ABC in the US has finally come out with the App we recently talked about, driven by UpLynk an OTT company we talked to last month, which offers HLS based adaptive streaming. The app is a revolution in the US, the first from a national broadcast network that offers more or less all the Live TV content, as it happens. The previous App offers a tiny subset of on demand content, shown days or weeks after it had been viewed on TV.
The App can be seen as the answer to Aereo, the streaming internet play that takes broadcast TV from an antenna and sends it over the internet to portable devices.
But instead of offering this TV service for free, ABC is allowing access only to people who already pay for cable, satellite or IPTV, using their authentication to allow it to play. The services is called Watch ABC and it was shown this week during its ABC Network Upfront presentation. Initially it will be aimed at the same territory as Aereo, New York City, coming from its affiliate WABC-TV, as well as its affiliate in Philadelphia. It will be free and unauthenticated until June, when anyone can view it, after which it will revert to requiring pay TV authentication.
Additionally, this summer Watch ABC will roll out in the other six ABC-owned station markets in Los Angeles, Chicago, San Francisco, Houston, Raleigh-Durham and Fresno. Other affiliates who want to live stream their feed only need to buy a simple $1,000 Linux box which taps into their live broadcast feed and uploads everything to the cloud, where transcoding happens in real time.
The mobile live stream will not carry the same ads as the television broadcast but will borrow ads from ABC.com, partly because Nielsen is not yet able to measure mobile viewing of live TV. So all new adverts will need to be sold on their new merits.
But the move is one that could only happen in the US and we feel that US Television finds itself at a critical moment in its history, pulled in various directions by a combination of internet delivery and multiscreen, cord cutting, spectrum famine and legal decisions which threaten to shake its foundations.
Changes embraced by US content organizations now, may have far reaching global consequences for how these companies proceed internationally.
In moves like this, broadcasting executives are trying their hardest to keep everything the same ‘ chasing the status quo which has served them very well these past few years, on the other hand they are threatening dramatic moves, necessitated by their financial survival.
This week there are at least three issues that US TV networks have to deal with but at the front of the queue is Aereo, the tiny start up that just will not go away. Executives at CBS and Fox, two of the largest networks in the US, have already threatened to take their services onto paid cable. And if that does not sway the courts or law makers to ban Aereo, they are preparing to go to war with the tiny company in moves similar to this one.
Aereo for its part has some powerful people behind it, and it threatens to bring down the cozy relationship between US National Broadcast networks and cable TV operators.
Aereo has proved to the satisfaction of the courts, that it merely uses the internet to provide an extension from an individual antenna to a portable device. In the process this means it can give away broadcast content from the neighborhood where you live, and send it to wherever you are in the internet on a PC or tablet.
Outside of the US this is nothing like a new idea. European public broadcasters all do this, and the BBC in the UK has been doing it for at least eight years. But most public broadcasters are funded by a TV license fee, and do not have to sell advertising (some in Europe do). But free to air broadcasters all over Europe, offering thousands of TV channels have also delivered their full programming as an App to portable devices using streaming.
But the US is a more complex market. In the UK, France, Germany and most European countries (with the notable exception of Italy) a single TV channel is licensed by a regulator across the entire country. In the US, broadcasting regions are broken in to 234 separate broadcasting markets.
So while the BBC and ITV and Channel Four reach every single home in the UK with the same spectrum, and in France the same is true for TF1, M6 and France 2 and France 3, in the US, media companies are banned for reasons of political influence, from controlling TV stations that reach more than 34% of the nation’s homes. Their programming may reach other homes, but must go through other organizations which partner them, called affiliates which they do not own. These pay affiliates fees to the major broadcasters to reproduce their content, while cable and satellite pay TV companies also pay each local broadcaster (including the major content owners CBS, ABC, Fox and NBC) a fee for carrying their content to each home.
The revenue that the majors get from these fees makes up roughly 50% of their broadcasting revenues, with the rest coming from advertising.
So in Europe sending content over the internet is a ‘no brainer,’ because either it comes from a public broadcaster with separate fees, or it increases the number of views, driving the entire revenue base, which is all advertising.
But in the US pay TV is involved with content whether it is free to air or not. If free to air broadcasters offer their content for free over the internet, cable and satellite pay TV companies feel they shouldn’t have to pay so much to carry it. This is because some 100 million homes have pay TV and only about 12 million or less US homes have no pay TV. So most of the homes get their content through a pay TV service, even the free to air channels.
All of this history has led the US market to adopt TV Everywhere, an idea that started in Europe at News Corp, but which through the lead taken by Time Warner Cable and Comcast, has become a lifeline for pay TV in the US. And to our minds it is a dangerous one.
In essence pay TV networks are saying that consumers can have TV on portable devices, in many cases on the move, but in order to offer that, the customer has to continue to subscribe to the pay TV service. When this idea first took off in the US here at Faultline we said that it should be made illegal. We also said that there should be a price to buy this service, without having to be a subscriber to the infrastructure of the provider.
For cable companies like Comcast and Time Warner Cable, the programming is tied to the infrastructure, so you cannot get Comcast programming for instance over AT&T broadband. And to carry on that tying relationship in a new internet era, would mean artificially high prices for content.
The trouble is there is no transparency in the US market and this is why this week there is also a bill from senator John McCain, called the Television Consumer Freedom Act, calling for each TV channel to have its own price. This has come in response to legal actions and public complaints by Verizon and Cablevision, who have publicly asked for this, one filing a legal action.
This is known universally as ‘a la carte’ programming, from the idea that when you go into a restaurant, you do not need to order everything on the menu, but can choose what you want. We think it makes more sense to call it channel unbundling.
