Pay TV Licensing Stinks; Consumers Should Break the Racket

on Mar 1, 13 • by Edward Finegold • with No Comments

It turns out that the real reason Pay TV packages make you pay a lot for very little of what you actually want is because of content owners. This great article from the Wall Street Journal explains how the big media companies essentially prevent Pay TV providers from offering personalized or even a la carte [&hellip...

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It turns out that the real reason Pay TV packages make you pay a lot for very little of what you actually want is because of content owners. This great article from the Wall Street Journal explains how the big media companies essentially prevent Pay TV providers from offering personalized or even a la carte programming packages. One of the great takeaways from this article is that consumers have the best chance to break the old models by changing our behavior.

First I want to apologize to MSOs for calling them “lethargic, nay-saying, status quo keepers” in this article I published a few days ago. While I still think this is sometimes the case, the WSJ piece opened my eyes to just how limiting content owners’ licensing structures actually are. The reason we get so many lousy Pay TV channels cluttering up our on-screen programming guides is because the big producers force Pay TV providers to take the good with the bad…and to pay for it. The Pay TV guys pay the content owners a range of monthly, per subscriber fees for every channel whether a given subscriber watches them or not.  Those channels have to reach a certain percentage of the Pay TV provider’s subscriber base. And there are all kinds of limitations on how they can be bundled (or, more appropriately, NOT bundled) and re-broadcast (i.e. in your local or regional cable area – yes; globally via the Internet – NO!).

This is a legacy model and it stinks. It fails to recognize that the audience for premium content consists of individuals who want to personalize their viewing experiences. It’s pro-linear and anti-cloud (i.e. it wants to force you to watch commercial interruptions during specified time slots rather than commercial free, on-demand). It’s pro-couch sitting and anti-mobility (Mrs. Obama…this is an obesity epidemic issue). It’s pro-pork barreling and anti-performance (Pay TV providers pay content owners on a per-subscriber basis regardless of actual consumption).

The WSJ quotes Viacom General Counsel Mike Fricklas as saying that this model will only change “if ‘cutting the cord’ becomes a widespread reality.”

I’m not going to make a lot of friends in the Pay TV world by saying this, but the whole model is out of date. Pay TV providers are basically middle men, peddling a poorly assembled experience built on aging technology. They are strong-armed by content providers who want to milk the obsolete big-bundle subscription model for as long as they can. U.S. consumers have limited choice in providers and limit choices in packaging. Even the smallest packages are relatively expensive. Once you cut through the promotional-pricing mumbo-jumbo, there isn’t a whole lot of difference from provider to provider in terms of monthly costs. It smacks of at least passive collusion.

As we move forward in the premium entertainment content world, the only things that makes sense are direct-to-consumer models. If every content provider has to compete for viewers on a level playing field, then we would introduce genuine price competition into Pay TV content. Right now, the content owners basically dictate price based on linear TV ratings that determine air-time cost for ad placements. The  bigger an audience a channel draws, the more its ad-time is worth, and the more the content owner can charge for the channel. And they charge about as much as they can without actually breaking the Pay TV providers’ backs.

So, in our own best interests, we consumers should just starting cutting the cord en masse. Don’t worry – you won’t end up giving up HBO, ESPN, and whatever news channel you prefer for long. The content providers will have to go direct-to-consumer pretty quickly if their licensing racket is broken. And then we get to dictate pricing and packaging to them. Because at the end of the day, the only thing of value in this whole equation is the consumer’s attention. And while Pay TV used to be the best option for in-home entertainment, there is plenty of cool stuff on iPhone, iPad, Android, Kindle, XBOX, and so forth to keep us entertained, informed, and educated now.

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Edward Finegold
Ed is now Director, Strategy for NetCracker. Previously, for 15 years he was a reporter, analyst and consultant focused on the OSS/BSS industry and a regular contributor to BillingViews.

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