The Feldman File covers eBooks, publishing, new media, Internet services, consumer electronics and salsa dancing. (Okay, not salsa dancing, but it'll be interesting to see how many people looking for information on salsa dancing end up here.)
Last week, CBS launched its own dedicated news channel, called CBSN. Unlike CNN, Fox News or MSNBC, CBSN isn't a cable news channel--it's only available over the Internet. In addition, unlike those cable networks, CBSN isn't (yet) a true 24-hour-a-day service; it has live content from 9 a.m. to midnight U.S. Eastern time on weekdays. I typically watch CBSN on my Roku box, but it's available on basically any device with a fast Internet connection and a web browser. When viewing it on a PC, tablet or smartphone, CBSN has a well-designed user interface that enables the viewer to go back and watch previous stories along with the live feed, and it also gives a preview of upcoming stories.
It's not the user interface or the fact that it's on the Internet that makes CBSN interesting, however; it's the way that the channel presents the news:
There are plenty of short feature stories, as we've come to expect from cable news, but there's also long, in-depth pieces with details that the 30-minute national news on CBS would never have time to give. These background stories, from reporters such as Pentagon reporter David Martin, provide much more insight than the cable networks usually give.
So far, CBSN is blissfully free of the spinmeisters and "instant experts" of the cable networks--it's largely hard news, not news and opinion whipped into an indiscriminate souffle.
With one exception, CBSN has so far stayed away from the "beat it to death" style of continuous coverage of a news story, such as CNN's infamous coverage of the disappearance of Malaysia Airlines Flight 370. On Thursday, CBSN carried WCBS's wall-to-wall coverage of two window washers dangling from the side of World Trade Center 1. It was an obvious decision, but in hindsight, they could have cut away from time to time to at least give headlines.
There's a refreshing casualness to CBSN's anchors. Instead of the suit-and-tie look for men and power suits for women, there are shirt sleeves and open collars--exactly what reporters and editors wear in a working newsroom.
CBSN is going through teething pains; earlier this week, I saw the same segment start and stop three times, and they're having other "slight technical difficulties." However, that's to be expected. On the plus side, CBSN has access to CBS News's worldwide bureaus, local stations and affiliates, and it doesn't have the political conflicts that keep MSNBC and NBC News operating at arm's lengths from each other. That means that it has the resources to compete with any of the cable networks, but with the ability to operate at a much lower cost, because most of the money is already being spent to run CBS News, its owned & operated stations, and affiliates.
While CBSN is still evolving, it's already a good alternative to the cable networks, and it's likely to get better. My hope is that the service will soon start offering some weekend coverage, which might happen if an important news event breaks, or continues, on a weekend.
Earlier today, TVNewsCheck ran a story about the positions of the Big 4 U.S. television networks (ABC, CBS, Fox and NBC) on ATSC 3.0. The Advanced Television Systems Committee (ATSC) administers the U.S. standard for digital terrestrial television broadcasting, and ATSC 1.0 is the system currently in use. ATSC 3.0 is intended to implement capabilities that are limited or missing in the current standard, including support for image resolutions beyond HD. Most importantly for many broadcasters, however, is that ATSC is intended to bring mobile TV reception to parity with the fixed HDTVs that we use today, The broadcasting industry realizes that an ever-increasing percentage of its audience is watching television outside the home on smartphones and tablets, but today, access to those devices is mediated by the mobile phone carriers (AT&T, T-Mobile, Sprint, Verizon, etc.). Broadcasters want direct access to those devices and viewers, and are hoping that ATSC 3.0 will give them that access.
The transition to ATSC 3.0 won't be without problems: Broadcasters spent many billions of dollars on new cameras, production equipment and transmitters to move from analog to digital television. Moving from ATSC 1.0 to 3.0 probably won't entail that level of investment, but it will still be expensive for broadcasters. In addition, smartphone manufacturers, mobile phone carriers and consumer electronics companies will have to be convinced (or required by law) to support the new features of ATSC 3.0 in their products. That will take time--potentially as long as ten years.
According to TVNewsCheck, both ABC and CBS have gone on the record as withholding their judgment on ATSC 3.0. Both NBC and Fox support ATSC 3.0 in principle, but both are waiting for more details of the standard to emerge before making a commitment. That led me to wonder whether the network broadcasters actually want or need to make the investments needed to support ATSC 3.0 in the television stations that they own.
All of the top four commercial television networks in the U.S. own and operate several television stations in major cities; in the industry, these are called O&Os (for Owned & Operated.) For example, all four networks own and operate stations in New York, Los Angeles, Chicago and Philadelphia. In Dallas-Fort Worth, all but ABC own and operate their own stations; in San Francisco-Oakland-San Jose, all but Fox own their own stations. The local stations are a big source of revenue and earnings for the networks; for example, in 2013, CBS's network had gross revenues of $8,645 billion and operating income of $1.593 billion, while its local Owned & Operated stations, both television and radio, gross revenues of $2.696 billion and operating income of $807 million. On a percentage basis, the local stations, while not the most profitable unit of CBS, made a much bigger profit than the network (30% vs. 18%.)
On the surface, it seems obvious that CBS, and the other big networks, should keep their stations. However, when you look further, the choice becomes less clear:
The major networks could easily get $1 billion or more for each of their stations in the top U.S. markets, and those sales would be taxed as long-term capital gains, not ordinary income.
