Earlier this month, News Corp. Chief Operating Officer Chase Carey threatened topull the Fox network off the airwaves and convert it to apay-TV channel. This came following a court ruling that allowedNew York City-based Aereo to allow its subscribers to view over-the-air TV broadcasts.
Aereo was in essence pirating the broadcasts, Carey alleged, because theservice didn’t pay the retransmission fees that cable and satelliteproviders typically pay to carry network content. Aereo countered thatit was merely offering users the same ability that any TV owner withan antenna would have to receive over-the-air content.
This is hardly the first time that networks and content providers haverailed against technology that threatened to disrupt the statusquo.
At 2013 International CES, the big consumer electronics show held earlier this year, CNET editors were barred from giving a best of show award to Dish Network’s Hopper with Slingbox technology on the orders of corporate bosses at CBS. This is one of the more recent examples of content providers seeing threats in new technology.
The BetaMax Beginning
In the early 1950s, theater owners felt threatened by the advent oftelevision, fearing that it would have dire consequences for thebox office. Years later, some in Hollywood expressed concern that paid-TVchannels such as Home Box Office would be badfor the movie biz. However, both TV and HBO turned out to be good for moviemakers.
A pitched battle took place in the 1970s whenSony’s BetaMax arrived in the home. While the technology wouldeventually lose the VCR wars to VHS, it was BetaMax that first set Hollywood and TV networks on edge.The VCR was very troubling, said Jack Valenti, longtime president of the Motion Picture Association of America, arguing that it presented a very serious threat to the content providers’ fiscalsecurity.
It was the industry’s version of the “Boston Stranger,” he said, maintaining that the ability tofast-forward through commercials would be the end of free-TV.
Fast-forward to the present, and it’s clear the VCR actually created a whole new revenue stream forHollywood with people renting and buying videos. Nor did it end free-TV.
The DVR Threat
The ability to time shift content is one disruption that the networks have been slow to embrace, even though it arguably increases ad exposure. Many viewers no doubt absorb ad images and messages, even when viewed during fast-forwarding.
“Honestly and truthfully, we’ve been trained to watch 30 second ads forso long that even that flash while fast-forwarding is likely enoughthat we’re seeing the ads,” said Erik Brannon, IHS iSuppli’s analystfor U.S. cable networks.
One exception to this rule is Dish Network’s Hopper technology,which essentially hops over commercials completely rather thanrequiring viewers to fast-forward through them. This technologyhas given networks cause for concern.
“I don’t blame CBS for being upset about Hopper,” Brannon toldthe E-Commerce Times, “but at the same time, the truth is that Dish Networkdoesn’t want to give up ads. Programming costs are spiraling out ofcontrol, and the content providers are charging more. This is a wayfor Dish to punish broadcasters for those high retransmission fees.”
How this particular conflict will resolve remains uncertain.
“You can’t put everything back in Pandora’s Box once it’s open, but it isvery unlikely Dish can take this much further,” said Brannon.
Holding Their Ground
Given that history has proven time and again that new technologies help rather than hurt the entertainment industry, why is it that the networks continue to be so adversarial? The reason comes down to rising costs.
Most TV shows require large infusions of money, and the last two decades haveseen prolonged strikes by writers and actors that shut down production on anumber of high-profile shows. Everyone appears to be expecting bigger paychecks, and the money has to come from somewhere.
“There are big entrenched business revenues at stake,” Greg Ireland, research manager for multiscreen video at IDC, toldthe E-Commerce Times. “These are publicly traded companies, and they see theseas threats to the business model. They are also very wedded to traditional distribution methods.”
Another objection to these new technologies is that they make it more difficult to track eyeballs.
“More people are watching TV, but howdo they monetize those other screens?” wondered Ireland.”This is really about how those eyeballs get measured. They’re notpicked up by the Nielsen ratings, which are what set the ad rates. Sohow do you determine viewership to set those rates if you can’t easilytrack eyeballs on a tablet or smartphone?”
Going the Cable Route
One solution for Fox could be going to cable, which essentiallyutilizes one once-feared technology to combat a new technologicalthreat. On the surface, there are a lot of issues at stake, includingaffiliate commitments, FCC requirements, and all the hurdles involvedin taking free-over-the-air TV and putting it behind some form ofpaywall.
This is complicated, because in the early days of cable TV, the cableproviders were subject to a must-carry rule that required them to pick up the localstations. Now, though, the networks are charging those retransmission fees.
The situation is further complicated because HBO and some basic cablechannels, such as AMC, are now producing original content that competes with the fare offered by the networks. Could FOX, CBS and Univision simply go to a pay model?While it is unlikely that Fox and its affiliates could make a fulltransition they could pull the content.”The models are slightly different today,” said Joel Espelien, senioranalyst at The Diffusion Group.
“We’re asking the wrong question as towhether Fox could go 100 percent dark. Instead, Fox could migrate theirhigh-profile content behind the paywall,” he suggested.
“Sports could be very much where it starts,” Espelien toldthe E-Commerce Times. “There is no constitutional right to the NFL. So if Foxwanted to take the NFL to cable I see nothing that could stop themfrom doing it.”
In fact, the precedent could already be set. ABC, which historically carried Monday Night Football, in recent years “relegated” that content to its cable partner ESPN. Likewise, TNT, which is owned by Time Warner, carries much of the NBA season.
“Sports is the absolute killer,” Espelien added, “There is no limit towhat they could put behind the paywall. From here, it could take Foxand make it a Fox-Lite to promote the good stuff behind the paywall.”