Who Wants To Be An MVPD?

FCC chairman Tom Wheeler dropped a pretty broad hint last month that the commission is gearing up to reclassify at least some over-the-top video services as multichannel video programming distributors (MVPDs) as described in the Communications Act, putting them on roughly the same regulatory footing as cable and satellite providers.

In theory, the change could make it easier for services like Sling TV and Apple’s long-rumored subscription video service to add local broadcast channels to their Federal Communications Commission (FCC) Chairman Tom Wheeler gestures at the FCC Net Neutrality hearinglineups because it would extend the same retransmission consent rules to online video distributors as apply to cable and satellite providers.

Under the current retrans rules, broadcasters are required to enter “good faith” negotiations with any qualified MVPD for carriage of their signals. Similar rules, which presumably would also be extended to OTT services, require that cable networks owned by or affiliated with cable operators, such as the NBC Universal cable networks now owned by Comcast, must make their programming available to all other MVPDs.

Whether any OTT services actually want to be classified as MVPDs, however could be another matter. Read More »

Music Streaming’s Hidden Fees

Apart from precise dollar figures, there’s little in Sony Music’s original licensing contract with Spotify, uncovered by The Verge, that would surprise anyone familiar with how the major media companies do business with service providers (the full contract, which ran from 2011 to 2013, is here). Most of the money due to the label is payable upfront, in the form of a recoupable advances ($42.5 million over the three year term of the deal in this case), it includes a per-play minimum fee irrespective of Spotify’s own income, and it contains most-favored-nation (MFN) language assuring Sony that none of its competitors gets a better deal — all standard stuff.

Nonetheless, the contract provides a pretty good roadmap to where the money from streaming actually goes (hint: it’s not to artists).

spotify_1200x630_bThe advances payable by Spotify to Sony under the contract were recoupable (using a complex formula based on a fixed percentage of Spotify’s gross revenue, Sony artists’ aggreate share of total streams during the payment period and the minimum per-stream royalty) but non-refundable. If the actual payments due to Sony, as calculated under the formula, were less than the advance Sony kept 100 percent of the advance anyway. Read More »

Blu-ray: Licensed to be killed

Back in 2008, explaining the lack of Blu-ray Disc drives on Apple’s newest line of notebooks, CEO Steve Jobs famously described the licensing process around the format as “a bag of hurt.” After this week’s announcement by the newly formed BD4C Licensing Group, he’s going to need some more bags.

Photo: ArsTechnica

The members of the new group, Toshiba, Warner Bros., Thomson and Mitsubishi, claim to own, collectively, a portfolio of patents “that are essential for BD Products.” Though none of the four are known to have contributed much original IP to the Blu-ray spec, they do own a number of patents essential to DVD products. Insofar as the Blu-ray spec requires that BD devices be backwardly compatible with the older format, device makers are stuck (or stuck up, depending on which end of the deal you’re on), to the tune of $4.50 per Blu-ray player, $7.00 per Blu-ray recorder and $4.00 per Blu-ray drive.

Blu-ray media manufacturers and replicators are also on the hook, the group claims, for 4 cents per disc and 8 cents per BD/DVD flipper disc. Read More »

Alarm bells come too late for Sony Pictures

The memo Sony Pictures co-chiefs Michael Lynton and Amy Pascal sent to employees Monday announcing massive layoffs, most of which will fall in the home entertainment and IT divisions, obviously wasn’t meant to be made public. But it’s fitting that it was leaked when it was, the same day that Bernstein Research analysts Michael Nathanson and Peter Choi published what amounted to an obituary for packaged media as a profit driver for Hollywood.

According to Bernstein:

  • For 2009-2012, we [previously] forecast overall U.S. home entertainment industry revenues to decline at a -2.1% CAGR. This underscores the mature nature of the industry, plus the importance of share gains for individual players. Over this time frame, aggregate operating profit declines of low single digits are also expected.
  • Now one year later, looking at the cold hard facts of 2009, retail spending on sell-through DVDs and Blu-Ray discs dropped by -18% while rental of these products actually increased by 4%. As a result, the sell-through of physical discs declined from 63% of the market to 57%.
  • This massive change in behavior continues to have negative implications for studio profitability as every home video executive would rather book the $16 of profit contribution per transaction from selling a disc vs. the $3.50 to $1.40 per disc profit contribution from rental.
  • [snip]
  • Our analysis also shows that the Blu-Ray format is having a more modest acceptance rate that traditional DVD. In 2009, three years after its introduction, Blu-Ray’s penetration of TV households stood at 4.4%, compared to 13.0% for DVDs in 2000. We also find that Blu-Ray [sic] has seen lower numbers of titles shipped per converted household relative to DVD. We don’t see Blu-Ray stemming the decline of physical sales. Read More »

iDisney

One of the more interesting subtexts to the battle between Disney and Sony Pictures over the work of the Digital Entertainment Content Ecosystem consortium (DECE) is the degree to which the studios have come to resemble each other. Sony Pictures has long been a captive of Sony Electronics. Decisions on what technologies or which formats to support are not made independently by Sony Pictures; they’re made by Sony Corp. in accordance with Sony Electronics’ technology or device strategy. That’s why Sony bought Columbia Pictures and CBS Records, after all: to be sure it had content to feed its devices.

steve_jobs_mouseketeerIn Disney’s rejection of DECE we see a similar dynamic at work with respect to its technology master, Apple. The parallel isn’t exact; Apple doesn’t literally own Disney. But Steve Jobs is Disney’s largest individual shareholder and sits on its board of directors. He obviously has a loud voice on what technologies and which formats Disney supports.

How do I know Apple is a factor in Disney’s DECE stance? I don’t have direct knowledge of it, of course. And I’m sure Disney executives would sputter and fume at the allegation. What makes it a reasonable conclusion, I think, is that there is no obvious or compelling reason for Disney not to support DECE, at least officially, if not enthusiastically.

I can see lots of reasons to be skeptical of DECE. It’s already taking too long to produce results and it’s likely to require so many compromises as to be only marginally useful at best. But I don’t see a big downside for a studio in keeping a hand in. It could, of course, turn out to be a waste of time, but the studios waste time on inter-industry groups all the time. Disney Home Entertainment president Bob Chapek has, himself, served as chairman of the Digital Entertainment Group, for instance, which is a complete waste of time, to say nothing of the $10,000 per company in dues. It’s possible the work of DECE could lead to something useful, which can’t be said of the work of DEG. I don’t see the downside to a studio from being involved, or the upside in trying to scuttle it.

Apple’s opposition to DECE, on the other hand, makes perfect sense. Apple has never believed in device interoperability, unless they’re all Apple devices. And it has done very well by following that strategy, as its Q3 earnings report this week makes clear. But a large part of Apple’s success in the device business has also come at the expense of content owners, as the music companies can explain (Disney, of course, was the first studio to sign a deal with iTunes). DECE’s success would be Apple’s failure. But it’s hard to see how it would harm Disney, were it not for Steve Jobs’ interest.

comcast-nbc-monopolyAs is happens, another major studio, NBC Universal, could soon come under the control of another technology company, Comcast. Comcast’s interest comes at a time of technological upheaval in the pay-TV business, and Comcast officials have made no secret of their desire to control the technological exploitation of NBC’s content assets, particularly its cable networks.

Should a Comcast/NBC deal come to pass, three of the six major studios will be controlled — if not literally owned — by technology companies with distinct agendas regarding the evolution of media business. Rather than playing kingmaker among technology providers as in the past, the studios are becoming the pawns.