"Broadcast" Fox Network Could Become a "Cable Network"

The Fox Network , currently offered as a local broadcast TV station, could become a cable channel if U.S. courts rule that Aereo is lawful, COO Chase Carey has said.  

Given the financial stakes, Fox and other broadcast networks logically will threaten the gravest losses possible to sway opinion.

Television station owners continued to have substantial success in 2012 in growing an increasingly important source of revenue: the fees paid by cable and satellite systems to carry local channels.

While the fees account for less than 10 percent of total station revenue, broadcaster affiliate payments have been growing rapidly. 

CBS-owned stations, for example, almost tripled their fees, from 45 cents a month per subscriber in 2011 to $1.22 in 2012, according to the Pew Research Center. 

SNL Kagan estimates that by 2018, broadcaster affilliate revenue will be more than 20 percent of TV stations’ ad revenues, more than double what it is now.

One reason local broadcast stations have pushed so hard for higher fees is that they have to share some of that income with their networks (ABC, CBS, Fox and so forth) in the form of "reverse compensation." That's a big change. 

“We used to be paying them (local broadcasters) and now they’re paying us (the programming network),” said the CBS chief executive, Les Moonves. 

Within the next five years, Moonves estimated that CBS alone would bring in at least $1 billion a year in affiliate fees from network-owned stations and reverse compensation from non-owned affiliates.

If you want to know why broadcast networks are fighting to block Aereo ane Aereokiller, money is the reason. 



Granted, it would challenge federal regulators who have given the broadcasters their licenses, were Fox Network and other "broadcast" networks go "cable only" (including telco and satellite distribution). But the financial damage Aereo, Aereokiller or others could inflict would be substantial.

Just look at the double digit growth of affiliate revenue and you will get the picture. 

Right now, the legal picture is extremely clouded. Aereo and Aereokiller are two firms that have gotten conflicting legal decisions about whether their services are lawful. In New York, a federal court has affirmed Aereo's legality. In California, the federal court has rendered the opposite opinion, ruling that Aereokiller infringes broadcaster copyrights. 

Both Aereo and Aereokiller create networks of individually-used off-air antennas and then streams that content to customers. Obviously, broadcasters fear a loss of affiliate payments typically paid by cable, telco and satellite TV video subscription services.

In 2013, for example, the Fox Network will earn $472 million from affiliate local broadcasters and video distributors. 

5 million U.S. Households are "Zero TV"

Some five million U.S. homes now are  zero TV households, meaning that although they may or may not own a TV, they don't use them. according to the Nielsen Co.

The number of such households is up from two million in 2007. 

In 2012, the cable, satellite and telecom video entertainment service providers added just 46,000 video customers collectively, according to SNL Kagan. That is down from net additions of about 974,000 new households added in 2011. 

So while there are 100.4 million homes using "TV," or 84.7 percent of all households, TV-using homes are down from the peak of 87.3 percent in early 2010. 

While 75 percent of the "zero TV" households actually own a physical TV set, only 18 percent are interested in hooking it up through a traditional pay TV subscription.

Of course, some of you already are rhetorically asking "what is a TV?" and "what is a television experience?" 

The point of course is that people can watch on PCs, smart phones and TV screens without using a broadcast TV service or a subscription TV service of the traditional sort. Those are going to be increasingly important questions in the decade to come, for many stakeholders.

At least some younger people might already have lost the appetite for traditional TV altogether. Others might, or might not, eventually acquire the habit later in life. But it is clear enough that "watching a video or a movie" is losing its direct association with a particular purchase and viewing mode. 

"The Problem With Socialism..."

My favorite Margaret Thatcher quip: "The problem with socialism is that eventually you run out of other people's money.

My favorite corollary:  "The government has no money of its own; it's all your money."

Google Fiber Does Best Delivering Netflix

The new Netflix "ISP Speed Index" shows that Google Fiber is the best ISP in the United States, in terms of supporting Netflix streaming. 

At 3.45 Mbps, Google Fiber in the U.S. provides the highest average Netflix streaming bitrate anywhere Netflix is available, slightly increasing its average over last month, Netflix says.

Will Google Buy WhatsApp?

Though it is obvious why competing ISPs will be watching what Google does with Google Fiber, after it launches service in Austin, Texas, they might want to look elsewhere.

Google reportedly is negotiating to buy WhatsApp, the popular messaging app. Though both moves--selling 1-Gbps fixed network broadband, and owning and packaging WhatsApp, will affect communications service providers, it is WhatsApp, not Google Fiber, that will have the bigger immediate financial impact. 

The reason is that people use WhatsApp as a primary messaging app, and then use text messaging only when they cannot use WhatsApp. That is dangerous for mobile service providers because messaging most frequently is used between friends and people who already know each other.

Since most communication happens between people who know each other, you can figure out what WhatsApp means for carrier revenue. 



In the lucrative international SMS business, growth has gone into reverse, precisely because of the use of WhatsApp and other messaging services. 

For service providers, the biggest problem with WhatsApp and other messaging services is not so much that they disrupt revenue streams by shifting demand. WhatsApp and other messaging services do that.

But the bigger problem is simply that over the top messaging apps destroy the market, turning what once was a highly lucrative, high margin revenue stream into a feature that generates only modest revenue. 

Google Fiber is a potential threat. WhatsApp already is disrupting a key mobile revenue stream. If Google gets WhatsApp, that trend only will accelerate. 

Some 1995 Criticisms of the Internet Still Resonate

"What the Internet hucksters won't tell you is tht the Internet is one big ocean of unedited data, without any pretense of completeness. Lacking editors, reviewers or critics, the Internet has become a wasteland of unfiltered data." 

That was written in 1995, before the Web really became what it is today. Some might say the critique is partly true, even today. But the larger point is that it was very hard to foresee what the Internet actually would become.

That we should be circumspect about other similar big innovations is the lesson. We can't really predict the impact of a truly-big innovation. 

More Evidence: Austin is Getting Google Fiber

Austin is getting Google Fiber, a local Austin TV station now has reported. April 9, 2013 is the day we will know for sure.

Google Fiber now offers users in Kansas City, Kan. and Kansas City, Mo.  symmetrical 1 Gbps fiber connections for $70 a month, or symmetrical 1 Gbps fiber connections and a full array of television content for $120 a month.

Users in targeted neighborhoods also have the option of paying a $300 up front fee to have their home connected, then getting free 5 Mbps service. Google has a multiple-year time limit on the “free service” offer, but most think the offer will be extended indefinitely.

As always, there are a couple of big questions. People wonder whether Google Fiber actually is a sustainable venture, long term, or only a marketing investment. The other question is whether Google might decide to become an ISP on a wider basis.

Given the capital investment required to build a national network, most observers probably are persuaded Google would not do so. On the other hand, the cost of becoming a national mobile service provider are much less, and that probably is a more realistic “danger” for existing ISPs.