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5 Reasons Why You'll Never Get Full TV From a Tech Company (Op-Ed)

By - Source: Tom's Guide US | B 12 comments
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Jeremy Toeman is the CEO of Dijit Media, which develops technologies for people to discover new ways to experience TV shows and movies. He contributed this article to Tom's Guide's Expert Voices: Op-Ed & Insights.

These days, it seems like just about everybody wants to start a cable company. Depending on the rumors you read, everyone from Apple to Google to Facebook to Intel is about to "take down" the pay-TV providers. Sounds great, and while many people would love technology innovators to "disrupt" the industry, there are five practical reasons why that probably won't happen.

Video content deals aren't easy

There's a tendency to believe that licensing TV shows from producers is a simple matter of scheduling a meeting, coming to pricing terms and poof — you've got a deal. That's not the case. Remember, there's a value in control and scarcity — as much as the producers do want eyeballs on all their content, they also want to preserve the value associated with it not being everywhere.

Shows aren't always available

In many cases, there are exclusive relationships between producers and providers. For example, Netflix didn't purchase the U.S. streaming rights to "House of Cards" just so any mom-and-pop startup can have it too. This means any new entrant in the space with a focus on digital delivery may end up in situations where, sometimes, there's literally no price at which content is available.

Content isn't cheap

Netflix paid $100 million just for the rights to "House of Cards." HBO gets a rumored $9 to $12 per household and there are requirements for a minimum number of subscriptions. With just 500 customers, for example, an upstart TV company isn't going t be able to negotiate a deal with HBO. So what does it have to offer you?" No matter what model you're looking for, nothing about it is cheap — especially considering viably competing with existing providers means offering something similar to existing platforms. In other words, nobody is going to switch from their existing Pay TV Provider to yours just because yours is new and cool — as is said, content is king.

Content becomes available in "windows"

Ever notice how long it takes for new episodes of a show to come to Netflix? Or how movies are released on DVD before they are offered through video-on-demand? Or how long (or short) it takes shows to reach syndication? Every piece of content has its own set of "windows" during which it becomes available to different types of platforms.

Content has minimum prices

So, even if all of the above is acceptable, there's one last little caveat in TV licensing: fixed-contract pricing. So, even if someone were going to invest billions into buying the rights to FOX, NBC or other network shows, they aren't going to get any better pricing than the current providers will. In other words, whatever the cable provider is paying for a TV network, a competitor cannot possibly get a better deal than that, due to the potentially decades-long contracts that are in place.

Now, putting it all together: Anyone trying to compete with existing pay-TV providers will do so at an inherent disadvantage. They will not get anything cheaper than existing providers do, in any way, nor with a wider offering of selections, nor with earlier access, or any other element that improves their economic prospects. Furthermore, they'll be doing it with no starting subscribers to offset the massive costs. In fact, when you add it all up, it seems like the only way to enter the game is with an unbelievable amount of risk.

I'm as big a fan as anyone of seeing new competition, opening more audience choice and creating new services. But anytime I hear about new companies that want to become TV providers, I can't help but wonder "why?"

Jeremy Toeman's most recent Op-Ed was "6 Things You Might Not Know About Cord-Cutting". The views expressed are those of the author and do not necessarily reflect the views of the publisher. This version of the article was originally published on Tom's Guide.

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  • 0 Hide
    vmem , September 24, 2013 2:42 PM
    while I agree with all of your points, I feel that the article drifts a bit from the scene set up in the opening paragraph.

    I don't know about the other readers out-there, but for me personally, I am interested in seeing Apple, Google, Intel, and Microsoft take a shot in the Pay-TV market and compete against existing companies. and when I say that, I mean exactly those big companies with their giant "war-chests", not some small mom and pop shop. Yes, entering the market carries a tremendous amount of risk, but it is also an opportunity for some steady income because the probability of someone continuing a $10-20 per month sub is pretty high (just look at netflix or hulu subscribers). It is these bit IT companies that have the capital to throw a few billion dollars down to enter the market, and it is them that I'm interested in seeing 'disrupting' the market
  • 7 Hide
    LePhuronn , September 24, 2013 3:29 PM
    and therein lies 5 reasons why TV will continue to be pirated.
  • 0 Hide
    twelch82 , September 24, 2013 3:57 PM
    You can already see the future in the likes of what's on Google Play. There are several shows that I want to watch, and don't want to have to bother with the hassle of being there right when the show airs, or have to watch commercials.

    So I buy the season for $25, and I can watch each episode when I feel like it as it becomes available, immediately after it airs. That might sound expensive, but consider how much you're paying for cable every month. How many shows do you actually watch?

