No live TV streams: Here’s why?

The tech world is abuzz at the news that Google may start pro­vid­ing cable tele­vi­sion ser­vice in the United States but there could be sev­eral chal­lenges to their efforts as incum­bents may have issues with this intru­sion and may block them by with­hold­ing pop­u­lar fares.

Eco­nom­ics of the TV business

To under­stand the chal­lenges Google may front in enter­ing the cable TV busi­ness, one must first under­stand that TV is not a mono­lithic entity but an ecosys­tem, with play­ers in a num­ber of dif­fer­ent areas. At the begin­ning of the chain are the show pro­duc­ers, who develop TV prop­er­ties, either on their own or with eco­nomic par­tic­i­pa­tion from a dis­trib­u­tor. Then there are dis­trib­u­tors, what we tra­di­tion­ally know as TV chan­nels, who pack­age groups of TV shows aim­ing at a par­tic­u­lar demo­graphic seg­ment and then offer this up to adver­tis­ers as a way to reach a par­tic­u­lar type of audi­ence. This is tra­di­tion­ally what peo­ple think when they think of TV.

But in order for those TV shows to make their way to the end users, they need to travel to con­sumers’ TV screens, which them­selves are con­trolled by a dif­fer­ent set of aggre­ga­tors, who put together groups of TV shows in order to attract con­sumers. In order to do so, they must pay the TV chan­nels what is known as a carry or trans­mis­sion fee, which depends on the pop­u­lar­ity of a TV sta­tion and is nego­ti­ated indi­vid­u­ally between those aggre­ga­tors and the com­pa­nies that own the TV chan­nels. Those aggre­ga­tors are often known as cable com­pa­nies or satel­lite TV com­pa­nies. But there are also what are know as the TV net­works (the big 4 net­works are ABC (owned by Dis­ney), NBC (owner by Com­cast), CBS (owned by Via­com), and Fox (owned by News Corp.)), which are aggre­gates of local TV sta­tions who deliver their wares locally over the air and nego­ti­ate car­ry­ing on cable separately.

Over the years, there have been fierce bat­tle between the con­tent play­ers and con­tent car­ri­ers over such fees, lead­ing, for exam­ple, to TV sta­tions not being avail­able on cer­tain cable chan­nels as pres­sur­ing tac­tics dur­ing nego­ti­a­tions. Part of the rea­son is that some of the con­tent play­ers are now also owned by con­tent car­ri­ers, lead­ing to sit­u­a­tions where large con­glom­er­ates that own both car­ri­ers and cre­ators look to get an advan­tage by forc­ing higher trans­mis­sion fees on their competitors.

Who are the big con­tent owners?

Out­side of the big 4 TV net­works, it is hard to find data about who the biggest play­ers in the con­tent mar­ket are. Part of the dif­fi­culty comes from the fact that most rat­ings are based on the con­cept of shows and not on the aggre­ga­tion of those shows. Last year, The Daily Beast put together an inter­est­ing list of what they con­sid­ered the most valu­able cable prop­er­ties in the USA:

Look­ing at this, an inter­est­ing trend emerges: it becomes pretty clear that there is a high level of con­cen­tra­tion in the hands of a few play­ers. Of the top 25 own­ers, the list looks like this:

 Who are the big con­tent carriers?

The next ques­tion to ask in order to under­stand what other play­ers Google would have to com­pete with in order to suc­ceed in the TV ecosys­tem requires a look at the dis­trib­u­tors. Out­side of the big 4 net­works, the list of the top 10 cable and satel­lite TV com­pa­nies looks as follows:

What’s inter­est­ing here is that we start see­ing some over­lap between some con­tent own­ers and con­tent car­ri­ers. Com­cast, Time-Warner and Cable­vi­sion all have chan­nels in the top 25.