In 2004 and again in 2008 this was tried. First the then FCC chairman, Michael Powell, was asked by Congress to investigate whether or not la carte services (channel unbundling) were ‘technologically and economically feasible.’ And he set about doing just that, but concluded that it would make TV channels more expensive. The attempt in 2008 was with another Act like the one in front of the senate now.
This is because content owners insist to pay TV operators that their highly desirable TV channels are bundled with highly undesirable channels. If no-one ever watched these channels, then the viewing figures would be so bad that they would have to be closed down. What tends to happen is that programmers seed each channel with SOME desirable programming, and people watch this and sometimes stay on the channel for some time afterwards. This bestows an element of viewing value to each channel, which results in advertising revenue for these far in excess of their worth.
Nielsen effectively colludes with the industry in collecting such viewing data, to create more advertising inventory to sell, to bloat the content businesses. And they are incredibly bloated.
Here is how the American Cable Association explains wholesale bundling on its web site; ‘According to the Federal Communications Commission FCC, the typical American consumer is only interested in watching 17 cable channels. Typically referred to as “highly desired” programming, these channels may include ESPN, USA, Discovery and MTV. However, for a cable operator to provide any one of those channels, the programmer or media conglomerate that owns the channel pressures the operator to carry and distribute several additional channels also under its ownership – and not just on any of the cable packages that the provider offers, but often on the most basic and widely distributed tiers. These operators are coerced into these deals without regard to consumer interest or its impact on household budgets.’
So no consumer knows what a TV channel costs. They do not know they are paying $5 for ESPN, and $1 for the Disney Channel and if they knew this and could lower their bills by doing so, many might cancel ESPN (the main US sports network).
Of course if ESPN found it had less subscribers, it would have to charge more and more for ESPN to the people who did want it. In fact this set of cozy relationships is almost entirely responsible for the huge salaries many sporting icons in the US command. Given that ESPN may have ten year contract commitments for $billions then ESPN would have to continue to charge whatever it took to redeem its payouts.
So the average cable customer subsidizes all this, to create an artificial feeling that sports content comes free if you pay $50 or $60 for a particular cable package.
It would be best, as far as consumers are concerned, for the US to start all over again, increase the amount of money that is paid for broadband, rather than using pay TV to subsidize broadband, and then use that broadband to get content over the internet on an unbundled basis. This would likely level out the broadband competition in the US. If cable companies could not use excess TV profits to build out DOCSIS then it would have to charge more for broadband. Right now the price per Megabit per second is far lower from cable and it has faster topline speeds.
But if it had to charge the full infrastructure upgrades to broadband, it is likely that Telco broadband would be far more competitive than it is today, a cheaper weaker cousin rather than a worse performing, similar priced alternative.
The problem with content unbundling is that the status quo would be upended, and content businesses might lose as much as 40% to 50% of their revenues. If this were a consumer oriented culture this is what would happen and those businesses would have to evolve to survive. But for this to happen in the US, a big business oriented culture, a rival has to come along to catalyze this transformation, and in a combination of Netflix alongside Aereo we may have such a transformational situation.
Aereo brings consumers the local affiliate version of the free to air national broadcast networks to any device they like, turning a tablet or smartphone into a TV, via an app. Pay $8 for that, and another $8 for Netflix, and perhaps another $8 for Hulu Plus and you have some of the most popular main live channels, as well as a network DVR, with a huge VoD service, for $24 a month.
Instead US consumers that want this are paying something close to $150 a month for TV and another $50 for broadband, to one of the pay TV companies, because in effect they are paying for the infrastructure as well, instead of it all being carried by a $50 or so a month broadband fee. Initially at least people will love this ABC Watch program and download it for free and begin viewing TV on their portable devices. They will perceive that it is free, but it is only free because they are already paying for the $150 a month service.
But as they come across more and more individuals that have gone down the Aereo only route, there will be a dawning realization that they might both cut the cord and still live a multiscreen lifestyle.
And both CBS and Fox have been saying they might change their channels into pay TV channels, but they are also planning to copy this obvious move by ABC.
This week the Senate is holding a state of video meeting under the auspices of the Commerce, Science and Transportation standing committee, and here one senator, Mark Warner, called for the FCC to give up the Fox spectrum for re-assignment if the company went ahead and took its channels into a paid for status, simply to avoid Aereo.
Warner, a former wireless exec, pointed out that those companies had bought their spectrum at auction while broadcasters had not, and there were suggestions that all this talk of taking networks paid was really only hypothetical.
But by taking free to air content and delivering it as part of TV Everywhere, and specifically requiring pay TV authentication, this is effectively going paid, by the back door. Already CBS has been working on a streaming system from a company called Syncbak in which CBS took a minority stake last month .
The Fox Network is also understood to be working on live-streaming functionality for its stations, and it already uses a similar technology in the UK and Germany at Sky, to project its DTH satellite TV service over the internet.
When we spoke to UpLynk in April we noted that it landed the deal with Disney a year ago and only said at NAB that the Disney deal was about to roll out at ABC. The company admitted to us that it uses ‘a subset of Apple’s HLS’ as it core technology.
Aereo this week said it was launching next in Atlanta during June, having announced it was on the way to Boston earlier this month. It started service in New York. It also revealed a fresh, simplified charging mechanism, with a base plan of $8 per month, offering 20 hours of DVR storage. For an additional $4 dollars a month, consumers can upgrade their membership and receive 60 hours of DVR storage. The pricing plan requires no long-term commitment. In all it has announced plans for 22 US cities.