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DirecTV Now Starts Inviting Customers to Beta Test Their DVR

Phillip Dampier August 1, 2017 Competition, Consumer News, DirecTV, Online Video 1 Comment

If you are a DirecTV Now customer, check your email for an exclusive invitation to become a beta tester of the service’s new cloud based DVR service.

Little is known yet about the scope of the service or how many customers have been invited (Stop the Cap! HQ is a subscriber and we were not) to take part in the trial about to get underway.

One of the most requested features from cord-cutters is a suitable replacement for the cable or satellite provider’s DVR. Several services, including PlayStation Vue, Hulu, Sling TV, YouTube TV, and fuboTV now offer DVR-like features, although some don’t allow customers to skip commercials and others come as a costly add-on. AT&T, owner of DirecTV Now, has yet to indicate what, if anything, it plans to charge subscribers for the service or what storage capacity it will offer.

The company has focused efforts on fine tuning its streaming service to resolve the capacity issues and technical faults that were common during the first few months of service.

Discovery Builds Leveraging Power in Scripps Networks Acquisition

Phillip Dampier July 31, 2017 Competition, Consumer News, Online Video, Reuters No Comments

NEW YORK (Reuters) – Discovery Communications Inc is acquiring Scripps Networks Interactive Inc for $11.9 billion in a deal expected to boost the company’s negotiating leverage as it seeks new audiences.

The acquisition, announced on Monday, brings together Scripps’ largely female-focused lifestyle channels such as HGTV, Travel Channel and Food Network with Discovery’s Animal Planet and Discovery Channel, whose viewers are primarily male.

Despite expectations of $350 million in total cost synergies, many analysts questioned how the combined company would compete long term as viewers cut cords to cable providers and as advertising and ratings decline.

Discovery shares ended regular trading down 8.2 percent at $24.60 while those of Scripps finished up 0.6 percent at $87.41.

Discovery is paying 70 percent cash and 30 percent stock for Scripps. The total price of the deal is $14.6 billion including debt.

“While we believe the two companies are likely better positioned together, rather than apart, the longer-term issues facing the industry still remain,” wrote John Janedis, an analyst at Jefferies, in a note on Monday.

Both Discovery and Scripps reported quarterly earnings on Monday that reflected the challenges facing U.S. media companies. Scripps missed its second quarter ad guidance and lowered its full-year estimates, and Discovery reported flat advertising and lower affiliate revenue.

U.S. television networks and cable providers are under pressure as more viewers watch shows and movies on phones and tablets. There is also increased competition for viewers from streaming services such as Netflix Inc and Amazon.com Inc.

Five of the largest U.S. pay TV providers posted subscriber losses during the second quarter.

The combined company’s larger programming slate might give it an advantage in negotiations for inclusion in skinny bundles, or economy-priced cable packages that offer fewer channels than a standard contract.

After the merger, the company will offer 300,000 hours of content and capture about a 20 percent share of ad-supported cable audiences in the United States, Discovery said on an analyst call Monday morning.

“The transaction supports and accelerates Discovery’s pivot from a linear TV-only company to a leading content provider across all screens and services around the world,” David Zaslav, Discovery’s chief executive, told investors.

The combined company would also have more muscle in negotiations with cable and other distributors when contracts come up for renewal, executives said.

By adding Scripps programming, Discovery could also launch its own “skinny bundle” of networks at a low cost, executives said.

The combined company would be home to five of the top cable networks for women with more than a 20 percent share of women prime-time viewers in the United States, according to Discovery.

Discovery will evaluate the Scripps channels, as it has its own, to figure out if any could be web-based, Zaslav said on the call.

Scripps has been considered a takeover target since the Scripps family trust, which controlled the company, was dissolved five years ago.

Under the terms of the deal, Scripps CEO Ken Lowe would join the board of the combined company.

The deal requires regulatory and shareholder approvals. Major shareholders including cable magnate John Malone, Advance/Newhouse Programming Partnership and members of the Scripps family, support the deal, the companies said.

