1:30 PM -- Evidence continues to mount that Charlie Ergen and Dish Network LLC (Nasdaq: DISH) are hard at work developing a virtual MSO that would provide some pay-TV channels via broadband for a variety of connected devices like tablets, phones and TVs.
Many of the technical pieces appear to be coming together over at EchoStar Corp. LLC (Nasdaq: SATS), the technology spinoff chaired by Ergen. EchoStar has already been talking about using adaptive bit rate (ABR) technology (coming way of its acquisition of Move Networks Inc.) to deliver live TV video streams to all sorts of devices, and teaming it with a networked DVR. EchoStar has also discussed how this could be applied to anyone with "the content and a pipe," suggesting that it'll be up to the partner to get the programming rights. (See EchoStar Sets Sights on a Network DVR and EchoStar Readies Over-the-Top Video Play.)
Meanwhile, Roku Inc. CEO Anthony Wood said at a recent industry event in New York that he sees a virtual MSO emerging in the next 12 months, with expectations that it'll be a traditional pay-TV provider with content deals in tow that will step up first. Roku sees its own devices supporting such a service, and happens to be a Dish partner.
Boxee CEO Avner Ronen said as much in January, predicting that an incumbent pay-TV player will be first to offer an OTT subscription TV package. (See A Virtual MSO Shall Rise, Boxee CEO Says.)
The idea of a cable operator like Comcast offering a potentially disruptive subscription video package in another MSO's territory would cause some significant upheaval in the cable club. Charlie Ergen apparently would have no such reservations, even if there's a chance an OTT TV video offer would compete with his satellite TV product. (See Signs of the Video Armageddon and Comcast Won't Go Over the Top.)
Plus, the notion of getting programmers to unbundle their channels and alter the way they do business is more akin to "wishful thinking," he adds. So, it seems likely that the business issues, not the technology, could trip this up.
And is there much of a market for a reduced-rate TV package? Time Warner Cable Inc. (NYSE: TWC)'s ESPN-free TV Essentials package might serve as a nice save tactic, but it's not the kind of TV package that's going to get customers in droves. (See No-Frills Cable TV .)
But it's the sort of thing that could be attractive to telcos that have choked on high carriage fees and soured on the low-margin business of running a managed IPTV service, and are seeking a way out. They could instead combine their higher-margin broadband service with a small OTT package, and then leave it up to customers to obtain broadcast TV channels over the air.
That's the kind of model that is sure to be a hot topic of debate and discussion next month in Las Vegas at TelcoTV.
Limited channels for fractional audiences, I can see. But as for scaling up to b'cast equivalent, that's probably wishful thinking. A recent iHS study (mentioned here) pointed to need for 25k-fold reductions in transport costs to level playing field.
This all assumes that there is a business model for profitably delivering pay TV via broadband that consumers can afford and that works with US content providers. So it is all technically possible, but wishful thinking.
Even if all the other business issues get solved, usage caps are becoming ubiquitous across broadband and wireless plans. The caps are not too burdensome for average current broadband use, but would be a straitjacket for an average TV user: 4.5 hours/day of mostly HD content could easily exceed 300-400 GB/month.
This is what made the entertainment industry's pre-digital business model so beautiful -- If you want our good, money-making products, you have to take the dreck as well. It drove distributors nuts, but they knew they had to take some losses to get the good stuff. That model has been subsumed to some extent with digital content, but it still exists.
"...and works with US content providers." Therein lies the rub. Something like 90%+ of the viewership of cable networks are on networks owned by 7 providers (ABC/Disney, NBCU, FOX, Turner/TW, Viacom, CBS, and Discovery). If you want ESPN, you have to take ABC Family. If you want MTV, you have to take CMT, and so on. The content providers have zero incentive to enable a service provider to break up the bundle, and structure their carriage contracts such that if a tier of service that excludes sports content (for example) gains too much penetration, there are financial penalties on the distributor - so it is self correcting. Check comments from ESPN, Skipper said as much on a recent earnings call.
Bloomberg's got a story up noting that Dish is backing away from creating a Netflix competitor using the Blockbuster aquisition, but toward the end of the story Ergen acknowledges that he's spoken to cable networks about an OTT live TV streaming service but that the it's an idea that's still "years away." Either that's a statement that he's hit a brick wall with programmers or it's just another case of Ergen, ever the poker player, bluffing about how far away he really is with it. JB
Programmer looking at direct-to-consumer streaming service that would aggregate Discovery's programming and target US consumers who don't subscribe to pay-TV.
A blend of solid content and aggressive promotions and discounts could help the new streaming service rise to 18 million subs worldwide by the end of Disney's fiscal 2020.
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