The Fault In Our Stars: Lessons From The 2015 Box Office

Economists have long recognized that the sports and entertainment industries exhibit elements of what University of Chicago economics Sherwin Rosen called the economics of superstars in his classic 1981 study, in which small differences in talent or popularity can lead to outsize differences in returns. Anyone who reaches the NBA, for instance, is by definition an elite athlete. But Star-Wars-Force-Awakens1if the superior skills of a LeBron James or Kobe Bryant added a mere 2 points per game on average to his team’s total, in a league where the average point differential per game is 0.06, over the course of a season they could easily add a half a dozen or more wins to the team’s record, making the difference between first place and missing the playoffs. Given the financial payoff for the team’s owners of reaching the playoffs, James and Bryant are worth almost any price, as in fact their salaries reflect.

Similarly, there are many talented performers in the entertainment industries. But people tend to prefer to listen to the same music and see the same movies as their friends. So if their friends start to listen to Adele or Taylor Swift more than other artists, even by a small amount, that difference in popularity is quickly amplified through network effects to where Adele and Swift tower over others in the charts and can command almost any price for their concerts. Read More »

How The CRB Has Done The Music Industry A Favor (Updated)

With the possible exception of Taylor Swift, Janet Yellen may now be the most powerful person in the music business. As chair of the Federal Reserve, Yellen controls the levers that control the rate of consumer inflation in the U.S., a number on which potentially millions of dollars in music royalty revenues will now turn in the wake of Wednesday’s ruling by the Copyright Royalty Board (CRB) setting the royalty rates that internet radio services like Pandora and iHeartMedia must pay to record labels and artists for the next five years.

Under the new rate card, internet radio services will pay 17 cents per 100 streams in 2016 ($0.0017 per stream), up nearly 20 percent from the 14 yellencents per 100 streams they pay today but well below the 25 cents per 100 that SoundExchange, which collects digital royalties for artists, had sought. After that, the rate will be indexed to the Consumer Price Index (CPI), the main gauge the government users to track inflation, for the next four years, which means the rate could go up or down with the price of bread.

It was an unexpected and deeply peculiar move that looked like nothing so much as an effort by the CRB, an arm of the Library of Congress, to get out of the rate-setting business, which itself would be mighty peculiar insofar as its role in setting royalty rates for webcasters is mandated by Congress and not really optional on CRB’s part. Read More »

Zero Tolerance

As the FCC awaits the fate of its open internet order (a.k.a. net neutrality) in the D.C. Circuit Court of Appeals, language that could have mooted much of the legal case by limiting the commission’s authority to regulate internet access was stripped at the last minute from the 2000-page omnibus spending bill unveiled by congressional leaders Tuesday night to keep the government running into 2016.

The removal of the rider was a blow to ISPs, which had lobbied to keep the language in the spending bill, but net neutrality advocates have found plenty of other things to complain about lately regarding the behavior of ISPs. Top of the charts: the growing number of streaming services ISPs are selectively exempting from data caps.

FCC_buildingIn just the past three months:

  • T-Mobile introduced its Binge On plan, which allows mobile users to stream video from roughly two-dozen “partner” services, including Netflix, HBO Now, Sling TV, MLB.tv, Showtime and Starz, without those bits counting against a subscriber’s data cap;
  • Comcast launched Stream TV in a handful of markets, a live and on-demand streaming service that, unlike Netflix, for instance will not count against Comcast subscribers’ data caps where those are in place (as no doubt they soon will be everywhere);
  • Verizon launched Go90, its in-house streaming service for which data usage is “sponsored” by advertisers and therefore isn’t counted toward the user’s data cap;
  • AT&T hinted broadly that it, too, will launch a mobile streaming service that, like Verizon’s Go90, would be “sponsored” by someone other than the user.

Read More »

The Future of TV: Platform or Service?

Amazon on Tuesday unveiled its expanded Prime Instant Video service and it seems to be more or less as advertised. Prime subscribers will now be able to add subscriptions to other over-the-top streaming services, including Showtime, Starz and an array of niche channel for prices ranging from $3 a month to $8.99 a month for Showtime, on top of the $99 annual price ($8.25 per month) for Prime.

