Free TV blogging -- collateral damage

For those of you who tuned in late to the TV debate, so far we've talked about how well over-the-air television compares to cable (for some people), how new and apparently successful businesses are springing up around OTA, and how the number of viewers getting their television through antennas appears to have been growing substantially since the introduction of digital. What we haven't covered so far is the potential social impact of killing broadcast television.

It is almost axiomatic that, if you have a resource that is used in one way by people at the top of the economic ladder and in another way by people on the bottom and you "let the market decide" what to do with the resource, it will go with the people who have the money. I'm sure many if not most of the readers here could explain it better than I can (econ is not my field), but the problem comes from the fact we're talking about absolute rather than relative money. People at the bottom may be willing to spend a larger portion off their income on the resource but it's a larger portion of a much smaller total.

This becomes particularly troubling when we're talking about a publicly held resource. When we consider selling off a piece of public property, we can't just assume that whoever is willing to pay the most will put it to the best use. By that standard, there would be no roads, parks or libraries in poor neighborhoods. Things used by the wealthy will always come out ahead.

Instead we need to think about who uses the resource now and how their lives will change if that resource is sold off. What groups rely heavily on broadcast television? What groups would have the most difficulty finding alternatives?

People in the bottom one or two deciles are going to be in trouble. Even the lowest tier of cable would represent a significant monthly expense.

People with limited residential security will be even worse off.

People with limited income security will face a difficult choice: sign up for exorbitant no-contract plans or commit to a financial obligation they may not be able to fulfill.

People with poor credit histories will have to come up with large deposits every time they move.

I have no idea what the unbanked would go about getting cable.

Keep in mind, all of these groups will have comparable or greater difficulty getting access to high speed internet service.

Free TV blogging -- betting against Felix Salmon

[Update: Andrew Gelman joins the conversation and, as usual, brings with him a fantastic comment section. Felix Salmon sites this Nielsen study to support his case. Rajiv Sethi (who was possibly the first major blogger on this beat) joins in. I'm still the only one talking about terrestrial superstations, but the night's still young so you never know.]

If you've been reading the last few posts, you know that Felix Salmon has weighed in on the free TV debate and that I find myself in the very unusual position of disputing pretty much everything he says (it is far more common for me to be completely in agreement). I'll be addressing the cost of Salmon's policy recommendations (born disproportionately by minorities and the poor) and questioning the economic implications later. Right now I want to focus on some disputed facts and assumptions.

In the post Salmon is dismissive of the claim that there are fifty million over-the-air television viewers:

The 50 million number, by the way, should not be considered particularly reliable: it’s Aereo’s guess as to the number of people who ever watch free-to-air TV, even if they mainly watch cable or satellite. (Maybe they have a hut somewhere with an old rabbit-ear TV in it.)

And he strongly suggests the number is not only smaller but shrinking. By comparison, here's a story from the broadcasting news site TV News Check from June of last year (if anyone has more recent numbers please let me know):

According to new research by GfK Media, the number of Americans now relying solely on over-the-air (OTA) television reception increased to almost 54 million, up from 46 million just a year ago. The recently completed survey also found that the demographics of broadcast-only households skew towards younger adults, minorities and lower-income families.

OTA can be tricky to measure -- unlike cable, there's no way of telling who has an old set of rabbit ears -- but we can look at other indicators and see which set of assumptions they are consistent with. Specifically consider the recent decisions of NBC and Fox to launch dedicated OTA channels this year

Let's assume Salmon's right and put ourselves in the position of a Fox or NBC executive who has to decide whether or not to create a new broadcast network. We can be reasonably confident that the executives have access to reliable data (particularly the Fox executive if the deal with Weigel included a look at some numbers from ThisTV and METV).

You find, given our premise, that the total over-the-air audience is, say, forty million, the technology is obsolete and entire medium will probably be gone in a few years. At this point, it's hard to imagine you'd proceed with an expensive, time-consuming project that is likely to be an embarrassing failure but the situation actually gets worse.

You are looking at launching an advertiser-driven, English-language station but the OTA market is disproportionately poor and immigrant (I get programming in over a half dozen languages); the maxim relevant audience for your station now drops to maybe thirty million and there's more bad news. You're going to have to share that thirty million with a crowded field of competitors. A major market will have dozens of OTA channels including multiple PBS channels, This, ME, Antenna, Bounce, RTV, three ION channels and various independents.

Given Salmon's assumptions about the size and trajectory of this market, there is simply no way NBC or Fox would have gone ahead with these channels. They couldn't possibly recoup their start-up costs before OTA is phased out. Put bluntly, both NBC and Fox are betting against Salmon's position.