The networks are already getting a significant amount of their income from retransmission fees charged to cable, satellite and IPTV video operators. They get those fees directly from the video operators in the markets where they own stations, and indirectly in other markets through the fees that they charge their affiliates for carrying their programs. If the networks sell some or all of their stations, they would get affiliate fees from those stations without any of the costs of operating the stations.
If the networks no longer own over-the-air stations, they would no longer be directly subject to FCC rules. That means no more multi-million dollar fines for "fleeting expletives" or unplanned nipple slips. The networks would still have to abide by FCC content rules to protect their affiliates, however.
Over 90% of U.S. households already get their television via cable, satellite or IPTV. Over-the-air reception is increasingly an anachronism.
As little as ten years ago, it would have been unthinkable for the Big 4 networks to sell their stations--if anything, they aggressively wanted to buy more. However, since then, we went through the 2008 Great Recession, which hammered local ad revenues. Network television viewership has been declining for several years, and ratings for many of today's successful network series would have guaranteed their cancellation just a few years ago. Now, many industry analysts are forecasting that digital will supplant broadcast television as the biggest recipient of advertising revenue within the next few years. If the Big 4 have the choice between spending billions of dollars to upgrade their stations to comply with ATSC 3.0, or making billions of dollars from the sale of their stations, it's looking increasing likely that sales, at least of their smaller-market stations, will make more sense.
The Wrap reports that the Federal Communications Commission has put its review of the Comcast-Time Warner Cable merger on hold for the second time. This time, the delay is due to the refusal by ABC, CBS, NBC, Fox, Viacom and Discovery to supply the agency with details of their retransmission agreements with cable, satellite and IPTV operators. The reason that the FCC wants the retransmission information in the first place is that opponents of the merger have charged that the combined company would have too much power over program suppliers (including the broadcast and cable networks.) The networks have agreed to provide the U.S. Justice Department with the data because it will be kept confidential, but FCC rules require that the data be made available to both supporters and opponents of the Comcast-TWC deal, so that they can use it in their briefs. Only the general public is prohibited from seeing the data.
The six networks have very good reasons for wanting to keep their contracts secret, because once buyers of their content learn how much other companies are paying, they'll want to renegotiate their contracts down to the lowest price. On the other hand, four of the six companies (ABC, CBS, Fox and NBC) are granted licenses by the FCC to broadcast over-the-air. Unlike mobile carriers such as AT&T, Sprint, T-Mobile and Verizon, television broadcasters get their spectrum for free. So, they are in essence underwritten by U.S. taxpayers for the multi-billion dollar value of their airspace. (Update, November 5, 2014: The FCC has released a "price list" in conjunction with its plan to get broadcasters to relinquish their spectrum so that it can be used for other applications. The FCC values the nationwide recovery of as much as 126 MHz of spectrum at a maximum of $38 billion dollars.) In addition, whenever a retransmission dispute between a broadcaster and a cable, satellite or IPTV operator results in the broadcaster removing their signals from the video operator, the public is stuck in the middle. Therefore, I believe that there's a strong argument for public disclosure of broadcast retransmission deals, above and beyond the Comcast-Time Warner Cable case.
My suggestion is that, if broadcasters want to prohibit anyone outside a handful of government employees from seeing their retransmission deals, they should be forced to pay the full market value for their bandwidth, just as mobile operators do. If they don't want to do that, they always have the option of relinquishing their frequencies and feeding their programs directly to service providers and to consumers over the Internet. CBS threatened to do exactly that if the Supreme Court ruled against it in the Aereo case, so it's clearly an option that's been considered by broadcast networks. If they want to operate in secret using the public's airwaves, they should pay for the privilege.
Yesterday, HBO announced that it plans to launch an over-the-top (OTT) Internet video service next year that will be available to anyone with a high-speed Internet connection, even if they don't subscribe to cable, satellite or IPTV services. HBO didn't announce any specifics about which shows will be available, if there will be live streaming or Video-on-Demand (VOD) only, and how much the service will cost. Then, today, CBS announced CBS All Access, which will provide nationwide VOD access to current CBS shows and classic shows from the libraries of CBS, Paramount and Desilu, for $5.99/month. Subscribers living in 14 major cities will also get live streaming from their local station 24 hours a day.
In the course of 24 hours, the competitive landscape for OTT video in the U.S. changed from Netflix and a bunch of smaller content companies to a field including the #1 pay television service and #1 broadcast network. Both HBO and CBS will be "canaries in the coal mine" for the other broadcast and cable networks. The right price points and assortments of live and VOD content are experiments in progress, and we're likely to see lots of different combinations as other companies enter the market. These announcements are also likely to impact existing OTT services--especially Hulu. Fox, Disney and Comcast own Hulu, but Comcast is not allowed to exercise any control due to restrictions that it agreed to in order to get regulatory permission to acquire NBC Universal. Fox in particular has put severe restrictions on when its shows are made available to Hulu and for how long. With CBS effectively opening the floodgates, Fox may either have to loosen the restrictions on Hulu, or as I suspect, launch its own Fox-branded OTT service that's much closer to CBS All Access. Disney, which already has an extensive web and mobile app presence, is likely to do the same, but with several services:
Sports, which will offer ESPN's channels
Family, which will offer Disney's family and children's channels, and possibly ABC Family
ABC, which will offer ABC's channels
Other cable networks and groups that are candidates to offer their own OTT services include:
Starz, which has already announced an OTT service for international markets
Time Warner, which in addition to HBO could offer services based on CNN and its Turner cable networks (it already offers a large collection of classic movies and TV series through its Warner Archive service)
Fox, which in addition to its television network, can offer services based on FX, Fox Sports, Fox News and the National Geographic channels
Discovery, which in addition to its namesake networks could stream Animal Planet, OWN, Science Channel, TLC, Velocity and others
A+E Networks, jointly owned by Disney and Hearst, which could stream such channels as A&E, History and Lifetime
Viacom, which could stream movies and TV shows from Paramount Pictures and cable channels including BET, Comedy Central, MTV, Nickelodeon and TV Land
AMC Networks, which owns AMC, IFC, Sundance TV and WE TV
Comcast may be forced to make NBC Universal's broadcast and cable networks available for OTT as a condition of its merger with Time Warner Cable, but I think that it's unlikely that the company will offer its channels for streaming to non-cable subscribers any time soon.