Amazon SDDChannels can be ordered a la carte, and subscribers can change their line ups each month. Prime subscribers can also user their Amazon credentials to log in to any of the standalone apps for their add-on channels on other streaming platform, which means Prime subscribers can watch Showtime on Apple TV despite the absence of Prime on the Apple set-top box.

For the participating networks, the expanded Prime means forgoing a direct relationship with subscribers, as Amazon will handle all billing and customer service functions, presumably in exchange for a cut of the add-on subscription fees, while gaining the leverage of Amazon’s reach and merchandising strength. Read More »

Aereo’s Fuzzy Legal Legacy

While the FCC seems to have backed off for now from a proposal to update the regulatory definition of multichannel video programming distributors (MVPDs) to include certain types of over-the-top services, the battle over how the law should treat online video rages on along other fronts.

aereo_antennaOn Wednesday, a redacted copy of an opinion issued under seal last month by U.S. district court judge Rosemary Collyer, concluding that OTT broadcast service FilmOn X was not entitled to the compulsory license that cable and satellite services rely on when they retransmit copyrighted content contained in broadcast signals, was released to the public. And even with the redactions, it’s now clear that Judge Collyer took a 180-degree different view of the question than U.S. district judge George Wu took last year in ruling that FilmOn was, in fact, entitled to the compulsory license.

The two questions — who qualifies as a MVPD under FCC regulations? and who qualifies for the compulsory copyright license MVPDs rely on? — are legally distinct, but closely related. Read More »

Amazon’s On-Demand MVPD

At a congressional oversight hearing last month, FCC chairman Tom Wheeler indicated that his earlier proposal to classify certain over-the-top video services as “multichannel video programming distributors” (MVPDs), a regulatory term of art that applies to cable and satellite providers, was on more or less indefinite hold.

“The purpose of rulemaking is to learn,” Wheeler told the committee. “We learned that [a] vast number of things are developing very rapidly, and we have not moved forward on that notice of proposed rulemaking and don’t see, until situations change, we would.”

Among those “vast number of things,” no doubt, were Amazon’s confidential plans to bundle third-party OTT services in with Amazon Prime, monitor_globeallowing Prime Instant Video users to put together a package of OTT channels through a single subscription. As first reported by BloombergBusiness, Amazon Prime customers “will have the option of adding other online subscriptions to their accounts, including major, well-known movie and TV channels, and Amazon will also sell prepackaged bundles of its own creation…[T]he new feature may go live as soon as next month.”

The offering would “resemble something between a cable-TV subscription, though without live programming, and the online array of video offered through devices from Roku Inc., Apple TV or Amazon’s own Fire TV,” according to Bloomberg. Read More »

Licensing Music Streaming’s All-Of-The-Above Business Model

There’s an old adage in business that there really are only three fundamental business models in the world: I pay, you pay, or somebody else pays. Music streaming services have been built on each of those.

Music has been bundled in with other services at no apparent additional cost (I pay); it has been offered as a subscription service (you pay); and it gangnam1has been made available for free, supported by advertising (somebody else pays). Increasingly, however, streaming services are looking to multiple business models in search of still-elusive profits.

The latest case in point: Pandora. Originally an ad-supported internet radio service, it spent $450 million last month to acquire music concert ticketing and promotion service Ticketfly. This month it dropped another $75 million to buy parts of paid-streaming service Rdio at the latter’s liquidation yard sale. Read More »

FCC Hitting Pause On Pay-TV Overhaul?

For much of the past year, the Federal Communications Commission has been conducting a pair of proceedings that together, depending on their outcomes, could go a long way toward remaking the pay-TV business as we’ve known it. But at an oversight hearing before the House Energy and Commerce Committee yesterday, FCC chairman Tom Wheeler seemed to turn down the heat under both of them.

