Fox vs. Cablevision: A Tale of Two Streams

Dec.13.10 | About: Cablevision Systems (CVC)

Fox and Cablevision (NYSE:CVC) have been “negotiating” for the past few weeks about retransmission fees. Simply put, Fox wants Cablevision to pay them a small piece of your monthly cable bill for offering you the Fox Television Network. Just to be clear, both sides agree that Cablevision has to pay — the fight is about how much. And, not to put too fine a point on it, the stakes are huge because the money is huge.

If you’re a Cablevision customer, you may have noticed that Fox Television Network content is not currently available through your set-top box. Fox is using this as a negotiating tactic. They feel that if they deprive Cablevision customers of Fox content like the ALCS, football, Glee and other stuff, you will contact Cablevision and demand to have it back.

This is a very common tactic in the fight for retransmission fees and it rarely works. Customers do get mad, but they get mad at everybody, feel screwed by both parties and, in the end, it generally exacerbates the animus already felt by consumers towards big business. It also increases the anger associated with the “grudge payment” for television entertainment.

Television, a grudge payment? Of course it is. Just like gas, electric, telephone, rent, even milk. Any recurring payment you make for a good or service that you must have, that cannot be competitively differentiated and increases in cost without any increase in benefit, engenders a wide spectrum of negative emotions. Personally, I hate when my cable bill goes up for no reason — same programming, same horrible service, same sub-optimal set-top box, generally stupider programming, more ads, less interesting content … higher bill — the textbook definition of a grudge payment. But I digress.

This time, Fox did something truly remarkable. A unique bargaining tactic that I have not seen before … they blocked Cablevision customers from accessing Fox content online. They only did it for a few hours, because they did not have the technology to surgically apply the tactic. It failed because, while cutting off Cablevision television customers, they also cut off Cablevision Internet-only subscribers. And, in the final analysis, they also could not really cut off the exact people they were targeting.

Don’t let this tactical failure cloud the issue. Technology certainly exists to get this right. What I want to focus on is the strategic capability this failed negotiating tactic brings to light.

Attend the tale of two streams. One stream is free over-the-air television, repackaged and retransmitted over a closed system, for which you pay. The other is a completely free online stream which is geographically and temporally unrestricted in every way … or at least it was.

I have always thought that the TV industry was bipolar, and too strategically confused to be taken seriously. After all, they are a single revenue stream business (advertising supported), that benefits only by attracting as big an audience as possible, accurately measuring it and packaging it for sale to an advertiser. On the other hand (across the hall in most organizations), they are realizing that a single revenue stream business is not sustainable in the 21st century and they are fighting for a dual revenue stream (advertising plus subscription fees) — all this while making a ton of its most valuable content available for free online with very little advertising support. Confused, strategically misguided and, on the border of insane.

Cable, by comparison, is a solid dual revenue stream business and they are feverishly working to deploy an authenticated streaming system that will virtually guarantee that if you don’t pay, you don’t watch.

Hmmm ….

Here are some of the questions: If Fox can cut off online customers at will, who is in control? What is free content? What is net neutrality? What is Hulu? (Part owned by Fox) What is the difference between the coax cable that carries digital television signals to your home and the coax cable that carries Internet access to your home? (BTW: It’s the same cable.) What are consumers actually paying for? Who decides? Will consumers be made to pay twice? Will Fox charge ISP’s (Internet Service Providers, the companies that sell broadband access but do not sell content) for access to its shows and sporting events? What is a network?

As you can imagine everyone from “Joe Cablecustomer” to Representative Edward J. Markey, D. Mass to Gigi B. Sohn, president and co-founder of the public interest group Public Knowledge is weighing in on this. The Interweb is in Overtweet and people are angry, scared and confused.

I am reminded of a conversation between Commander Tagge and Admiral Motti which took place in the conference room on the Death Star during a debrief with Lord Vader and Governor Tarkin: The Commander said, “Until this battle station is fully operational, we are vulnerable. The Rebel Alliance is too well equipped, they’re more dangerous than you realize.” And Admiral Motti replied, “Dangerous to your Starfleet, Commander; not to this battle station.” Ahh … in Star Wars as in life. Where’s Julius Skywalker, Han Copps and 3-FCC-PO … and who are we going to get to play Yoda? We need the Jedi master because he will say, “No. Try not. Do … or do not. There is no try.” And, all kidding aside, we really have to get this one right.

Disclosure: No positions