also be available. Disney XD On Demand features a variety of episodes from such series as the Emmy Award-winning animated hit “Phineas and Ferb.”
• Disney Channel’s subscription Video On Demand service, which offers on demand access to select episodes before they air, will now be available to Xfinity TV customers who receive Disney Channel, a service that Comcast will offer to these customers for no additional fee.
• Expanded on demand content from ESPN, including content from ESPN Deportes and ESPN’s award-winning original content from ESPN Films.
• The subscription On Demand service “Disney Family Movies,” which features a selection of classic and contemporary feature films and animated shorts from The Walt Disney Studios.
• Xfinity TV customers will receive broad access to existing authenticated products like WatchESPN, as well as upcoming authenticated products, including WatchDisneyChannel, WatchDisneyXD and WatchDisneyJunior.  These services will give Comcast’s Xfinity TV customers more opportunities to access live and video on demand content, both in-home and out-of-home, on their computers, smartphones, tablets and gaming consoles.  
• Xfinity TV customers will also receive the recently announced Disney Junior, a new 24-hour basic channel for children ages 2-7, parents and caregivers.  Upon its debut in 2012, the new channel will feature animated and live action programming that blends Disney’s unparalleled storytelling and beloved characters with learning, including early math, language skills, healthy eating and lifestyles, and social skills.
• Comcast also obtained rights to air certain content from ESPN3, ESPN FullCourt and ESPN GamePlan on Comcast’s Xfinity Sports Entertainment Package.

About Comcast Corporation:Comcast Corporation (Nasdaq:CMCSA, CMCSK) (www.comcast.com) is one of the world's leading media, entertainment and communications companies. Comcast is principally involved in the operation of cable systems through Comcast Cable Communications and in the development, production and distribution of entertainment, news, sports and other content for global audiences through NBCUniversal. Comcast Cable Communications is one of the nation's largest video, high-speed Internet and phone providers to residential and business customers. Comcast is the majority owner and manager of NBCUniversal, which owns and operates entertainment and news cable networks, the NBC and Telemundo broadcast networks, local television station groups, television production operations, a major motion picture company and theme parks.

About The Walt Disney Company:The Walt Disney Company (NYSE: DIS), together with its subsidiaries and affiliates, is the world’s largest diversified international family entertainment and media enterprise with five business segments: media networks, parks and resorts, studio entertainment, consumer products and interactive media. Disney Media Networks comprise a vast array of The Walt Disney Company’s broadcast, cable, radio and publishing businesses, including Disney/ABC Television Group and ESPN, Inc.  Disney is a Dow 30 company and had annual revenues of $40.9 billion in its most recent fiscal year.

Disney 1Q11

Some interesting things I saw in the Disney 10-Q.  A lot of cricket, looks like the "Media Networks" got a better deal on transfer pricing than it used to have with "Home Entertainment" and programming and restructuring cost less at A&E/Lifetime.

ESPN STAR Sports, a joint venture in which ESPN owns a 50% equity interest, has an agreement for global programming rights to International Cricket Council events from 2007 through 2015. Under the terms of the agreement, ESPN and the other joint-venture partner have jointly guaranteed the programming rights obligation of approximately $0.7 billion over the remaining term of the agreement.

The decrease in home entertainment revenue reflected an 8% decrease due to lower unit sales, partially offset by a 4% increase due to higher net effective pricing driven by increased sales in Blu-ray format. Net effective pricing is the wholesale selling price adjusted for discounts, sales incentives and returns. The decreased unit sales in the current quarter reflected the strong prior-year performance of Toy Story 1 & 2 and the animated version of Alice in Wonderland domestically and Up internationally. Additionally, there was an 8% decrease due to the impact of a change in the transfer pricing arrangement between Studio Entertainment and Media Networks for distribution of Media Networks home entertainment product (see Note 2 to the Condensed Consolidated Financial Statements).

At home entertainment, 6% revenue growth due to higher unit sales and 3% growth due to higher net effective pricing were more than offset by a decrease due to the change in the transfer pricing arrangement between Studio Entertainment and Media Networks for distribution of Media Networks home entertainment product. Higher unit sales in the current period were driven by the strong international performance of Toy Story 3 compared to Up in the prior-year period as well as increased catalog sales.

Equity in the Income of Investees

Income from equity investees was $279 million for the current six month period compared to $242 million in the prior-year six month period. Higher income from equity investees was driven by higher affiliate and advertising revenue and lower programming and restructuring costs at A&E/Lifetime, partially offset by higher programming costs for the Cricket World Cup at our ESPN Star Sports joint venture.

Disney 10-Q

Starz sues Dish over free previews

Ah, the perils of a flat rate deal.  Shame on the lawyers if they didn't see the possibility of this happening.

Disney and Starz sue Dish (LA Times)

my earlier post on this matter

Disney mad about its customer Starz's year-long free preview on Dish, sues...

Dish?

Bloomberg article: Disney Unit Sues Dish...