That brings up a possible "unintended consequence" of HBO's and CBS's announcements: They'll make it much more likely that the FCC will allow OTT services to be classified as Multichannel Video Programming Distributors (MVPDs), the same as cable, satellite and IPTV operators. After all, if content providers can offer exactly the same programming over the Internet that they offer through MVPDs, why shouldn't an Internet-based program distributor be allowed to do the same thing?
The Wall Street Journal reports that CBS issued its Q2 financial results
yesterday, including Simon & Schuster. The publisher's revenues
increased by 3% year-over-year to $189 million, with a 44% increase in
eBook sales offsetting a decline in print sales. eBooks now represent
21% of Simon & Schuster's revenues, and the company expects eBook sales
to increase slightly less than 30% for the full year. Operating income
before depreciation and amortization was $9 million vs. $19 million in
the previous year, down 47%, for a profit margin of 4.8%. The company
says that profits were affected by the proposed settlement of eBook
litigation with the Justice Department and states.
Aereo, the New York-based Internet rebroadcasting service backed by
Barry Diller's IAC, has won a round in U.S. District Court. According to Reuters, Judge Alison Nathan rejected requests by ABC, CBS, NBC, Fox
and other networks and local broadcasters for a preliminary injunction
to halt Aereo's service. The broadcasters argued that they would suffer
irreparable harm if they didn't get an injunction, while Aereo argued
that it would suffer irreparable harm if the injunction was issued. The
judge decided that the "balance of hardships" didn't tip decidedly in
the broadcasters' favor, and denied the injunction.
Update, July 12, 2012: CED provided more details of Judge Nathan's decision. She wrote that she most likely would have upheld the broadcasters' request for a preliminary injunction, but couldn't, due to the ruling of the U.S. 2nd Circuit Court of Appeals in Manhattan in a case challenging Cablevision's RS-DVR system. In that case, the court found that Cablevision's network DVR system didn't violate broadcasters' and cable networks' copyrights. Aereo is relying on the Cablevision decision in its defense, and Judge Nathan wrote that the arguments made by the broadcasters were "profoundly similar to those already considered and rejected" by the Court of Appeals.
Broadcasters have already begun the process of appealing Nathan's decision, but assuming that Judge Nathan's decision is upheld, they're going to have to come up with a different approach to the case.
Today's media landscape is very different than it was even a few years ago. You might casually, or even professionally, follow one media business or another, but it's only when you look at all major media segments together that you understand just how radical the changes have been:
DVRs have fundamentally changed the way that people watch television. Viewers are saving up entire seasons of shows and watching them all at one time, finding something better to watch on the DVR at 10 p.m. instead of watching network television, and skipping enough commercials that it's having a serious impact on the bottom lines of networks.
Movie studios' home video revenues are in serious decline. Consumers are renting from Redbox and Netflix instead of buying DVDs, Blu-Ray is growing much too slowly to make much of a difference, and streaming video revenues haven't replaced, and probably will never fully replace, DVD revenues.
As of July 3rd, Netflix became more popular than any U.S. cable network, according to BTIG analyst Richard Greenfield. Greenfield estimates that Netflix now has around 24 million subscribers, and the company itself said that its users watched more than one billion hours of video in June. That works out to around 80 minutes of viewing per day. In Netflix households, the service even beats ABC and CBS. Every minute spent watching Netflix is a minute that a broadcast or cable network isn't showing that person a commercial.
Internet videos are finally making serious inroads into broadcast and cable viewership. It used to be that television networks simply used the Internet as a "farm system" to identify rising talent, but there are now too many people producing interesting Internet shows and not enough network slots to put them into. The Internet, unlike broadcast and cable, has an unlimited number of time slots and no requirement to get carriage from cable or satellite companies.
Newspapers have cut all the editorial and production staff they can while still staying in business. They're now cutting back on deliveries and days that they print their papers. The only remaining step for many of them is to drop their print versions altogether and try to survive in digital form.
Self-publishing has moved from the last resort for desperate authors to the fastest-growing segment of the U.S. book industry. Authors who could have gotten publishing contracts are choosing instead to self-publish, and are making more money as a result. Authors who were widely rejected by agents and publishers are turning to self-publishing and, in some cases, finding big audiences. (As with Internet video, major publishers see self-publishing as a "farm system," but it's only a matter of time before the farm teams overwhelm the big leagues.)
