Why Cable Is Out Of Touch With Reality

I got this headline from a friend of mine this morning

Charter Starts Itemizing Retrans Bucks In Taxes/Fees Portion Of Cable Bills

The full article is here

This is a complete asshat move by a company out of touch with its consumers.

Nobody likes higher rates: not consumers, and certainly not middlemen - and the cable companies are middlemen pure and simple. They are necessary middlemen, but make no mistake about it - they produce nothing with their cable plant and they have competitors - so they could be disintermediated.

Television networks have traditionally been free to those getting their signals with rabbit ears - and the cable networks have passed along their signals without compensating the networks. Recently, as the proliferation of cable channels has abated, the networks and local broadcasters have started asking the cable channels to provide compensation for the programming that drives the majority of the viewing on the system - particularly when some cable systems (most notably the satellite companies) have been charging directly for these signals.

The cable companies, who see programming expenses eating up between 30% and 40% of their video revenue, have pushed back hard - but can't really win the fight - as consumers care only about the programming - and not the cable providers margins.

By starting to itemize these retrans fees, Charter is heading down a slippery slope - opening itself up to questions it doesn't want to answer.

For example - if you are making 40% margins on your video business, why, as a consumer, should I be supportive of your fight against the networks? Are you entitled to a 40% margin by divine right? Why shouldn't you have much lower margins like everyone else in the world - and make up the difference in lower prices to me?

If you are going to itemize, why not go the whole distance - and start showing line item by line item what you pay for each and every channel on the dial. Maybe people don't know that they are paying over $4 per month to have ESPN. Or almost $1 per month for TBS, TNT and Fox News. In fact, as a consumer, you are paying a lot per month for programming you have no interest in watching.

Everyone argues that ala carte pricing in cable would be a disaster for programming diversity - and it might - but why should I have to subsidize any programming I don't want to watch. Particularly in these days of IP Video (think Hulu, YouTube, TV.com etc...) - programming can find a niche audience anywhere, anytime. Perhaps people are just worried that most of the programming is not what people want to watch.

Cable could go even further and explain why they make 85% margins on broadband - amazing considering that the US broadband product is generally considered far inferior to most of the rest of the world.

Or they can explain the 95% margins on VOIP telephony.

Charter can demonize the networks all they want - but at their best networks make something like a 20% margin  - and never consistently - as shows go in and out of favor. CBS, which is pretty much the best network in the US and has been for a while will likely make an 11.5% margin this year (including syndication of its hit shows). Of course a lot of retrans $'s go to the station group - so if I include this number in the total - the margin rises to 17.5% including high margin radio stations (they are grouped together) and about 15% without these.

In my opinion, Charter should keep its bills simple - instead of opening itself up to questions that it doesn't want to answer.

Apple TV - Why Much Of The Blogosphere Has Got It Wrong

It was no great secret - and much of the info was out there already - but when Steve Jobs unveiled the new Apple TV yesterday - much of the blogosphere lit up decrying it as not so interesting  - and a minor update to the "hobby" that has been around since 2006.

Venture Beat downplayed it here and Forrester analyst James McQuivey was less than excited here.

There were others out there - all of whom focused on the same two things:

1. The new Apple TV was launching with less than all the networks content and

2. There is no huge support for open source architecture allowing services like Boxee to run on the the new box

While both of these issues might put off some people you have to remember that  Apple is a very large company selling to the mainstream across the world. By bundling Netflix in with the Apple Store at $99 - you make the device worthwhile for the vast number of iPod, iPhone and iPad owners who want to stream content from their handheld devices to the TV easily. Sure, many TV's are now equipped with widgets giving you access to Netflix, Pandora and other services, and so the new Apple TV is, in reality, just catching up to my TV - but the excellent UI that Apple provides across all of its devices more than makes up for this. I'd much rather go through Apple's menu system than Sony's, or Pioneer's or Samsung's - heck I'm already using it on all sorts of other devices - so it feels native to me.

As for the the lack of Boxee support or other video support from the web, I'm solidly with Steve Jobs on this one. When I turn on the TV, I want professional content not squirrels surfing (BTW: the Apple TV does support You Tube - so if I want the surfing squirrel, I can see him - although I can assure you he will look like crap on my 50 inch plasma display). More importantly, the one thing I would like to use my 50 inch plasma display for is pictures - and that will be handled well.

Sure 2 of the networks and some of the cable channels are missing from the line-up on day 1 - but is that a real deterrent. As someone wrote yesterday, this device is not meant to replace cable (yet) - it is an input 2 device - and so I am more than happy to watch Dexter on my DVR if CBS decides not to participate in any way into the future. But guess what - all content guys go where the audience is - and if Apple ultimately sells a lot of Apple TV boxes - the content guys will be there ready to sell $0.99 downloads of their latest TV show. Remember, the average prime time television series costs between $1M and $2M to produce. Imagine a world where Apple sells 10M Apple TV boxes (maybe aggressive - but sooner or later?) If the networks could start defraying a good bit of their production costs through the rental of these shows - to a small population of real fans - the economics of the business start to work in their favor - and that is what will drive the move ultimately to these type of services.

The blogosphere is in love with Google TV - they want a television OS - and they want to cut the cord on cable's video service (they never seem to write about where they are going to get their massive bandwidth to run all the video they want in HD to their TV sets - but that's another post). Apple TV does nothing to further that ambition - and Apple is correct to pursue this path. Ultimately they are a consumer facing company - taking technology and making it available to the masses. Google is in the other camp - they are an engineering facing company - taking technology and asking the masses to come to it. Their big product - search - was and is like an apple product - clean and simple - doing a massive amount of work in the background and returning massively useful information in under a second. Contrast that to g-mails contact program - which only a Google engineer with a 160 IQ could love.

In front of a computer, I might put up with the Google view of the world - but on my TV, kicking back in my lounge chair - give me the Apple device.