    The only thing that's left is sports. I want to watch sports live. If Sunday Ticket had all the games - including the local ones, and Sunday Night/Monday Night Football - I'd be covered.
  • Display all 12 comments.
  • 0 Hide
    icepick314 , September 24, 2013 4:49 PM
    torrent, torrent, torrent!

    as long as the content owners are making hard for consumers to consume, they will go to illegal route...

    I can't still watch Game of Thrones without buying HBO subscription or buy DVD/blu-ray when it's released but you'll miss out that "next day conversation at the water cooler" moments...

    Netflix does great job but that's not enough...

    one really bad trend I notice was each studio is trying to start their own subscription service...

    on my Roku box, I saw classic WB movie channel for a fee...that means if I wanted to watch some of those movies, I have to subscribe to THAT service on top of basic cable, Amazon, Netflix, Hulu, and any other services that I may want to watch...

    it's wonderful that more and more contents are trying to go online but this multiple services that you have to pay to 5-10 services aren't going to make people happy...
  • 1 Hide
    mortsmi7 , September 24, 2013 6:35 PM
    Here's what you do. Rotate out the providers you don't watch as much. Netflix in March, Hulu in April, Amazon in May...
    Crunchyroll is a permanent though.

    This also gives a chance for the content to refresh, while saving a few dollars.
  • 1 Hide
    JackFrost860 , September 24, 2013 8:04 PM
    and torrenters will go to jail; How long can you keep torrenting before some authority finds you; and they will eventually. It's not worth 100K fines or jail time for TV
  • 0 Hide
    shin0bi272 , September 24, 2013 9:55 PM
    Not that you dont seem to be correct in your 5 assumptions lets not forget that netflix does have house of cards regardless of how much they paid for it. It may just be the first domino to fall to the internet tv revolution (but I could be wrong too). Hulu has several dozen shows that are available the next day (dont ask me to name them thats just what they said when I asked them why I should get their service... i still havent btw). The main reason I think youre going to be right... at least for the foreseeable future anyway, is that live tv like news and sports are not available yet. Sure I can watch my favorite tv shows a day or a season too late on hulu and movies a couple of years after they hit the theaters on netflix but if I cant watch anything live then the only reason to have netflix or hulu is to obtain the legal viewing rights to those things rather than pirating them. Though there are some news channels (fox news for one) that do live streaming on their site you just have to have an account with a cable provider that they have a deal with. So for the time being internet tv isnt feasible but its getting there.
  • 1 Hide
    SteelCity1981 , September 24, 2013 10:55 PM
    this is also way we won't see 4k broadcast anytime soon from tv stations or cable companies for that matter they are all content with broadcasting 480p, 720p or 1080i. my dish receiver only goes up to 1080i I mean come on really? 1080p has been out for a long time now and yet none of these stations or cable companies won't even broadcast that and they won't unless the gov pushes for them to do so and good luck with that. I mean it took the u.s. how many years to finally get off analog signal? lol
  • 2 Hide
    icemunk , September 25, 2013 3:35 AM
    Sorry, but cable tv is dying. It won't disapear completely, but its market share will continue to dwindle. Which also means, your stock portfolio is going to take a hit if you don't sell soon. Thanks for the Op-Ed paid advertisement for the cable industry though.
  • 0 Hide
    back_by_demand , September 25, 2013 5:12 AM
    Thank god for XBMC and isoHunt, I got 99 problems but being cable's bitch aint one
  • 2 Hide
    dark_knight33 , September 25, 2013 7:41 AM

    Of course you can't watch GoT without an HBO subscription, it's an HBO show. You also can't watch House of cards without a netflix subscription. Your complaint that you'd have to pay for HBO to watch an HBO show, and that's why you "torrent, torrent, torrent!" is ignorant.

    Further, I'd rather pay $10/mo to 5 different services that each have content I want, than $50 to a pay TV provider that carries mostly garbage and forces me to subsidize channels that aren't even in English, and I'll never watch. Those multiple providers work harder for that $10, than Comcast or Verizon ever did for my >$50.

    In fact, the only two thing that keeps me paying for cable tv is Disney junior (for the kids) & news channels. If I could get live CNN/MSNBC/CNBC on an easy to access steam from XBMC, I'd probably just scrap cable tv all together and tell the kids to suck it up.
  • 0 Hide
    back_by_demand , September 25, 2013 10:32 AM
    Dark_knight, I don't know if TVCatchup has usable channels outside the UK, but there is a TVCatchup plugin for XBMC and I get 50 free to air channels streamed, including news and kids
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