Receiving the most attention at the hearing was the recently completed report by the Downloadable Security Technical Advisory Committee Federal Communications Commission (FCC) Chairman Tom Wheeler gestures at the FCC Net Neutrality hearing(DSTAC), in particular a controversial proposal in it to require pay-TV operators to disaggregate their services into discreet components that would allow third-party set-top box makers to design their own user interfaces that could leverage elements of pay-TV services to create new user experiences (see our previous discussions of the debate here, here and here).

Republican members of the committee were sharply critical of the proposal and accused the FCC of exceeding Congress’s mandate for DSTAC in allowing the committee to consider non-security elements of pay-TV interoperability. Some members all but endorsed a competing proposal, put forth by pay-TV service providers, to adopt an app-based approach to interoperability under which service providers would, in effect, virtualize their existing STBs, complete with proprietary UIs, into apps that could be downloaded and run on third-party devices. Read More »

Cutting The Cord From Both Ends

Depending on whom you believe and when you start counting, cord-cutting is either slowing down or it’s accelerating.

According to a new survey by TDG, the percentage of adult broadband users who are “moderately” or “highly likely ” to cancel their pay TV service in the next six months has dropped by 20 points since last year.

“Cord cutting proclivities have held steady for several years, with approximately 7% of [adult broadband users]  pay-TV subscribers moderately or highly likely to cancel their service in the six months following the survey,” TDG director of research Michael Greeson said in a statement. “In early cable_TV_not12015, however, the number declined to 5.7%. This is the first time in five years we’ve seen significant change in these metrics.”

According to MoffettNathanson analyst Craig Moffett, however, U.S. pay-TV providers lost 357,000 subscribers in the third quarter of 2015,. That was more than twice their losses in the same quarter last year, although it was down substantially from the 605,000 they lost in the second quarter of this year.

Take your pick. Read More »

The Wrong Debate Over Set-Top Boxes

Today (Nov. 9th) was the last day for filing comments with the Federal Communications Commission regarding the final report of the Downloadable Security Technical Advisory Committee (DSTAC) and folks in the pay-TV industry were clearly getting nervous that the FCC might finally, really do something this time to “tear up the set-top box.”

Last week, eight of the largest pay-TV providers, along with the National Cable & Telecommunications Association, the Motion Picture Association Push_button_cable_boxof America, and several equipment manufacturers together sent a phalanx of lawyers and lobbyists to FCC headquarters, ex parte, in a desperate bid to head off any movement by the agency toward a rulemaking that would require pay-TV providers to disaggregate their services into rearrangable  parts as proposed by the technology company and public interest faction of DSTAC.

The group was particularly exercised by an ex parte filing with the commission in late October by Public Knowledge, Google, Amazon and Hauppauge purporting to fill in the technical details of the “virtual head-end” proposal made by the technology faction of DSTAC for separating out the components of pay-TV services. According to MPAA, NCTA et. al., however, the new version “is so changed that it is barely recognizable from [the technology group’s] earlier proposal in the DSTAC Report,” and required more time for study before they could adequately respond to it. Read More »

A World Of Difference: Copyright in TPP and the EU

The full and final text of the Trans Pacific Partnership agreement was officially released today, giving the public and Congress their first look at the long-gestating and controversial trade deal. And it’s clear from the chapters on intellectual property and investment that content creators and copyright owners got more or less everything they were seeking from the deal.

The treaty, which Congress will now have 90 days to vote up or down but cannot change, would require countries to ban the circumvention of EU headquarterstechnical protection measures (i.e. DRM) and, like the the Digital Millennium Copyright Act in the U.S., to sever liability for circumvention from any actual infringement of copyright. In other words, circumvention is verboten whether or not it results in an infringement under a participating country’s national copyright law.

The text does allow countries to pass exceptions to the ban on circumvention for non-infringing uses, as the DMCA permits through a triennial rulemaking by the Library of Congress, but it does not make those exceptions mandatory. The text also avoids any reference to a U.S.-style fair use principal while extending the term of copyright in all TPP countries to the U.S. standard of the life of the author plus 70 years. Read More »

CBS All Access: Live Long And Differentiate

The original five-year mission of the Starship Enterprise was to explore strange new worlds and to seek out new lives and new civilizations. When it next leaves space dock, in 2017, it’s mission will be to explore a new strategy for transporting network TV content over-the-top.