Discovery had tried unsuccessfully twice before to buy Scripps. Discovery outbid Viacom Inc for Scripps, Reuters reported first last week.

Guggenheim Securities and Goldman Sachs served as financial advisers to Discovery. Allen & Co LLC and J.P. Morgan Securities served as financial advisers to Scripps.

Evercore Group served as financial adviser to the Scripps family.

Reporting by: Jessica Toonkel; Editing by Jeffrey Benkoe and Steve Orlofsky

Wall Street Analyst on TV Network Fees: “Companies Are Not Supposed to Make That Kind of Money”

Phillip Dampier July 26, 2017 Competition, Consumer News, Online Video 1 Comment

A Wall Street media analyst called today’s television model of high returns and relentless rate increases passed on to pay television customers unsustainable.

Sanford Bernstein media analyst Todd Juenger told attendees of The Independent Show (courtesy: Multichannel News) in Indianapolis that media companies expecting to profit from linear TV’s increased advertising revenue and retransmission or carriage consent fees are going to get slapped in the face soon as consumers revolt.

Juenger, like BTIG’s Rich Greenfield, is becoming increasingly pessimistic about today’s costly bundled-TV model. Juenger warns high revenue and profit expectations are only going to accelerate the growth of disruptive technologies like on-demand, online video.

Juenger notes cable and television networks never seem satisfied with the massive amounts of revenue they are already earning, and keep seeking ways to raise prices further. The TV business, Juenger notes, already enjoys some of the highest profit margins of any U.S. business in modern history.

“This is a very, very rare thing,” Juenger said. “Companies are not supposed to make that kind of money.”

Most cable networks now expect 40% annual revenue increases and a 30% return on capital, which is what causes runaway programming rate increases to be passed on year after year to consumers. Yet the quality of those networks has not significantly improved in many cases, and consumers are gradually shifting away from watching live television (and the commercials that accompany it).

Viewers, starting with younger generations, are increasingly ditching linear-live television and finding on-demand content to be more appealing. Much of that viewing isn’t taking place on the cable industry’s on-demand or TV Everywhere platform, which has become as littered with advertising as live television. Instead, viewers are drawn to original productions produced by Hulu, Netflix, Amazon, and other content platforms — often commercial-free, and on-demand network shows on platforms like Hulu.

“The whole reason for being for networks is called into question,” Juenger said.

Juenger dismisses the current industry trend of creating virtual online alternatives to cable television bundles — skinny or otherwise — for streaming online. Those efforts, like Sling TV, DirecTV Now, and PlayStation Vue still depend on linear television as their core product, and cord-cutters are showing a growing lack of interest in this model.

Cord-cutters and cord-nevers don’t want smaller, more economical bundles of cable networks delivered online, according to Juenger.

“I don’t think there is anybody who wants these products on an incremental basis,” Juenger said. “If the purpose of these services is to recapture subscribers that were lost, they’re not going to work.”

Viewers want an entirely new model, built around on-demand access to individual shows without viewing restrictions or having to pay for unwanted channels. Many are also willing to pay a little more to avoid commercials altogether.

America’s First $3 Cord Cutter’s Bundle Coming from Discovery/Scripps Networks?

Phillip Dampier July 24, 2017 Competition, Consumer News, Online Video 1 Comment

Discovery Communications, occasionally left out of online video alternative bundles targeting cord-cutters, is preparing to retaliate with a $3-4 web-delivered bundle of channels featuring Discovery Channel, Animal Planet, TLC and other affiliated networks and possibly Scripps Networks’ bouquet of channels including HGTV, Food Network, and the Cooking Channel.

Discovery is one of two bidders (Viacom is the other) vying to take charge of Scripps Networks Interactive, one of the few remaining independent network owners not affiliated with a cable company or Hollywood studio.