Internet music services such as Spotify and Pandora are having a major impact on both the recording and radio businesses. Record companies are becoming more dependent on subscription music services for revenues; radio stations are losing part of their audiences to paid, commercial-free services. Car companies are adding Internet music services to their infotainment systems, making them as easy to access and convenient as broadcast and satellite radio.
There isn't one major media business--television, cable, movies, newspapers, books, music or radio--that isn't undergoing a dramatic upheaval. All of the changes favor new entrants. Rather than fighting back with innovation, most major media companies have resorted to litigation, lobbying, restraint of trade and refusal to deal in order to try to hold back competitors, or to support their customers that are trying to hold back competitors. In the short run, these tactics often succeed, but in the long run, they'll undoubtedly fail. You can't hold back the ocean forever.
CBS hits ABC's "Dancing With the Stars" right on the mark--but the shot then ricochets and hits CBS square in the chest. "Dancing With the Stars" is inane, but so is "Big Brother," which is all but unwatchable. For that matter, most reality television in the U.S. is pitched at developmentally-stunted young adults. Go down the list: "Survivor"? Entertaining once, but way past its prime. "American Idol"? The show's gotten to the point where no amount of cast changes is likely to reverse its slide. "The X Factor"? Mean-spirited and insipid at the same time. "The Bachelor/The Bachelorette"? The only way I could watch those shows is on a Demerol drip. And that's just the "first tier" of reality shows--with few exceptions, the rest are much, much worse.
As for "original concepts," it's important to remember that CBS didn't create "Big Brother"--they licensed it from Endemol. "Survivor" is a licensed version of a Swedish reality show called "Expedition Robinson." Fox's "American Idol" is based on the British show "Pop Idol," and "The X Factor" also came from the U.K. and is licensed from Simon Cowell and his company SYCOtv. ABC's "Dancing With the Stars" is based on the BBC's "Strictly Come Dancing." NBC's "The Voice" is based on "The Voice of Holland." You get the picture: When it comes to reality shows, U.S. networks don't create them--they buy them.
I have no idea whether CBS can prevail in court against ABC, but given the ratings for the first episode of "Glass House," it'll likely be off the air well before the case makes it to trial. To me, the whole thing is like saying "Your steaming pile of crap looks and smells just like my steaming pile of crap!" Yes, it does.
According to The Hollywood Reporter, Aereo, the Internet-based multichannel video service backed by Barry Diller, faced off against ABC, CBS and NBC yesterday in Federal Court in New York. The broadcast networks are asking for a preliminary injunction again Aereo. In an unusual move, the judge is allowing both sides to call witnesses--an opportunity that wasn't afforded to either ivi or FilmOn in previous cases. (The Second Circuit Court of Appeals began oral arguments about ivi's injunction yesterday.)
Part of yesterday's testimony centered on the damage that Aereo's service could do to broadcasters, since the networks have to demonstrate both a likelihood of prevailing on the merits of the case and irreparable harm if Aereo continues in operation in order to get a preliminary injunction. Martin Franks, CBS' Executive Vice-President of Planning for Policy and Government Affairs, was asked whether Aereo is more or less damaging to broadcasters than DVRs, and Franks replied that he didn't know. Michael Elkin, one of Aereo's attorneys, pointed to a deposition that Franks had given, in which he suggested that DVRs were more damaging than Aereo's technology, even though broadcasters have accepted DVRs as a "fact of life."
The comparison with DVRs is interesting, and it might well help Aereo avoid a preliminary injunction. However, it's probably not going to be a major factor in the trial for a permanent injunction. Broadcasters want to be able to require Aereo to pay for retransmission rights, as cable, satellite and IPTV operators are required to do by law. Aereo claims that its system is the same as reception through a roof-top antenna--the antenna is simply located across the open Internet--and that it's thus not bound by the same rules as other multichannel video programming distributors (MVPDs.) Broadcasters are concerned that if Aereo is allowed to continue to operate, it will lead to a flood of low-priced, over-the-top video distributors copying Aereo's model. Consumers will move to the new Internet-based distributors, and the revenues that broadcasters get from cable, satellite and IPTV providers will decline.
The FCC is considering whether to add over-the-top Internet video services like Aereo to the definition of MVPDs. That would partially address the issues in this case, since Aereo would be required to pay for broadcasters' programming. However, the broadcasters could still refuse to license their programming to Aereo, leaving the company without the content it needs to operate.
What's ultimately needed is a requirement that broadcasters make their programming available to all MVPDs at equitable prices. That would allow Internet-based MVPDs to compete on an even footing with other companies, but wouldn't penalize established MVPDs. It would also insure that broadcasters get retransmission revenues from all distributors.
In the U.S. Federal, state, and private eBook price-fixing lawsuits against Apple and five of the Big 6 publishers, some observers have equated the battle to David vs. Goliath. The defendants are David and Goliath is Amazon, which, they argue, would have monopolized eBooks and wiped out the publishers if they hadn't imposed agency pricing. The problem with both the analogy and the rationalization is that most of the Davids are actually Goliaths. Here's a rundown:
Apple: Until recently, it was the most valuable company in the world, with $100 billion of cash and equivalents on its balance sheet and profit margins that Amazon, and the other defendants, would kill for. 2011 revenues: $108.25 billion.
Hachette: The second-largest publisher in the world, and a division of Lagardère Group, which owns magazines including ELLE and Paris Match, a variety of television broadcasters in Europe, a network of duty-free shops, and 7.5% of EADS, which is the parent company of Airbus. Parent company 2011 revenues: $10.02 billion.
