Content, Content, Content

On Tuesday, it was revealed that Discovery Communications and Scripps Network were in advanced talks to merge.  If it happens, non-fiction content assets such as Discovery, Animal Planet and OWN would be combined with HGTV, Travel Channel, and the Food Network.

Without a doubt, the move is in response to threats, namely increased consolidation among distributors and cord-cutting.  Larger Pay-TV providers pitted against smaller content owners “win” in retransmission negotiations, especially if the content is not highly valued by viewers.  The creation of lower priced skinny bundles that may or may not have space for less in-demand programming fortifies the challenges faced by the likes of Discovery and Scripps.  But, does a combined firm change any of that?  I believe it does/will not.  The programming has to be better – more engaging and more interesting.  Without that, viewers, particularly millennials, will not have a willingness to pay, regardless of the scale and scope of the firm that owns them.

It's back...Net Neutrality

Today, FCC Chariman, Ajit Pai, spoke on "The Future of Internet Freedom" at the Newseum in Washington D.C.  In his remarks, he advocates reversing the 2015 classification of broadband providers as Title II common carriers back to the light-touch regulation of Title I information services.  Pai stated that "It's basic economics.  The more heavily you regulate something, the less of it you're likely to get."  The topic will be on the FCC's May 18th meeting's agenda.

Let the fireworks begin (again)!

http://transition.fcc.gov/Daily_Releases/Daily_Business/2017/db0426/DOC-344590A1.pdf

It Only Takes ONE to Tango

At today’s FCC meeting, the Commissioners voted along party lines to phase in the elimination of price caps on Business Data Services (BDS) provided by traditional phone companies if, within a county, 50% of the businesses are within a half mile of a location serviced by a competitive provider or if 75% of census blocks are served by a cable operator.  If the percent threshold is met, the market (the entire county) is deemed sufficiently competitive.

http://transition.fcc.gov/Daily_Releases/Daily_Business/2017/db0420/DOC-344487A1.pdf

The FCC Chairman, Ajit Pai, argued that “Price regulation—that is, the government setting the rates, terms, and conditions for special access services—is seductive.  Who can possibly resist the promise of forcing prices lower right now?  But, in reality, price regulation threatens competition and investment.”  Pai hopes the rule change will lure new entrants.  Opponents believe that the rule change will mean higher prices for a large number of businesses.

Let's Make a Deal

It’s looking more and more likely that the $85B AT&T-Time Warner deal will happen.  Why?  

First, President Trump seems to be less concerned about the deal than Candidate Trump did 6-months ago.  Second, the FCC, on Monday, approved Time Warner’s $70M preemptive sale of its Atlanta TV station to Meredith.  The broadcast station was the only one of Time Warner’s stations regulated by the FCC.  Had the FCC decided the review the merger, the requirement to transfer station licenses may have been an issue.  Third, the new head of the Antitrust Division of the DOJ, Maken Delrahim, does not see the merger “as a major antitrust problem” as it does not reduce the number of direct competitors in the marketplace.  This is in spite of the merger’s size and potential foreclosure issues.  

As the probability of this deal happening increases, could the announcement of others be far behind?

What is going on in the brick-and-mortar retail space is much like…

what is happening in the cable industry.  DISRUPTION by new entrants.  It started with Amazon (and e-commerce) in retail and Netflix (and other streaming services) in home entertainment.

 

In the 1980s/90s, retailers like Macys and JCPenney built-out their footprints at mall locations across the country.  At those locations, they largely sold the brands of unaffiliated merchandisers.   Consumers spent a lot of time at the mall to shop.  All was good in the retail space.

In the MVPD industry in the 1980s/90s, cable firms provided access to content owned by third-parties.  If consumers wanted to watch a live-sporting event, their favorite show, the nightly news, they turned on the television.  There were 90+ million MVPD households.  All was good in the TV business.

All was good because, in each industry, the relationship between the owners of “the box” and the owners of “the stuff” made available through the box was one of mutual dependency.  If you built it, “they” would come.  But, there was a change, a technological one, which shifted the preferences on how consumers shopped and watched programming.

In response, MVPD providers are consolidating, creating their own content, and providing different packaging options for consumers (e.g. skinny bundles and online access).  Retailers are merging and closing locations, creating their own merchandise, and expanding their online presence.    

http://fortune.com/2017/03/17/jcpenney-stores-closing/

It's time for the details on infrastructure policy

Seven years ago this Friday (3/17/2010), the FCC released the National Broadband Plan that outlined ways the government can influence the build-out of the broadband ecosystem, including ensuring robust competition that maximized innovation and investment, efficient allocation of government managed or owned assets to encourage network upgrades and competitive entry, support deployment of broadband to high-cost areas and ensure its affordability to low-income households, and reform laws and policies to maximize benefits in education, health care,  and government operations.  At the time, approximately 200 million individuals had access to broadband (4 mbps) at home.   (See: https://www.fcc.gov/general/national-broadband-plan ). 

In it's 2016 Broadband Progress Report, the FCC reported that nearly 10% of Americans (34 million) still lacked access to fixed broadband at speeds of at least 25 mbps. The difference in the unserved percentage by market density ranged from 39% in rural areas to “just” 4% in urban areas. 

In his recent address to Congress, President Trump reiterated a commitment to infrastructure spending.  While no details were presented on broadband, it is assumed that some federal money will be allocated and there will be efforts to reduce regulations/laws that have limited private sector network build-outs.  Hopefully, some policy ideas will be floated soon in order to get market reactions.  

Time can often kill a deal, but this time it may help one

On Wednesday, newly appointed FCC Chairman, Ajit Pai, stated that he would allow an independent review by commission attorneys of his decision not to examine the proposed AT&T-Time Warner merger because there are no broadcast license transfers in the $85B deal. 

Assuming the position stands, that leaves the DOJ as the sole regulatory agency reviewing the merger.  And, it is likely that, with the passage of time (last 6-months or so), the deal is much more likely to get approved in the months ahead, in spite of President Trump’s disdain for the deal when first announced.  What has changed?  Believe it or not, there are greater consumer choices for distribution and content and the providers continue to chip away at the stranglehold traditional Pay TV operators (AT&T) have had in the vertical chain.  Choices from Hulu, Apple TV, Amazon Prime, Netflix, SlingTV, PlayStation Vue and now YouTube TV are formidable competitors, so let them duke it out in the marketplace.