Bloomberg News reports Discovery wants the networks to bolster its forthcoming inexpensive online video bundle, which will sell for $3-4 a month. While Discovery has advocated selling a sports-free package of networks in partnership with Viacom and AMC for under-$20 since April, those negotiations appear to be stalled, so Discovery is reportedly moving forward on its own.

Discovery Networks¹

Channel Launch Date U.S. Households 2015 Notes
Discovery Channel 1985 91 million Flagship network
TLC 1980 89 million Acquired by Discovery Communications in May 1991, previously known as The Learning Channel.
Animal Planet 1996 88 million
Investigation Discovery 1996 84 million Formerly Discovery Times, Discovery Civilization
OWN 2011 77 million Joint venture ownership with Harpo Productions
Velocity 2002 71 million Formerly Discovery HD Theater and HD Theater
Science 1996 68 million
Discovery Family 1996 61 million Initially launched as Discovery Kids in 1996, relaunched as The Hub in 2010, renamed Hub Network on 2013 and rebranded as Discovery Family in 2014.[55]
40% of the network is owned by Hasbro.
American Heroes Channel 1999 53 million Formerly Discovery Wings, Military Channel
Destination America 1996 52 million Formerly Discovery Home and Leisure (1998–2004), Discovery Home (2004–08), and Planet Green (2008–12)
Discovery Life 2011 46 million Merger of Discovery Health Channel and FitTV, previously known as Discovery Fit & Health
Discovery en Español 1998 6 million Spanish-language version of the Discovery Channel Unavailable in HD
Discovery Familia 2007 5 million Unavailable in HD

If Discovery successfully snares Scripps, it will own five of the top 20 U.S. cable networks. That is likely to be important in future negotiations with cable and satellite providers at contract renewal time. Discovery, like most cable network owners, pitches cable companies bundles of networks sold at wholesale prices, whether a cable operator wants all the channels in that bundle or not. Discovery plans to avoid alienating cable and satellite providers by using them to market the bundle direct-to-consumers. A prospective customer would call their local cable or satellite provider to order the bundle of web-streamed networks, not Discovery. Cable operators would likely also handle billing and customer service issues.

Scripps Interactive Networks¹

Channel Launch Date U.S. Households 2015 Notes
HGTV 1994 96 million households Frequently among the first networks to appear on digital cable.
Food Network 1993 97 million households Part owned by Tribune, which means Sinclair will own a stake in this network if acquisition deal approved.
DIY Network 1999 61 million households At initial launch, DIY was often skipped over by cable systems.
Cooking Channel 2010 62 million households A spinoff of Food Network.
Great American Country 1995 59.5 million households Started with country music videos, was uncommon outside of southern U.S. until the 2010s
Travel Channel 1987 91.5 million households Originally owned by Trans World Airlines, sold to Discovery, which sold it to Cox, which sold it to Scripps.

This type of sales partnership is not unprecedented. Before the era of DirecTV and Dish Networks, home satellite dishowners using C band TVRO satellite dishes as large as 12 feet across often ordered satellite-delivered programming from cable companies, particularly those owned by John Malone’s Tele-Communications, Inc. (TCI) and sold through its home satellite programming division Netlink. Customers would be billed directly by the nearest TCI cable system on an ongoing basis, which irritated a lot of dishowners in the 1990s who sought satellite reception as an alternative to dealing with the cable company.

The practice did not come without problems. Many local TCI systems were baffled when their customer audits revealed they had customers in cities 100+ miles outside of their immediate service area. Many were accidentally disconnected after their subscriptions were purged from TCI’s systems in error. By 2005, TCI was five years out of the cable business and had sold Netlink to Echostar, which owns Dish Networks. That same year TVRO owners were informed they could no longer subscribe to a number of networks for their giant backyard dishes and were converted to Dish Network small dish service instead.

¹-Information sourced by Wikipedia and Stop the Cap!