HarperCollins: A division of News Corporation, which owns Fox, The Wall Street Journal (which has been one of the most vocal critics of the Justice Department's lawsuit,) the New York Post, a bunch of newspapers in the U.K. (which are embroiled in an ever-widening phone hacking scandal,) newspapers and broadcasters in Australia, 39.1% of British Sky Broadcasting, and a lot more. Parent company 2011 revenues: $33.4 billion.
Macmillan: A division of Georg von Holtzbrinck Publishing Group, owner of Macmillan Education, Nature, Scientific American, several German publishers and the newspaper Die Zeit. Privately held; parent company 2010 revenues: $2.98 billion.
Penguin: A division of Pearson PLC, the world's largest education and trade book publisher; owns Pearson Education, the Financial Times and 50% of The Economist. Parent company 2011 revenues: $9.45 billion.
Simon & Schuster: A division of CBS Corporation, which owns the CBS television network, multiple television and radio stations in the U.S., Showtime, CBS Television Distribution (which used to syndicate Oprah and still syndicates Dr. Phil and other shows,) and CBS Interactive (which owns CNET among other Internet properties.) Parent company 2011 revenues: $14.2 billion.
Amazon is certainly no slouch; its 2011 revenues were $48 billion. However, that compares to total revenues of the defendants of $178.3 billion. Even if you leave Apple out of the comparison, the parents of the five publishers had revenues of $70 billion. You can argue that publishing is only a small portion of the revenues of some of the parent companies, but books only represent a small portion of Amazon's revenues as well. In 2011, Amazon's media sales, which include books. music and video, were $6.01 billion--12.5% of the company's total revenues.
In short, the conflicts between the five publishers and Amazon aren't David vs. Goliath--they're actually Goliath vs. Goliath. When Apple is added into the mix, it's Amazon that could justifiably be called David.
Companies have been trying for years to offer cable television-like services over the Internet, without having to either get permission from broadcasters or pay them to retransmit their shows. FilmOn and Ivi are two companies that tried last year, but are both currently "off the air" as the result of court injunctions. Aereo, a New York-based company, is the latest to try. The company launched its service today in New York City. According to the company, Aereo is designed specifically to get around the legal limitations that shut both FilmOn and Ivi down.
Aereo will stream the signals from 20 New York City-area broadcast stations to its subscribers for $12/month, and will include a network-based DVR service that was upheld as legal by the U.S. Supreme Court last year in a case against Cablevision. All the major broadcast networks, including ABC, CBS, Fox, NBC and PBS, will be included, but cable-only networks such as USA, TNT and CNN won't be. That's one big difference between Aereo's service and those of FilmOn and Ivi, both of which offered a selection of basic cable networks. In addition, Aereo will initially only be available in New York City, and Aereo will only carry signals from local television stations--another difference from its predecessors, which made signals from stations in Los Angeles and New York available to subscribers around the U.S.
Aereo is doing one more thing that it hopes will make its service ligitation-proof: For every subscriber, Aereo will install a tiny, thumb-sized antenna in an undisclosed location in New York City. (Correction, February 15, 2012: Aereo is going to allocate each subscriber their own antenna from a pool of antennas while they're using the service, not install a dedicated antenna for every subscriber.) The idea is that each subscriber will receive the signal from their own antenna, not from a "community" antenna, and therefore, Aereo isn't a cable system and isn't bound by cable retransmission rules. It's an interesting way to try to get around the regulations, but whether the courts will agree is an open question.
Aereo has one more card to play: One of its investors is IAC, and company Chairman Barry Diller will join Aereo's Board of Directors. Diller is a former VP of development at ABC Television, former Chairman and CEO of Paramount Pictures and former Chairman and CEO of Fox, where he founded the Fox Television Network. At one time he owned USA Network. Diller is one of the best-connected executives in the media industry, and he has the experience in running and working with television networks and movie studios that neither FilmOn nor Ivi had. However, it's unclear if that's going to be of any help if the New York television stations go to court against Aereo.
If you live in New York, have poor television reception and don't care about cable networks (or can get what you want from Netflix), it may be worth considering Aereo as an alternative to cable. If you live outside New York, don't hold your breath--Aereo's unlikely to spread to other cities until the courts determine whether or not its service is legal.
Update, 14 September 2010: Ivi seems to be trying to take advantage of U.S. Copyright law that was written well before the advent of the Internet, while simultaneously avoiding FCC rules that make the company's plans patently illegal. (Keep in mind that I'm not a lawyer, so I'm bringing a layman's knowledge to the situation.) In the Code of Federal Regulations, Title 37, Section 201.17, "cable systems" as defined by this statute are entitled to retransmit ("secondarily transmit") television stations' signals under a statutory (or "compulsory") license. The cable system pays a royalty based on its revenues to the U.S. Copyright Office. This portion of the statute was written in 1978, almost 20 years before the commercialization of the Internet, and it didn't contemplate a technology that would make a national cable service feasible outside of FCC regulations.
The FCC has its own rules on permission and compensation for retransmitting the signals from broadcast television stations. Here's a direct quote from the FCC's Fact Sheet on Cable Carriage of Broadcast Stations:
The Communications Act prohibits cable operators and other multichannel video programming distributors from retransmitting commercial television, low power television and radio broadcast signals without first obtaining the broadcaster's consent. This permission is commonly referred to as "retransmission consent" and may involve some compensation from the cable company to the broadcaster for the use of the signal.
