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The Cable Tv Industry Media Essay

Paper Type: Free Essay Subject: Media
Wordcount: 1487 words Published: 1st Jan 2015

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The rapid development in the area of technological innovation that has occurred over the last decades in the telecommunication industry, has led to a thriving growth in the digital entertainment media, shown by the emergence of new sophisticated products and a wide variety of services. This evolution has caused an increment in competition in the cable television industry. The development of these new technologies and the convergence of media and telecommunications have allowed consumers to access a greater number of services. Within this context, streaming sites to watch movies and TV shows over the Internet have become a direct competitor to the powerful business of cable television in the U.S. The purpose of this paper is to analyze the strategies used by major cable TV providers in the U.S. to counter, or even avoid, the emergence of new competitors. These strategies generate controversy because they might pose a risk against free market competition.

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Two main branches, one in charge of production and the other in charge of the distribution form the Cable TV industry in the U.S. Together they share an estimated $300 billion market value (Arango, 2009). The multichannel video programming distributors (MVPDs) such as cable television systems, direct-broadcast satellite providers, and wireline video providers give the distribution part of the equation. These companies generate revenues close to $100 billion per year, and it mostly comes from monthly cable subscriptions, additional charges from premium channels, and rental fees from set-top boxes (Shen, 2011). These companies are generally known as Multiple System Operators (MSOs) and include firms such as Time Warner and Comcast. These two providers serve almost half of the demand for cable TV in the U.S.

The video programming networks that produce the content consumers watch integrate the second component of the industry. Broadcaster networks such as ABC, NBC, and CBS, that produce their content, make it available on cable TV and over-the-air, form the producers’ network market. There are also non-broadcasters such as MTV, Comedy Central, and TBS whose content is only available through cable subscriptions (Ammori 2010). As the distribution network, the programming network is a highly concentrated market dominated by a few powerful and prevailing programming networks. These companies mainly derive their revenue from advertising and retransmission fees.

Contrasting broadcast television that relies on advertising to originate its revenue, cable networks receive revenue from fees paid by cable operators. For example, Comcast pays closely to $1 billion a year to carry ESPN (Arango, 2010). However, as the costs of pay-TV grow and consumers’ spending power stays the same, the traditional business model follow by cable providers appears to need a major change. Furthermore, the appearance of new online companies like Netflix and Hulu has put pressure on the cable industry to change their business model. For many years, both systems have harmonized and work together in a model, that now many predicts will eventually decline thanks to the proliferation of internet TV.

In an attempt to minimize the effect of this new internet trend and keep the revenue stream and business model of subscription TV, the cable TV providers have discussed the need to prevent the spread of television programs, most of which are now available online free. Consequently, they have discussed the introduction of a new model commonly known as TV Everywhere. The objective of this initiative is to ensure the delivery of the online content as “a natural extension of the existing Cable TV model.” Through this system, consumers can view programming online only if they identify themselves as cable TV subscriber, that is, only the cable subscribers can view the most popular content through the internet. The agreement reflects the profound concern of the satellite TV, telecommunications companies and cable industry to allow free access to this content, as it could lead to problems similar to those faced by the music industry and the news, which nowadays have to struggle to establish subscription-based business models. Another argument for the introduction of these barriers lies in the lack of regulation regarding access Internet content, which could push subscribers to cancel their TV service and use only the Web. The main promoters of this campaign have been the cable companies, but satellite and telecommunications companies are joining the fight.

Due to fear of violating antitrust law through collusion, the cable television executives have tried to hide their actions by eliminating a “paper trail”. Their strategy has been to have informal discussions, leaving nothing in writing. According to reports by the New York Times, “the electronic media chiefs, including [Time Warner CEO Jeffrey] Bewkes, Jeff Zucker [CEO] of NBC Universal and Philippe P. Dauman [CEO] of Viacom, among others, have been more careful to avoid being accused of collusion. Much of the discussions have been on the phone and in private, one-on-one conversations during industry events. Price is rarely, if ever, discussed, according to executives involved in the discussions” (Arango, 2009).

The executives have emphasized the importance of finding an industry-wide solution, and this can be achieved only if they collude, as such solution is not in a company’s interest unless others agree with one another on the solution. A focal point of a free market economy is that consumers are better off if each company follows its own self-interest rather than colluding with its competitors to raise prices, allocate markets, or otherwise harm consumers and competitors (Ammori, 2010). Stephen B. Burke, the chief operating officer of Comcast, has publicly admitted that if each current operator and programmer merely followed its own self-interest, just like each should do it under the law in a competitive market), then each company would be worse off. As the New York Times reported, “the problem is that if each goes in different directions – some offering more shows free, others holding them back only for cable subscribers – then the economics of the industry could crumble.”

The industry have come a predictable conflict between two discordant models for broadcast content: cable TV and the Internet. The circumstances seem difficult, and it suggests the possibility facing the “prisoner’s dilemma”. Setting it in a simple scenario, broadcasters and cable companies play the role of the prisoners. Thus, given that both cooperate to maintain unlicensed Internet-delivered TV programming off connected-TV sets, they both obtain gains (Frank, 2010). Whereas broadcast gets its large retransmission fees, cable providers get to sell diverse premium services at a substantial profit. However, the appearance of internet TV has come to propose the dilemma. In the case of broadcasters, internet TV offers the opportunity to sell programming direct to consumers, at potentially higher margins than through the cable companies. In addition, it allows a more straight control over advanced advertising and interactive capabilities that currently the cable companies are trying to control. Conversely, to cable providers, internet TV gives them the opportunity to gain more advantage in retransmission negotiations by potentially offering content that is free on the Internet for free to their cable customers as well.

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In most cases, the result of the prisoner’s dilemma is the desertion of both players, since in terms of game theory the defection strictly dominates over cooperation. Although the situation of Internet TV has not yet predict this result, the benefits of desertion still clearly outweigh the benefits of cooperation. Broadcasters are not likely to get more money from online TV providers that cable companies, and cable companies are not likely to gain enough influence to offset the potential loss of subscribers in case of losing access to popular programming. However, the evolution of Internet TV can lead to broadcasters have to choose between the programming offered on the Internet knowing that people can watch on TV as well, and the loss of a large part of the growing online audience. Distributors, meanwhile, will have to choose between continuing to pay increasing rates of carriage to holdout broadcasting or take their chances with online television. To avoid this step in the dilemma, the distributors are working with broadcasters on the TV Everywhere concept, which lasted subscriber based on conditional access to video on any device.

C. Anticompetitive effects of this new strategy

On the markets

On the consumers

V. Conclusion


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