CBS this week thrilled Trekkers throughout the galaxy by announcing the debut of a new, as yet untitled Star Trek series in January 2017, the first new series since the cancellation of “Star Trek: Enterprise” in 2005. But in a plot twist worthy of a Romulan cloaking device, the series will only be viewable in the U.S. on CBS All Access, the network’s $5.99 a month over-the-top streaming service.

Mr-SpockThe move caused many a media head to be scratched. CBS hasn’t disclosed how many subscribers CBS All Access has, but it’s almost certainly fewer than a million, a tiny fraction of the audience reach of CBS itself. Even if CBS wanted to make the new series streaming-only, Netflix has 40 million U.S. subscribers, Amazon Prime Video isn’t far behind, and Hulu has more than 9 million.

CBS All Access is sure to grow between now and 2017, of course. The app is on the new Apple TV and other OTT platforms, and the network continues to negotiate with the NFL for streaming rights to at least some of the games CBS currently broadcasts, all of which should help drive subscriptions. But even with those opportunities it isn’t going to reach Netflix-like numbers by 2017, and maybe not even Hulu numbers. So why such a small platform for such a big franchise like Star Trek? Read More »

Rethinking Music: What The Industry Could Learn From Netflix

It seems fair to say that no one in the music business right now is happy with how it’s being run. As streaming, including both paid and ad-supported, has replaced CD sales as the industry’s main economic engine, the record companies have seen gross revenue decline sharply, artists and songwriters have seen their royalty income diminished, and the companies doing the streaming are losing so much money they’re losing the ability to raise more of it.

In an interesting thought experiment at the Future of Music Policy Summit in Washington this week, musician and CEO of touring van rental service Bandago Sharky Laguana, considered how one component of the industry’s current business model — how subscription revenue Music_Festivalfrom paid streaming services is ultimately allocated to individual artists — might be made more fair, if not necessarily more lucrative.

In very broad strokes, of the $10 a month most subscription services charge consumers, the streaming service keeps $3 (30 percent) and $7 (70 percent) is paid out in royalties (theoretically to artists and songwriters but in practical terms to labels and publishers who are supposed to then distribute them). The portion of that $7 accruing to any one label is calculated based on how many times songs recorded by any of the artists under contract to the label are streamed by subscribers, typically resulting in a per-stream value of a fraction of a penny. Read More »

The Bills, Jaguars And Peak-NFL

Given how little good news Yahoo has had to share with investors lately it’s no surprise that the company is trumpeting the results of Sunday’s first-ever globally live-streamed regular season NFL game, between the Buffalo Bills and Jacksonville Jaguars, which attracted 15.2 million unique viewers and 33.6 million total views. Those numbers make it one of the biggest live-streamed events to date, and compare favorably with the TV audience for  a typically Thursday night or Monday night regular season game, according to the NFL.

“We’re thrilled with the results of our initial step distributing an NFL game to a worldwide audience and with the work of our partner, Yahoo,” NFL senior VP of media strategy, business development and sales,Hans Schroder said in a statement. “We are incredibly excited by the fact that jaguars-billswe took a game that would have been viewed by a relatively limited television audience in the United States and by distributing it digitally were able to attract a global audience of over 15 million viewers.”

Yet as others have pointed out, the reported numbers don’t tell the whole story. Yahoo had to resort to some trick plays to score some of those points, like putting a muted auto-play video of the game on the home pages of several of its properties, which means your Aunt Minnie, who has never watched an NFL game in her life but uses Yahoo as her personal home page, is somewhere in that 15 million. The comparison with broadcast TV viewership is also overstated. As Brian Stetler of CNN pointed out, the 460 million total minutes of football Yahoo claims to have streamed, over the course of a 195-minute game, implies an average of just 2.36 million concurrent viewers, the streaming metric most comparable to TV ratings. Read More »