The Great American Telecom Oligopoly Costs You $540/Yr for Their Excess Profits

Like the railroad robber barons of more than a century ago, a handful of phone and cable companies are getting filthy rich from a carefully engineered oligopoly that costs the average American $540 a year more than it should to deliver vital telecommunications services.

That is the conclusion of a new study from the Washington Center for Equitable Growth, authored by two men with decades of experience representing the interests of consumers. They recommend stopping reckless deregulation without strong and clear evidence of robust competition and ending rubber stamped merger approvals by regulators.

The trouble started with the passage of the 1996 Telecommunications Act, a bill heavily influenced by telecom industry lobbyists that, at its core, promoted deregulation without assuring adequate evidence of competition. It was that Act, signed into law by President Clinton, that authors Gene Kimmelman and Mark Cooper claim is partly responsible for today’s “highly concentrated oligopolistic markets that result […] in massive overcharges for consumer and business services.”

“Prices for cable, broadband, wired telecommunications, and wireless services have been inflated, on average, by about 25 percent above what competitive markets should deliver, costing the typical U.S. household more than $45 per month, or $540 per year, for these services,” the report states. “This stranglehold over these essential means of communication by a tight oligopoly on steroids—comprised of AT&T Inc., Verizon Communications Inc., Comcast Corp., and Charter Communications Inc. and built through mergers and acquisitions, not competition—costs consumers in aggregate almost $60 billion per year, or about 25 percent of the total average consumer’s monthly bill.”

The cost of delivering service is plummeting even as your bill keeps rising.

The authors also claim that these four companies earn astronomical profits — between 50 and 90% — on their services, compared with the national average of just under 15% for all industries.

The only check on these profits came from the 2011 rejection of the merger of AT&T and T-Mobile, which started a small price war in the wireless industry, saving customers an average of $5 a month, or $11 billion a year collectively.

But antitrust enforcement alone is inadequate to check the industry’s anti-competitive behavior. Competition was supposed to provide that check, but policymakers too often kowtowed to the interests of telecom industry lobbyists and prematurely removed regulatory oversight and protections that were supposed to remain in place until real competition made those regulations unnecessary.

Attempts to force open closed networks to competitors were allowed in some instances — particularly with local telephone companies, but only for certain legacy services. Newer products, particularly high-speed broadband, were usually not subject to these open network policies. The companies lobbied heavily against such requirements, claiming it would deter investment.

The framers of the ’96 Act also mandated an end to exclusive franchise agreements that barred phone and cable companies from entering each others’ markets. This was intended to allow phone and cable companies to compete head to head, setting up the prospect of consumers having multiple choices for these providers.

Current FCC Chairman Ajit Pai frequently cites the 1996 Communications Act as being “light touch” regulation that promulgated the broadband revolution. But in reality, the Act sparked a massive wave of corporate consolidation in broadcasting, cable, and phone companies at the behest of Wall Street.

“[Cable companies] refused to enter new markets to compete head to head with their sister companies [and] never entered the wireless market,” the authors note. “Telephone companies never overbuilt other telephone companies and were slow to enter the video market. Each chose to extend their geographic reach by buying out their sister companies rather than competing. This means that the potentially strongest competitors—those with expertise and assets that might be used to enter new markets—are few. This reinforces the market power strategy, since the best competitors have followed a noncompete strategy.”

Wall Street sold consolidation on the theory of increased shareholder value from eliminating duplicative costs and workforces, consolidating services, and growing larger to stay competitive with other companies also growing larger through mergers and acquisitions of their own:

  • The eight regional Baby Bells created after the breakup of AT&T’s national monopoly in the mid-1980s eventually merged into two huge wireline and wireless companies — AT&T and Verizon. The authors note these companies didn’t just acquire those that were part of the Ma Bell empire. They also bought out independent companies like GTE and long distance companies like MCI. Most of the few remaining independents provide service in rural areas of little interest to AT&T or Verizon.
  • The cable industry is still in a consolidation wave combining large players into a handful of giants, including Comcast and Charter Communications, which also have close relationships with content providers. Altice entered the U.S. cable business principally on the prospect of consolidating cable companies under the Altice brand, not overbuilding existing companies with a competing service of its own.

