Unbundling? Sky's Falling? Panic on the Street!

By Paul Maxwell Report Archives
Cover image for  article: Unbundling? Sky's Falling? Panic on the Street!

So Wall Street actually noticed: (1) The cable subscription model of too many channels is facing competition; (2) ESPN is not bullet-proof (and John Skipper is no George Bodenheimer); (3) The media eco-system is undergoing some changes; (4) Jon Stewart walked away from Comedy Central as Viacom subs and ads eroded; (5) In the 2nd quarter, DISH lost 81,000 subscribers and DirecTV lost 133,00 for a total pay-TV drop of 432,000, and (6) The Internet can deliver over-the-top video without too much buffering.

Media stocks -- according to Bloomberg -- "were the best-performing stocks of the bull market, rising 531% to eclipse automakers, retail stores and banks.  The industry's market capitalization was about $650 billion, compared with $135 billion in 2009.  That value is evaporating.  In just five stocks -- Disney, Time Warner, Inc., Fox, CBS and Comcast Corp -- almost $50 billion has been erased in two days."

Both conduit and content companies got dinged. Netflix, of course, continues to go up -- on the pipes of the ISPs (formerly known as cable companies).

Sometime before September 4th -- because STELAR (Satellite Television Extension and Localism Act Reauthorization) demands it -- the Federal Confusion Commission will start an examination of the "state of retransmission" rules.  That might be good timing: After all, the rules started the rush to add more and more channels to the cable bundle.  When Congress decided broadcasters should be paid for their free TV channels in order for cable subscribers to gain access, cable operators really didn't want to pay cash.  So ABC-owned ESPN created ESPN2 and Fox created FX.  Cable ops paid for the new channels instead of directly paying for the over-the-air "free" broadcast channels.  (We can thank Dr. John Malone, Rupert Murdoch and the late Ray Joslin for that "opportunity.")  But after too many new channels, cable discovered it would have to pay cash for the "free" channels; but the rush to the mythic 500 channels had already commenced.

And now?  Now many consumers can see that CBS wants to get paid as much as ESPN on a per-subscriber basis as some bills reflect the retransmission fees.  And at the same time, consumers are pretty fed up with paying for a lot of retrans-spawned channels they never watch.

So obviously, something's gotta give. And Wall Street noticed. But I think they are over-reacting (gee, surprised?) driven by short-term thinking.

Last year, the collective pay-TV market dropped 320,000 subscribers in the second quarter; this year the same group dropped 20,000 fewer subs (leaving, of course, that loss of 300k!).

Long term, content cannot totally disregard the conduit … content will eventually share revenues with conduit.  The impending deal between Starz and cable operators might provide the template.

Random Notes:

My new book “The Revolutionary Evolution of the Media” continues! Go here to read it from the beginning!

Fascinating to watch as a major political party effectively outsourced primary election set ups in favor of commercials interrupted by questions and sort of answers.  Still, parts of the so-called minor and major league Fox News debates were entertaining if not enlightening.  Interesting that a cable news channel seriously dominated the "news" last week while at the same time pundits were putting down cable (well, the bundle).  In fact, only NBC showed a broadcast audience gain during the debate; the show was Food Fighters.

Who knew Fox News was biased … against the Donald?

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