If ivi is a cable operator or other multichannel video programming distributor, the FCC's rules require the company to get permission from broadcasters before they retransmit their signals.
Under Title 37, Section 201.17, ivi claims that it's a cable system and has a right to a statutory license to television stations' programming, no matter where they're located. However, ivi claims that it's not subject to regulation by the FCC, and therefore is not a cable system. CFR 37 Section 201.17 says that cable systems are entitled to statutory licenses, even if they're not defined as cable systems by the FCC.
So, what's likely to happen? My suspicion is that there are many high-paid attorneys at the television networks and cable operators working on this right now. One option would be to get the U.S. Congress to amend or repeal Section 201.17, since the FCC's rules supercede it. Another option would be to get the FCC to rule that ivi is a legitimate cable operator, and the fact that it owns no plant doesn't mean that it's free from FCC regulation. A third option would be for programming suppliers (the major networks, movie studios and syndicators) to file suit against ivi, charging the company with interfering with their exclusive distribution contracts with local television stations outside the New York City and Seattle markets. These suppliers could petition for an emergency injunction to shut down ivi's service.
Ivi might have a better case than I anticipated when I first wrote this post, but I still believe that it's only a matter of time before it gets shut down. It may take a year or two for the necessary statutory changes to be put into place, but a preliminary injunction can be put into effect in a matter of weeks, or even days.
Every once in a while, something happens that gives "ordinary people" insight into the thinking and decision-making of the powerful. That happened last week, when Rolling Stone magazine published a profile of General Stanley McChrystal and his senior staff in Afghanistan and France. The article, written by Michael Hastings, was a first-rate piece of journalism that showed that McChrystal and his staff didn't have much respect for the President or any member of his foreign relations team except for Hillary Clinton. It also delved into McChrystal's implementation of strategy and the resentment that many enlisted soldiers felt against him. In short, it was a devastating but well-reported article that served (at least in part) to bring McChrystal's career in the military to an end.
As illuminating as Hastings's article was, the reaction of the press was at least as illuminating. In short, it could be summarized as "How dare they?" How dare Rolling Stone scoop The New York Times, Washington Post, Time and all the other bastions of American media? There were two lines of thought. The first was that Rolling Stone isn't a "legitimate" news source, so they had no "right" to own the story. When the story first started to leak out, Time Magazine and Politico got advance copies of the article in PDF form. Without Rolling Stone's knowledge or approval, they posted the entire article on their websites before Rolling Stone posted it.
Time and Politico would have been within Fair Use limits if they had quoted from the article, but they instead reprinted the entire article. Both publications took the article down when Rolling Stone sent them complaints, but one wonders if they would have been as callous about copyrights and ownership had the source of the article been The New York Times or Washington Post. Thus, the first line of thought was "You're not a legitimate news source, so you're not entitled to the same treatment as legitimate news sources."
The second line of thought came from CBS's chief foreign correspondent, Lara Logan. On Sunday, June 27th, Howard Kurtz of the Washington Post interviewed Michael Hastings and Logan on his CNN program, "Reliable Sources". CNN has put a complete transcript of the interviews online. First, Kurtz interviewed Hastings, and then he turned to Logan for her reaction.
Let's look at some of the things that Logan said to Kurtz, and then deconstuct them:
KURTZ: If you had been traveling with General McChrystal and heard these comments about Barack Obama, Joe Biden, Jim Jones, Richard Holbrooke, would you have reported them?
LARA LOGAN, CBS CHIEF FOREIGN CORRESPONDENT: Well, it really depends on the circumstances. It's hard to know -- Michael Hastings, if you believe him, says that there were no ground rules laid out. And, I mean, that just doesn't really make a lot of sense to me, because if you look at the people around General McChrystal, if you look at his history, he was the Joint Special Operations commander. He has a history of not interacting with the media at all.
And his chief of intelligence, Mike Flynn, is the same. I mean, I know these people. They never let their guard down like that.
To me, something doesn't add up here. I just -- I don't believe it.
KURTZ: When you are out with the troops and you're living together and sleeping together, is there an unspoken agreement --
LOGAN: Absolutely.
KURTZ: -- that you're not going to embarrass them by reporting insults and banter?
LOGAN: Yes.
KURTZ: Tell me about that.
LOGAN: Yes, absolutely. There is an element of trust.
Logan suggests that Hastings somehow lied to or misled General McChrystal and his staff to talk off the record and then printed their comments, but other than a vague feeling, she provides no evidence whatsoever that he did that. Then, she goes further and implies that it's a reporter's obligation to protect their subject's reputation, as if Hastings should have warned everyone to be extra careful when they spoke because he's a reporter. The last time I checked, General McChrystal and his staff are all adults and should know that when you say something around a reporter, it's likely to end up in print. That's what reporters do, or are supposed to do. Report the truth.
KURTZ: He (Hastings) says that all of the things that have been written about Stanley McChrystal have been these glowing profiles. He's suggesting that he did a job that the regular beat journalists have not done.
LOGAN: I think that's insulting and arrogant, myself. I really do, because there are very good beat reporters who have been covering these wars for years, year after year.
Michael Hastings appeared in Baghdad fairly late on the scene, and he was there for a significant period of time. He has his credentials, but he's not the only one.
There are a lot of very good reporters out there. And to be fair to the military, if they believe that a piece is balanced, they will let you back. They may not have loved it. They didn't love the piece I did about hand grenades being thrown in Iraq that were killing troops. They didn't love that piece, it made a lot of people very angry. They didn't block me from coming back.
