News Corp., Broadcast TV Relegated to ‘Dumb Pipe’ Status as More Streaming Services Emerge

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The $60 billion-a-year television broadcast industry is up for grabs as billionaire magnates Barry Diller and Rupert Murdoch square off as consumers continue to cut ties with traditional TV services.

While attending the National Association of Broadcasters conference in Las Vegas this week, News Corp.’s COO Chase Carey threatened it may end Fox’s 26-year run as a free broadcast channel if US courts continue to allow the Diller-backed Internet startup Aereo to retransmit broadcast programming for free.

News Corp. and Aereo are goalposts at opposite ends of the television playing field. The former pays billions for quality content ranging from NFL games to The Simpsons, Glee, The Following and New Girl. Aereo pays nothing for content that it captures from over-the-air broadcast TV signals via small antennas, which it delivers to computers and smartphones—comparatively cheaply. 

News Corp., defending its fee model for cable and satellite companies, says it is willing to lose viewers and switch to a pay-TV-only offering to undermine and protest Aereo.[more]

Aereo, which brought its cord-cutting, “sacred cow” tipping message to the recent SXSW in Austin, Texas, is a small start-up. With a few subscribers, available to 19 million people mostly in the New York area as of February, with plans to expand to 22 other cities this year including major markets like Chicago and Houston. As of last week, a US appeals court rejected pleas to shut down the budding service, paving the way for national expansion.

But as Aereo grows, retransmission fees—a key revenue stream for broadcast networks like Fox, CBS, NBC, ABC, CW and Univision, which are projected to hit $1.7 billion by 2015, according to SNL Kagan—may disappear. “We need to be able to be fairly compensated for our content,” News Corp. COO Chase Carey told Bloomberg. “We can’t sit idly by and let an entity steal our signal. We will move to a subscription model if that’s our only recourse.” 

“The networks are taking the Aereo threat very seriously,” Douglas Arthur, an Evercore analyst added. “They feel like they’re being violated.” 

Aereo, priced at $8 a month, describes itself as “a simple, convenient way for consumers to utilize an antenna to access free-to-air broadcast television, bringing television access into the modern era for millions of consumers.” It points out that, “When broadcasters asked Congress for a free license to digitally broadcast on the public’s airwaves, they did so with the promise that they would broadcast in the public interest and convenience, and that they would remain free-to-air.” 

Carey retorted, “We simply cannot provide the type of quality sports, news and entertainment content that we do from an ad-supported-only business model,” according to the Los Angeles Times. “We have no choice but to develop business solutions that ensure we continue to remain in the driver’s seat of our own destiny.”

While the economics of Fox becoming a pay TV service are “seductive,” Bernstein Research analyst Todd Juenger told Deadline.com, “the unknowable wild card that may trump every other line item on the financial analysis, is the branding value of the local presence, local news team, community-oriented face the broadcast station brings to the network—and how that translates into the sustained ratings dominance of those networks. Lose that presence, and soon all those broadcast networks really do become just another channel on the dial.”

The push for local programming was reitterated by NAB chief Gordon Smith, but Smith told broadcast execs that they have to keep pushing tech companies to include TV and radio recievers into smartphones in order to meet customers’ “desire for more live, local TV content.” Of course, if TV networks are the ones that pioneer mobile streaming, they have a much better chance of controlling revenue streams that emerge from the service.  

According to Nielsen, internet streaming is growing rapidly among US households, with 5 million labeled “Zero TV” households. More than 130 TV stations in the US broadcast live to mobile devices but a “dongle” device, like the Roku box, is required to receive it. The data underscores a growing cohort of young, single and kid-less “cord cutters,” a demographic deeply immersed in tech and social culture which makes them increasingly hard to predict.

Meanwhile, Intel’s Media arm has been building Intel TV, an “over-the-top” TV service for about a year and will be the first out of the gate to deliver a full complement of cable TV via the internet. “I’m impressed because Intel makes chips; no one expected them to come out with a product like this,” Michael Bologna, head of advanced TV at Group M told Ad Age.

“No one expects Intel to become a TV power overnight,” continues Ad Age, “but it represents an interesting challenge for cable and telcos, which as of now do not offer TV service outside their own wired footprint. Each new customer who opts for Intel TV is a customer dumping part of the “bundle” of services that cable and telcos like to sell, including broadband, TV and sometimes phone. Defecting subscribers will be relegating their cable and telco providers to “dumb pipe” status, selling connectivity and bandwidth but not services on top.” 

We feel for you, Chase Carey. “Dumb pipe” isn’t the most endearing nickname.

Below, more from Bloomberg on Diller’s Aereo grand plan:

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