Unauthoritative Pronouncements

On episode 31 of Relay FM’s Connected podcast; Myke Hurley, Federico Viticci, and Stephen Hackett discussed many items of Apple news. This included the rumor from The Wall Street Journal concerning Apple’s supposed OTT service.

Whilst I listened to the recording live, it became clear that there are some fundamental concepts about televised entertainment in America that were unclear to people outside the U.S.– and, apparently, to people in Memphis. (Hi Stephen.)

What is Cable?

Federico professed that he didn’t understand the concept, and Myke said it was like satellite. That’s sort of true, when describing television programs, and channels. In the U.S. it’s often easier to group cable, fiber, and satellite together as “cable”, though that also glosses over differences. Skip this section if you feel reasonably confident in your understanding of cable.

Brief history lesson: In the 1920s, radio networks popped up all over. The stations had limited reach, and thus covered a small area. In order to produce high-quality, consistent programming, they started to create material that would be broadcast from multiple radio stations. Thus, the networks began. Many stations are locally owned and operated, but get the majority of their programming from the network. Local news is the best example of this, with the same hour being filled in by original news programming from each broadcast station.

NBC became the largest of them, with CBS the second largest. In the 30s, the FCC (The Federal Communications Commission) forced NBC to break up because it was too large, and competition wasn’t feasible. The new network was ABC. These radio networks would become TV broadcast networks in the 40s, but they still had their roots in that decentralized grouping of broadcast networks.

Additional broadcast networks have since been added. Independently owned stations offering syndicated programming are now either Fox or CW affiliates.

Cable was a great way to provide alternative, high-quality programming, with a huge array of channels that would appeal to someone. The cable companies pay the local broadcast stations for rebroadcast rights. This also leads to interesting situations like Los Angeles having two different CBS stations that are rebroadcast over cable, KCBS (owned by CBS) and KCAL (independent). This also makes it messy when dealing with advertising.

Because cable requires a physical infrastructure laid out of vast areas of land, there’s usually only one company operating in an area. Huge mergers of regional cable TV operations have resulted in the large cable companies today. Comcast is the largest, with 22.3 million subscribers, and it is trying to merge with the second largest, Time Warner Cable, which has 11 million. Almost all the other cable providers are in the neighborhood of a few hundred thousand to a few million.

In the 90s, the cable companies realized they could send data over their networks, and it was far better than telephone lines. This is also why Americans with high speed internet access almost all have cable. This creates a natural conflict between cable companies, and internet companies that want to provide competing programming that undermines the fees and rates the cable companies charge for programming.

The best way to think about present-day cable is to think of it as a wired service that provides digital programming guides, optional DVRs, “start over” service, live TV, and on demand entertainment, some of which is pay-per-view. These are features of IPTV services like Verizon’s FiOS. (Although Verizon owns the physical network they provide their IPTV service through, making it more like an American cable provider than anything else.)

Comparison with Italy

Italy relies on terrestrial, over-the-air signals for programming. This limits the number of channels, and means that on demand services aren’t possible – with the exception of internet streaming services which are used to supplement service. Since there is little overlap, for the most part, with ISPs and broadcasting, this means no one is trying to screw anyone, like Comcast, or Verizon, messing with Netflix.

The most important thing to understand about cable is that the lines aren’t just used to carry TV shows, but also broadband internet, which makes it completely different from Italy or the U.K. Cable providers also have exclusive rights to regions of the U.S. and do not directly compete with one another – this means that costs are generally high. (Businesses gonna business.)

Federico speaks favorably of the system in Italy, because everyone can have the same experience of gathering around to watch sports events, and national political speeches. It’s more like TV in the U.S. used to be before the 1980s with a few broadcast networks that left few options.

There are, however, other problems Italy faces aside from limited selection, and limited utility. (Neither of which are major issues when you take supplemental streaming solutions into account.)

Did you know there is a “Television in Italy” page on Wikipedia? This is a fun excerpt:

According to BBC, the Italian television industry is widely considered both inside and outside the country to be overtly politicized. Unlike the BBC which is controlled by an independent trust, the public broadcaster RAI is under direct control of the parliament. According to a December 2008 poll, only 24% of Italians trusted television news programmes, compared unfavourably to the British rate of 38%, making Italy one of only three examined countries where online sources are considered more reliable than television ones for information.

HBO Won’t Sell Service Directly

In the Connected episode Myke brings up a post on The Verge that confused him and asked for clarification from Stephen. Myke’s not really at fault here because the structure of the post makes it sound like HBO NOW is just HBO Go.

From the post, with the subhead “Sorry cord cutters. You’ll have to buy it through a partner, like Apple or Cablevision”:

Cablevision doesn’t say whether it’ll be offering HBO Now on day one, but it seems like a possibility. Though Apple has touted its position as HBO’s exclusive launch partner, Apple is, in fact, only its exclusive “non-pay TV” launch partner. That means that while you won’t be able to subscribe over a Roku until Apple’s exclusivity period lifts three months from now, you should be able to subscribe though any cable company that makes a deal with HBO. HBO tells us that it hopes to announce more partners soon, but Optimum is the first.

