“It’s such a disruptive model.”

A couple of eagle-eyed readers pointed me to a story in yesterday’s Wall Street Journal about Verizon FIOS’ attempt to come up with a new pricing strategy for content that would involve customers paying for channels based on the number of subscribers who actually watch them, and not a set rate.

The story itself is behind a pay wall, so no direct quotes, but the gist of things is that Verizon is looking at a business model that would involve putting a box on a subscriber’s TV that would measure viewing time.  The customer would only be charged based on usage that crossed a certain time threshold.

This is coming from Verizon, mind you, so I’m not convinced this would benefit the consumer in terms of saving money.  But it clearly indicates that providers are increasingly worried about the impact on-line video outlets are having on the market.  And that’s not all.  According to the article, ESPN draws less viewers than the USA Network, yet distributors paid ESPN an average of $5.04 a month per household last year, compared to the 68 cents a month USA received.  If you’re somebody stuck in the middle like Verizon, you can see where moving to a model based on actual usage has the potential to be an attractive way to avoid price fights with certain content distributors.

The catch is that you can also see how that might not be so great for sports network providers who are pushing product in markets where there isn’t that much interest in the product, say, like the Big Ten Network in the greater New York area.  The problem won’t be unavailability.  Rather, it’ll be that the price will go up if the customer base interested in the product is small.  And that’s got the potential to create a negative feedback loop, as prices go up and fewer people are willing to pay to watch.  (Although maybe Jim Delany can figure a way to threaten a few viewers in Brooklyn to keep them in line.)

Right now, it’s hard to say whether this is a canary in the coal mine story.  But it bears repeating that the content delivery world is under pressure and it’s more likely that things will change than that they won’t.  And that’s something network-owning football conferences should be mindful of.

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UPDATE:  More from the Washington Post on this.

“This is the beginning,” said Gene Kimmelman, a former senior antitrust official at the Justice Department. “If the conflict between cable distributors and content owners persists and prices keep rising, there will be enormous market pressure to begin unbundling offerings, give consumers more choices and, from my perspective, ultimately let consumers control what they buy and how much they pay.”

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27 Comments

Filed under College Football, ESPN Is The Devil, It's Just Bidness

27 responses to ““It’s such a disruptive model.”

  1. The other Doug

    I wonder how many people would pay $120 a year for the SEC Network?

    • Gravidy

      Depending on what the content is, I might. I would pay that if it were the only way I’d see a bunch of football games. But if the SEC Network starts off by providing gymnastics, equestrian, volleyball, swimming, and coaches’ shows…well, ummm, no thanks.

      • The other Doug

        I agree. I’d pay $120 to see every UGA football game, but the rest of the content is just a bonus or one more station I have to click passed.

        • SF Dawg

          In HD, with announcers that don’t force me to put cotton balls in my ears. I paid $25 for one of the cupcake games last year, and it wasn’t even in HD (which I didn’t realize ’til after I’d purchased it because why wouldn’t it be in HD?).

  2. DawgPhan

    It is an interesting idea. I dont think that Verizon FIOS is popular around here, but I think that it is in other parts of the country and that would allow Verizon to own the pipe for TV, Wireless, and Internet into your house. Not a bad place to be. Rumors would be that Apple would use some of their cash hoard to by a stake in VZ’s FIOS infrastructure. I know google is on the TV game.

    While I think that the guys running college football are smart and can execute with the best of them, they would quickly be in way over their heads with the likes of Verizon, Apple, Google, Comcast, and Disney. No way they come out of that unscathed.

  3. Gravidy

    It may be true that more people watched USA than ESPN, but I don’t think I’m going out on a limb when I say there’s one hell of an enthusiasm gap there. In other words, I’m guessing the average SEC football fan would be a tad more upset about missing a football game than someone else might be about missing a gripping episode of Burn Notice.

