Thursday, May 16, 2013

DirecTV considers OTA to reduce Programming costs

In 2008 the Sezmi Flexcast video distribution technology was being tested. It's design was revolutionary at the time because of it's combination of the use of antenna and a broadband connection to receive content. The antenna captures the digital signals from the major networks broadcast publicly over the air for free. Unfortunately for the company it never really gained any traction and eventually was purchased by KIT Digital. Interesting news surfaced earlier this week when DirecTV announced that it is considering testing a new set-top that incorporates an antenna allowing customers to pull over-the-air (OTA) broadcast signals, which could allow the satellite giant to avoid paying millions of dollars per year in retransmission consent fees. Patrick Doyle the company's CFO stated that they had used the integrated antenna solution early in its history, before it began offering local broadcast channels via satellite. Once the satellite giant began offering local-into-local broadcast signals on a wide scale basis, the antenna solution didn’t make economic sense.

Business evolves and the economics are changing. Companies like Aereo and look a like Aereo Killer are challenging the broadcasters traditional business model and traditional Satellite & Cable providers are seriously weighing their options. For the past several years retransmission consent and the huge fees that some broadcasters charge have been a growing concern multichannel video programming distributors (MVPD). NBC alone expects to see a 400 percent rise in retransmission revenue this year, which translates into steep cost increases for pay-TV providers, and subsequently their subscribers. According to SNL Kagan, retrans fees could top $6 billion annually by 2018.

DirecTV is not alone in their quest to rein in explosive programming cost increases. Time Warner Cable's CEO recently stated publically that they were diligently watching the Aereo legal challenge and perhaps they would also invest in a technology that could eliminate retrains fee's. At this point it's not clear just how many other MVPD's, are considering options like these. According to an article in Light Reading Cable's 05/16 issue - DirecTV Weighs OTA Tuners. They state that one industry source has only heard similar discussions in international markets, while a second confirms there have been some domestic conversations, but nothing suggesting any near-term action.
 
In any case, no matter which side of the fence you stand on retransmission consent and the revenue stream/programming expense issue, it is rapidly coming to a head.

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