The operative phrase here is "...if they (the military) believe that a piece is balanced, they will let you back." In Logan's view, a reporter has an obligation to report stories that the military will judge to be "balanced," so that they can continue to get access.
KURTZ: "The Washington Post" quoted an unnamed senior military official as saying that Michael Hastings broke the off-the-record ground rules. But the person who said this was on background and wouldn't allow his name to be used.
Is that fair?
LOGAN: Well, it's Kryptonite right now. I mean, do you blame him?
The commanding general in Afghanistan just lost his job. Who else is going to lose his job?
Believe me, all the senior leadership in Afghanistan are waiting for the ax to fall. I've been speaking to some of them. They don't know who is going to stay and who is going to go.
I mean, the question is, really, is what General McChrystal and his aides are doing so egregious, that they deserved to end a career like McChrystal's? I mean, Michael Hastings has never served his country the way McChrystal has.
I'd argue that, in fact, Hastings served his country extremely well, because he reported the truth. Logan has warped the journalist's role from reporting actual events to becoming a censor and arbiter of what the public has a right to know.
Lara Logan has fallen into exactly the trap that the Pentagon hoped to create when it began embedding press with military units and controlling access. She's more loyal to the people who are giving her access to the field of battle than to the audience that's depending on her to learn the truth. Who knows what stories she's suppressed or ignored over the years in order to maintain her standing with the military?
Even if Logan were to eventually apologize for or "clarify" her comments, she can't undo the view into her thinking that she's given to the American public. She will never again be seen as an effective reporter. She's damaged the reputations of CBS News and her colleagues. The question now is whether CBS will keep Logan on, and in what capacity. Those decisions rest with Sean McManus and Les Moonves. In Logan, CBS News has its very own Judith Miller. What they do with her will in large part determine the future credibility of the network's news operation.
Earlier today, at the Cable Show in Los Angeles, former FCC Chairman Michael Powell chaired a panel of media bigwigs (plus Marc Andreessen) to discuss content on the Internet. The other panelists were Brian Roberts of Comcast, Tom Rothman of Fox, Les Moonves of CBS and Jeffrey Bewkes of Time Warner. The consensus of the media executives is that they've got this Internet thing all figured out. Their content will be on whatever devices consumers want to use, so long as they (the content providers and distributors) get paid for it. By and large, it sounded like a bunch of guys sitting around using buzzwords that they've heard but don't quite understand.
The executives clearly want to maintain the status quo, just on a larger variety of delivery platforms. They still want release windows so that they can maximize revenues from each platform. They see new technology simply as an extension of their old technology. For example, Brian Roberts demonstrated an application that turns a $600 iPad into a glorified remote control for your ten-year-old cable box. It can show program schedules, allow you to browse VOD content and even invite your friends to watch, but you watch the content on your TV screen through your set-top box, not on the iPad that you have in front of you.
What disappointed but didn't surprise me about the panel is that there was really no "outside the box" thinking from anyone, even Andreessen. He pitched integrating Facebook and Twitter with the services that the big media companies already have in place, and talked about Zygna's model of free games with in-game transactions, but didn't really explain how the media companies could take advantage of that model. Comcast's Roberts pitched using an iPad as a peripheral to its set-top boxes, not as a legitimate delivery platform. Thar was about as far as the envelope got stretched.
The incumbent content and service providers will never fundamentally change the economics of content production, distribution and purchase. It runs counter to their business interests. It's up to a new generation of content producers and distributors to convince a critical mass of consumer/producers to get on board.
Kim Masters was on NPR's "Morning Edition" this morning talking about the concerns that motion picture exhibitors (theater owners) have about the movie studios' plans to change their "release windows". Release windows are the order in which movies are released to different channels, and how long each channel has exclusivity. The issue is a seemingly innocuous request made by the studios to the FCC for "selectable output control" on set-top boxes, Blu-Ray players and other devices. Selectable output control would allow the studios to control whether, when and how much a movie or other video program could be played on a compatible device.
Consumer groups and consumer electronics vendors oppose selectable output control because the studios could use it to prevent their content from being recorded on DVRs and other devices. Now, the National Association of Theater Owners (NATO) has filed opposition to the studios' request because they fear that the studios will use selectable output control to make movies available in the home at the same time that they're in theaters.
I don't support selectable output control because it takes away consumer choice and negates thirty years of progress in consumer electronics since the Betamax decision, but the theater owners' opposition to the studios is more an effort to hold back the ocean than a friendly, consumer-oriented action. Extremely few movies make money in theaters today; theatrical distribution is most valuable for promoting films for future sale as DVDs and Blu-Ray discs. As the sales of DVDs erode and Blu-Ray fails to pick up the slack, the studios are forced to look at online digital distribution as a viable alternative. However, for digital distribution to generate the kind of revenue that physical media does, the movies have to be available much sooner, and that means cutting into the theaters' release window.
Whether or not the studios get selectable output control, theaters' release windows are going to erode; it's just a matter of when and how. When theater patrons are forced to go through metal detectors and hand over their cellphones before going in to watch a movie (as shown on a recent edition of CBS's "60 Minutes") in order to prevent piracy, theaters are not long for this world.