    • Something to that, although some people are pop culture fans just as others are sports fans, but unbundling will be about forcing we enthusiastic sports fans to put our money where our mouth is about just how enthusiastic we are, with no cross-subsidy from the Burn Notice viewers.

      Either we or the conferences are going to have to blink. If the B1G is going to take the same amount of money out the DC area that it would under the current arrangement, then the quite small number of people who will pay any price and bear any burden to see Terps v. Boilermakers football (or Terps v. Hooisers hoops, for that matter) are going to have to step up in a major way. If they don’t, quite a revenue haircut for the conference.

      I suspect the more discrete and insular footprint of the SEC would serve it somewhat better. Aggiemania is a plus, Mizzou something of a Maryland-to-the-B1G-like nonevent under those circumstances.

    • Russ

      I can’t imagine that USA even comes close to the viewers of ESPN. Maybe they were comparing USA to ESPN8 (“The Ocho”).

    • Dog in Fla

      Make fun of missing a gripping episode of “Burn Notice,” sure. But what about missing an explosive episode of “Covert Affairs,” where, “It’s the 4th of July, and everyone at the CIA is feeling festive,” the result of which is that a jai alai player suddenly goes missing?
      http://www.usanetwork.com/series/covertaffairs/theshow/episodeguide/episodes/s3_hangon/index.html

    • AlphaDawg

      How many were active viewers and how many watched USA via DVR/On Demand would be more relevant. I cannot remember the last TV show I watched real time that wasn’t on FX or AMC after 10 pm.

      • Gravidy

        I watch almost nothing live anymore other than news and sports, and I often watch those with enough delay to skip the commercials.

  4. Always Someone Else's Fault

    I dropped Uverse, but the straw that broke the camel’s back was the realization that I was paying the B1G for content that I did not want. That was true of a lot of the channels in that product, but I don’t hate them. I do hate Delany.

  5. Macallanlover

    I think there is more substance, and urgency, to this issue than most people are aware of. Every week I encounter new people who are changing the way they watch/pay for TV. Everyone has complained about cable companies since their inception in the 60s but had no acceptable alternatives. Satellite should have been a reasonable competitor since they had few of the infrastructure costs but they now parallel the Comcast model in costs. Some electrical companies entered the fray but also priced themselves comparably. Mosts of the recent increases have come from new charges from content suppliers but early on it was pure greed from groups that had a monopoly.

    Interesting that in the beginning we only got about 30 channels and I recall the price being around $18-30 per month. I thought the value was pretty good, even though Customer Servoce sucked. Now I get about 800 channels of which I have about 150 on my “favorites” programming, of which I watch about 30 channels more than once per week for $135 per month. If you don’t watch live sports, I see no reason for anyone to subscribe to cable or satellite. I can get live news, weather, stocks, etc. from the internet in real time, and watch any movie or TV show on Hula, Apple, etc. for less than $10 per month. The Verizon model is the worst fear of both the free loaders and extortionists who are dependent on the status quo. If you don’t watch live sports, I cannot see why anyone would subscribe to cable or satellite. And the windfall spending on salaries and facilities in CFB my go unfunded if ESPN has to charge “real” viewers the total tab. Could be a good time to buy a sports bar because shared costs for events on PPV might be the best alternative as $100 per game to see the game at home might not be out of the question.

    • Dog in Fla

      “The Verizon model is the worst fear of both the free loaders and extortionists who are dependent on the status quo.”

      They need a picnic followed up by a campfire.

    • Mayor of Dawgtown

      A similar problem would present itself if Congress would require that cable TV providers go to the “a la carte” method and allow subscribers to chose which stations they want and stop forcing ESPN (with its $5/mo tab) down everybody’s throat. Every unmarried woman in the US and all the guys who don’t care about sports would drop ESPN like a hot rock and the money would dry up, effectively ending the big deals ESPN is doing.