Owner and distributors

But then you have to over­lay the TV net­works to get a fuller sense of where we sit in the con­tent land­scape. So we look at whether com­pa­nies own net­works, cable sta­tions in the top 25 or both:

So, of the top 4 national net­works and top 25 TV sta­tions, all net­works are owned by large dis­trib­u­tors who also have own­er­ship of some of the most pop­u­lar cable net­works. Of the top 25 cable net­works, a sur­pris­ing 17 (68 per­cent) are owned by con­tent carriers.

Why you can’t legally get con­tent online

The cur­rent con­tent car­ri­ers have been eye­ing the inter­net with some level of worry as inter­net pro­to­cols tend to turn what they impact into a com­mod­ity: we’ve seen that sce­nario hap­pen for land­line phone ser­vice (VOIP won those out) and music (offer­ings like iTunes and Pan­dora, dec­i­mated the music indus­try mar­gins); We’ve also seen many other indus­tries get dec­i­mated by con­tact with the Inter­net. How many travel agency were closed as a result of online travel book­ing becom­ing eas­ier? How many stock bro­ker­age firms found them­selves com­pet­ing with inex­pen­sive online bro­ker­age accounts. The inter­net has become a great equal­izer and many of the incum­bents are see­ing this as a poten­tial problem.

This is part of the rea­son offer­ings like Hulu or Net­flix do not include recent shows in their offer­ings. It’s also why Google may have a hard time in its nego­ti­a­tions with TV con­tent own­ers. Their cor­po­rate own­ers would prob­a­bly wel­come Google with less than open arms. The gen­eral view in many of those com­pa­nies is that they do not want to be dis­counted as mere pipes and they will use their hold on con­tent to ensure that the most favored pipes the con­tent is run­ning on is their own. To see a new player enter the mar­ket is, to them, an unwel­come feeling.

A dif­fer­ent approach

But that feel­ing is one that is largely out of touch with the times. Increas­ingly, con­tent con­sumers are look­ing to the inter­net as the place to go for con­tent and the bundling of pipes with con­tent is los­ing some of its allure. The first level of aggre­ga­tion being cre­ated there may, in the end, be a los­ing strat­egy as the price of car­ry­ing con­tent will con­tinue to drop and, even­tu­ally, one of the play­ers in the mar­ket will be smart enough to real­ize that they can gain mar­ket share by offer­ing a lower cost alter­na­tive to con­sumers. We’ve seen that sce­nario in other coun­tries; For exam­ple, in France, Free has emerged as one of the dom­i­nant providers of phone, TV, and inter­net ser­vice, on such a strategy.

Mean­while, the con­tent own­ers (the chan­nels) have to real­ize they are sit­ting on pretty hot prop­er­ties and should start offer­ing online stream­ing of their sta­tions for a fee. Today, they charge the dis­trib­u­tors, who pass the fee on to the cus­tomer. But learn­ing about their end users could be valu­able for them if they were to go to direct charg­ing for online streaming.

In a world where the most expen­sive basic cable chan­nels fetches $4.08 per month, a con­tent owner could eas­ily charge $7.50 per chan­nel for online stream­ing and make as much money than they cur­rently are.

Many peo­ple may think “how is $7.50 the same as $4.08? Where did the other $3.42 go?” In the sce­nario I envi­sion, the other $3.42 would go to build­ing out and main­tain­ing the infra­struc­ture required for online stream­ing. I delib­er­ately went with a high num­ber to dis­miss the argu­ment that costs are too high to jus­tify such an offer­ing. I sus­pect the num­ber would be truly be lower and even­tu­ally could lead to a $5 per month offer­ing (also, remem­ber that most chan­nels do not get as much money as ESPN does so their offer­ing could be adjusted down­wards too.

Today, cus­tomers are pay­ing a pre­mium for chan­nels they may or may not watch. By offer­ing stream­ing for a fee, con­tent owner could open up a dia­logue with end cus­tomers that lets the free mar­ket decide which chan­nels live and which ones die. But today, those same com­pa­nies are using near-monopoly fran­chises in one field (dis­tri­b­u­tion) to sub­si­dize another… and inter­net live stream­ing of their sta­tions could threaten that monopoly.