The studios are looking for any and every way to increase revenues, including cutting out the middleman, even if the middlemen are movie theaters. The same thing is happening with broadcast television. Comcast is close to buying 51% of NBC Universal from General Electric, which will give it control of the company. NBC has done such a superb job of running its broadcast network into the ground that it may become the first broadcast network to become a cable network. CBS and ABC are beginning to demand a cut of the retransmission payments that cable operators have to pay broadcast stations for the right to transmit their programming. Those retransmission payments have become the only thing keeping some stations on the air in this recession. Add to that the practice of some networks demanding "reverse compensation" from stations: Instead of paying stations to carry the networks' programming, the networks demand that the stations pay for the right to carry the programming.
Network television affiliates are an endangered species, because the networks can make more money, at lower cost, by dealing directly with the cable and satellite operators. For Comcast, the deal becomes almost a no-brainer, since it would control both the network and the cable systems. It will have to sell off the NBC owned-and-operated stations in cities where it has cable systems; the next step would be to take NBC to cable in city after city as network affiliate agreements expire.
Fifteen years ago, we were talking about disintermediation in retail and wholesale distribution brought about by the Internet; now we're talking about it again, this time in media. The future of theatrical motion picture exhibition and free broadcast television hang in the balance.
Update, December 5, 2009: According to the December 2nd edition of the Chicago Sun-Times, a patron at the Muvico Theater in Rosemont, IL was arrested and spent two nights in jail for videotaping four minutes of "Twilight: New Moon." She claims that she was actually videotaping her sister's birthday party at the theater, and the video on her camera (a still camera that records video segments) supports her contention. Nevertheless, the theater's managers pressed charges against her under a little-used law designed to punish film bootlegging. She faces up to three years in prison. I've lost whatever sympathy I still had for theater operators after this mind-boggling incident.
It's a common story--start-up that initially isn't taken seriously by either its competitors or the industry in general, delivers a great product and turns the industry's perception around. In order to get distribution, the start-up cuts deals with some competitors, and makes it easy for others to redistribute its products. Once the start-up gets successful, however, those partners start to look more like competitors, and it starts pulling back on deals.
That's exactly what's happening with Hulu, the web video start-up that was derisively labeled "ClownCo" by executives at Google, only to become, in some ways at least, a more profitable and popular destination than Google's YouTube. Last week, however, Hulu started pulling the plug on distribution. The first was to take Hulu's content off of TV.com, a site that CBS purchased when it acquired CNET last year. The second was to take Hulu off of Boxee, an increasingly popular web video browser for Linux, OS X, AppleTV and Windows that turns PCs into set-top boxes. Hulu's distribution deal with TV.com was contractual, while there was no formal business arrangement between Hulu and Boxee.
In the TV.com case, Hulu merely stated that it had the contractual right to remove its videos, and was doing so. In Boxee's case, Hulu seemed to be more apologetic, stating that it withdrew its content at the request of its content partners. It's important to note that Hulu's largest owners, with equal control, are NBC Universal and News Corporation (Fox), and to my understanding, it would only take one partner to get Hulu to yank its content. I'm not going to speculate on which partner I think pulled the plug (NBC Universal), because they're both extremely well-run companies with top-notch management teams (and pigs can fly.)
What is happening is that Hulu's actions are getting people to reconsider The Pirate Bay and other sources for the content that's distributed by Hulu. These are unlicensed sources, and not a penny of revenue goes back to Hulu, its parent companies or other affiliated content providers. At precisely the time that Hulu is engaging in a promotional program involving commercials on NBC, Fox and both companies' cable outlets, it's taking actions that curtail Hulu's distribution and encourage piracy.
In Boxee's case. it's entirely possible that it was cable operators that forced Hulu's partners to take the action they did. To these operators, I say that taking Hulu off of Boxee and any other service will not in any way slow down the trend for consumers to drop their cable services. The only thing that will do that is an industry-wide switch to a reasonable a la carte pricing scheme, which will happen fairly close to the heat death of the universe.
In short, Hulu's actions are only going to hurt Hulu. They won't accomplish what either the content providers or the cable operators want--in fact, they'll accomplish the reverse. Joint ventures almost always suck massively--they're impossible to manage, because the participating partners almost always have divergent strategic goals and objectives. I chalk Hulu's behavior up to that.
![Reblog this post [with Zemanta]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_teq-S71p5wbJLwJo0bnobbt3D6HBLYogZ1kSyvE9D7VnOuDDEkqvFXCbjTMadgnXZQV2yKZrc1QoSLYQQBXqAGqnJHEg6HdqoLxbLVieGNka0fbS_BxxpDYffUpOfGhfIdNb-4Xal8Yku_KjaynLma=s0-d)
![Reblog this post [with Zemanta]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_sUlcV0LTjWHdmhlog-EjsQnoG4NCxTgZrf-Z2B_OPLtNQ60Cd6PuvL4tmK1QrmkEctg88g66oHejGZ-AgJwwczR0SL3bdSLRYY8DtXALiIkhVnh30OeM_bVHC0Sj8JCo4CM9WXvMXUArBcop19O4k=s0-d)
![Reblog this post [with Zemanta]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_s-kv_BUpix01Al5KlpScYEM0cByJs1RojnQ1TLj5YmGOw_KfangXn_-qrL3wMZPk5HCMv7BFNSSuYME71nnEta_nnTMI-nHocfiOla90A4kQRMpS24_D22pMiiL0bDeorc5iKJ8ZYjLvzNFNmCZtTz=s0-d)