This post is not structured very well at all and basically imparts no information other than HBO is not selling access directly, but through third parties, and he infers that cable companies will offer HBO NOW on day one. That would just HBO Go, as Myke points out on Connected.

The “sorry cord-cutters” is confusing and hyperbolic since the author acknowledges that there’s no information other than Apple and Cablevision (as an ISP) offering to sell HBO NOW. That does not mean that you will only have your regional cable provider to contend with for service. So this is still a “yay” for cord cutters.

The writer also mistakenly assumes that HBO should be the one you buy HBO NOW from, directly, like Netflix. There are large development costs to engineering a solution without partners like Apple. Netflix can manage this because they’ve been building their service in iterations for years.

From Variety, last December, about the resignation of HBO CTO Otto Berkes:

Under Berkes, HBO had been developing a streaming-video platform with the code-name “Maui” designed for the OTT service. But the Maui system was a “less-than-perfect solution” and the project was shut down, according to a memo sent to team members by Mark Thomas, senior VP of technology program management, and Drew Angeloff, senior VP of digital products. The memo was previously published by Fortune.

“This was not a judgment of the team’s work quality or deliverables but rather a bet that an existing streaming service could deliver the needed product faster and at lower risk than Maui,” Thomas and Angeloff wrote in the memo.

The execs added that “Maui’s timeframe caused us to make concessions both in scope and culture. We look forward to returning to teams defining scope, and consumer experiences, without forced top-down scheduling.” Meanwhile, a “large portion” of Maui can be repurposed for HBO Go, according to the memo.

The Verge should have referred to this reporting from Variety, especially when the author started to ruminate about how the service would be available. Technologically, HBO can do anything that Major League Baseball Advanced Media can do. That includes Roku, Android, and game console clients. HBO’s focus is obviously on iOS, and Apple TV, but The Verge would have been better off pointing out the MLBAM relationship than completely wild speculation that confuses their readers.

MLB does sell subscriptions to customers directly, so it would not seem to be a technological limitation. It is possible HBO doesn’t want to directly deal with viewers, or also fears going all-in on that immediately.

Cost

Myke asked Stephen if he felt the cost was reasonable, but Stephen no longer pays for cable, so he wasn’t sure.

I’ll refer you to my previous post covering the cost relative to basic cable packages which offer similar channels:

As I memtioned above, it’s not that much more expensive than basic cable. I am, of course, referring to true basic cable, and not the discounted plans they promote that go up 50-60% after one year. I couldn’t actually find Comcast’s basic cable package on their site. Fortunately, Consumer Reports did the footwork and found out that it’s $16 (receiver included, but no HD or DVR). Time Warner Cable’s package is $20 for a year, and then jumps up to an unspecified amount. Equipment is separate, $12 a month for a basic HD box, and $24 a month for an HD box with DVR. That’s $32 and $44, respectively, before adding in fees.

This was also under the section where I point out that it is likely to include advertising if the rates are so comparable, especially if the networks are primarily motivated by declining ad revenue, and advertisers demanding targeted ads, and analytics.

Stephen is also troubled by the cost of all the a la carte services. He says it’s why people resort to stealing content to save money. As someone that works in the entertainment industry, I am not a super-huge fan of people not paying for entertainment, but that’s my personal bias.

Bundling, and showing ads, are only natural outcomes to try to keep costs down, while still providing a comparable level of service. Apple’s approach, and interests, are different enough from cable TV providers that it should be a better experience even if it is still roughly analogous to what we have now, but will it be attractive to cord-cutters, and cord-nevers?

Despite Stephen’s old-man-ness, he’s actually in the demographic of people that are leaving cable, cord-cutters. His young kids are going to grow up not experiencing cable at all, which is increasingly common, and troubling for entertainment companies, networks, and providers.

On November 28, 2011, a report by Credit Suisse media analyst Stefan Anninger said that young people who grew up accustomed to watching shows online would be less likely to subscribe to pay television services, terming these people as “cord-nevers”. Anninger predicted that by the end of 2012, the industry’s subscriber count would drop by 200,000 to 100.5 million, blaming the economy; Anninger’s report also stated that consumers were not likely to return to paying for television even after the economy recovered. In the case of land-line telephones, people had believed younger people would eventually get them, but now numerous subscribers only have mobile phones. Anninger predicted that the same would hold true for pay television, and that providers would need to offer lower-priced packages with fewer channels in order to reverse the trend.

The Great Barrier

Myke, and Federico are largely dismissive of the Apple TV because it will have very little impact for them where they live. Imaginary boundaries mess up everything. Region locking sucks. Movies are still released in bizarre, year-long international rollouts where the U.K. will have something premiere in theaters while we have something available on home media. Even satellite TV suffers from regions set up to enforce pricing models.

It’s still worth discussing Apple, and TV programming, even if it is just in the U.S. There are 318.9 million people living here, so it is a huge area for potential growth for Apple.