Such consolidation wiped out the very companies the ’96 Act was counting on to disrupt existing markets with new competition. Comcast, Charter, and Verizon even have agreements to cross-market each others’ products or use their infrastructure for emerging “competitive” services like mobile phones and wireless broadband.

“By the standard definitions of antitrust and traditional economic analysis, a tight oligopoly has developed in the digital communications sector,” the report states. “While some markets are slightly more competitive than others, the dominant firms are deeply entrenched and engage in anti-competitive and anti-consumer practices that defend and extend their market power, while allowing them to overcharge consumers and earn excess profits.”

“The impact of this abuse of market power on consumers is clear. According to the most recent Consumer Expenditure Survey by the U.S. Bureau of Labor Statistics, the ‘typical’ middle-income household spends about $2,700 per year on a landline telephone service, two cell phone subscriptions, a broadband connection, and a subscription to a multichannel video service,” the report indicates. “Adjusting for the ‘average’ take rate of services in this middle-income group, consumers spend almost twice as much on these services as they spend on electricity. They spend more on these services than they spend on gasoline. Consumer expenditures on communications services equal about four-fifths of their total spending on groceries.”

The authors point out the Obama Administration, unlike the Bush Administration that preceded it, was the first since the 1996 Act’s passage to begin implementing policies to enhance and protect competition, and also check unfettered market power among the largest incumbent providers:

  • It blocked the AT&T/T-Mobile merger, which would have removed an important competitor and affect wireless rates in just about every U.S. city. The Obama Administration’s opposition not only preserved T-Mobile as a competitor, it also made that company review its business plan and rebrand itself as a market disruptor, forcing wireless prices down substantially for the first time and collectively saving all wireless customers in the U.S. billions from rate increases AT&T and Verizon could not carry out.
  • It blocked the Comcast/Time Warner Cable merger, which would have given Comcast unprecedented and unequaled control over internet access and content providers in the U.S. It would have immediately made other cable and phone companies potentially untenable because of their lack of market power and ability to achieve similar volume discounts and economy of scale, and would have blocked emerging competitors that could not create credible business plans competing with Comcast.
  • It blocked informal Sprint/T-Mobile merger talks that would have combined the third and fourth largest wireless carriers. Antitrust regulators were concerned this would dramatically reduce the disruptive marketing that we still see today from both of these companies.
  • It placed restrictions on Comcast’s merger with NBC Universal and Charter’s acquisition of Time Warner Cable. Comcast was required to effectively become a silent partner in Hulu, a vital emerging video competitor. Charter cannot impose data caps on its customers for up to seven years, helping to create a clear record that data caps are both unnecessary and unwarranted and have no impact on the cost of delivering internet services or the profits earned from it.
  • Strong support for Net Neutrality, backed with Title II enforcement, has given the content marketplace a sense of certainty and stability, allowing online cable TV competitors to emerge and succeed, giving consumers a chance to save money by cutting the cord on bloated TV packages. If providers were given the authority to discriminate against internet traffic, it would place an unfair burden on competitors and discourage new entrants.

The authors worry the Trump Administration and a FCC led by Chairman Ajit Pai may not be willing to preserve the first gains in broadband and communications competitiveness since mergermania removed a lot of those competitors.

“The key lesson in the communications sector is that vigorous regulation and antitrust enforcement can create the conditions for market success. But balance is the key,” the reports warns. “Technological innovation and convergence are no guarantee against the abuse of market power, but the effort to control the abuse of market power should not stifle innovation. If the Trump administration jettisons the enforcement practices of the past eight years, then the telecommunications sector is likely to see a wave of new consolidation and a dampening of the price cutting and innovative wireless and broadband services that have been slowly emerging.”

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