  6. Sanford222View

    Programming contracts are ridiculous. Especially ESPN’s contracts to providers. They dictate you taking other channels to get the most populars ones for the TV line up as well as actual placement with in the channel line up. ESPN stipulates by raising the price as to what level of service has access to their channels and if their channels aren’t grouped together in the line up. Then they even charge providers for ESPN3/WatchESPN or whatever they are calling it today by the number of Internet customers you have rather than by the number of people that actually sign up for it or use it.

    I hope Verizon is successful but I am not holding my breath. They are trying this with less popular networks and the threshold to be billed is 5 minutes per month if I remember correctly. If they pull it off it would be huge for the industry. I know as a provider I would welcome the ability to offer a more a la carte model to our customers but with the way the business model is structured now it isn’t feasible.

  7. Darrron Rovelll

    Senator – did the article mention anything about viewing time of Live TV vs video recording? One of ESPN’s (& all sports channels) selling points for the increased fees is the Live Event programming which is “must” see programming because sports fans are not going to watch the event after they already know the outcome (count me in the minority here.)

    • Faulkner

      I just delay the live sports 20 minutes to miss the commercials. I am usually caught up by the fourth quarter.
      My kids don’t even watch u-verse anymore. It’s all amazon or Netflix streaming.

  8. 81Dog

    Remember, all eyeballs are not equal. If you’re in a desireable market demographic, you’re worth a lot more to certain advertisers, who are willing to shell out big bucks to reach you. Don’t forget that TV programs, whether sports, news, or entertainment, are merely a bridge for ads as far as the network suits are concerned.

    the other thing to remember is that often, things start to go wrong slowly, and then quickly. The suits at ESPN or CBS or where ever may assume that “the paradigm that always worked is always going to work in the future.” Ask the newspaper business how that one’s going. Heck, not much more than 5 years ago, Blackberry RULED the smartphone market, the I-phone was a gleam in Steve Jobs’ eye, and Android phones didnt even exist.

    It’s an inevitable rule of markets that if you keep raising the price of something, it will start to effect the demand. If your goal as the seller is to make up for lost revenue by raising the price, you only drive more buyers away, causing you to eventually lose revenue again (like, say MARTA fare hikes). Of course, if you sell below your actual cost, you can’t make it up on volume, but the idea that LOWERING prices to recapture market share will probably never occur to anyone at ESPN or Verizon. They’ll gouge everyone as long as everyone keeps digging into their wallets. That’s how markets work, too.

    • 81Dog

      affect, not effect. Sheesh. WordPress needs an edit feature. LOL

    • AlphaDawg

      You can add the Big 3 networks into the same category as the newpapers. It amazes me at how stale their programing is, all they ever do to change their line up is take an old show and wash, rinse, repeat in a new city.

    • The other Doug

      The youngsters, under 30, are less attached to cable and more attached to the internet and their smartphone. Cadillac was in a similar situation 15 years ago and had to get with the times or perish.

  9. W Cobb Dawg

    ““This is the beginning,” said Gene Kimmelman, a former senior antitrust official at the Justice Department.”

    Ah, sure it is Gene. The Justice Dept. did such a terrific job cleaning up Wall Street, they’re now set to take on the cable monopolies. His first mistake was identifying himself as a “former senior antitrust official”. Is that meant to make cable CEO’s tremble with fear or drop to the floor laughing? Even clueless Kimmelman should guess the answer to that one.

    • Dog in Fla

      Things Gene Kimmelman will hear before the weekend:

      a. Gene Kimmelman’s perspective must be changed;
      b. Bring me the head of Gene Kimmelman;
      c. Who is Gene Kimmelman?
      d. Gene Kimmelman is a Socialist.
      e. Antitrust? Seriously.

  10. Cojones

    Years ago I switched from ESPN on the internet to USA Sports/College Sports. Same stories , but usually more accurate and less written to convince you to think their way. Also, they have published sports odds for years and you can update on any sport.

    Has anyone noticed that pronunciation of ESPN mimics “He is peeing”? Yep, all over my sports world.