Obviously this is not conclusive, but it's a strong piece of evidence and it's consistent with what we've seen elsewhere. It's also consistent with GfK's numbers.

There's more to come on this. There are many aspects to this story and I'll try to get to as many as I can but I've been looking at this for a long time from a lot of different angles and from every angle it looks to me like OTA is a promising technology supporting an innovative and growing industry, serving important economic and social roles.

The technology is doing fine in the marketplace. It's lobbyists who are likely to kill it.

Felix Salmon vs. Chet Kanojia

It's too late for me to think through and research all of the possible issues with these numbers so I'm going to pass these on without further comment for now.

From Salmon's "Aereo and the death of broadcast TV"

Here's the passage Salmon quotes from from Forbes on Kanojia:

“The real question is a consumer question: Can you rightfully disenfranchise 50 million consumers?” he asked. “Is that what the preferred policy is?”

In the event that the networks did go through with it, he speculated that other programmers would be quick to replace them in the role of public broadcasters. “That spectrum is incredibly valuable. Somebody’s going to take advantage of that,” he said.

Here's Salmon's dismissive response:

The 50 million number, by the way, should not be considered particularly reliable: it’s Aereo’s guess as to the number of people who ever watch free-to-air TV, even if they mainly watch cable or satellite. (Maybe they have a hut somewhere with an old rabbit-ear TV in it.)

Here's a comment to Salmon's blog:

“The 50 million number .. is the number of people who ever watch free-to-air TV, even if they mainly watch cable or satellite. ” No! That is the number of people who rely exclusively on over-the-air TV without any cable or satellite. http://www.tvnewscheck.com/article/60230 /us-otaonly-tv-viewing-hits-178-of-hhs Also, far from being on the decline, this is actually one of the fastest growing segments of the market. I think it may have something to do with the digital switch and the accompanying radical improvement in visual quality of OTA TV. Exclusive OTA viewer estimates go from 42M in 2010, to 46M in 2011, to 54M in 2012. The reports of the death of bunny ears have been greatly exaggerated. But yes, it is true that OTA-only viewers rank low on the amount of political clout. They are disproportionally young adults and minorities.

And here's what you get when you follow the link:

According to new research by GfK Media, the number of Americans now relying solely on over-the-air (OTA) television reception increased to almost 54 million, up from 46 million just a year ago. The recently completed survey also found that the demographics of broadcast-only households skew towards younger adults, minorities and lower-income families.

The 2012 Ownership Survey and Trend Report, part of The Home Technology Monitor research series, found that 17.8% of all U.S. households with TVs use over-the-air signals to watch TV programming; this compares with 15.0% of homes reported as broadcast-only last year. Overall, GfK Media estimates that more than 20.7 million households representing 53.8 million consumers receive television exclusively through broadcast signals.

I will be posting some arguments that some of the activity we've seen (see the terrestrial superstations post) support Kanojia over Salmon but those come from a completely different direction. I'll take another look at these numbers in the morning.

Terrestrial Superstations

Normally, I have to work hard to find something to criticize in a Felix Salmon post. With this one, I'm having to work hard to lay the groundwork so I can spell out all of the problems.

When US television went digital, the new platform didn't just allow you to get HD video over a set of rabbit ears, it also allowed TV stations to broadcast multiple subchannels. This has created all sorts of interesting changes in the television landscape (for example, your PBS station is now probably putting out four times the programming). One area of particular relevance to this discussion is the appearance of general interest stations created specifically for the new technology.

The idea of using digital subchannels to launch a TBS style superstation seems to have originated with Weigel Broadcasting, a well-respected regional player noted at the time for being Chicago's last independent television broadcaster. (Both Weigel and Chicago figure prominently in this story.)

Weigel's ThisTV (a partnership with MGM) was up and broadcasting the day American television went digital. Here's what I said about the concept a couple of years ago.

ThisTV has caught on to the fact that the most interesting films are often on the far ends of the spectrum and has responded with a wonderful mixture of art house and grind house. Among the former, you can see films like Persona, the Music Lovers and Paths of Glory. Among the latter you'll find American International quickies and action pictures with titles like Pray for Death. You can even find films that fit into both categories like Corman's Poe films or Milius' Dillinger.

Of course, the other great insight was that movies on the far end of the spectrum tend to be cheaper.

I've written a great deal about Weigel and I have a lot more on the to-do pile. The company is one of my favorite examples of a well-run business but for the purposes of this story, the pertinent factors are: Weigel is an innovative with a good track record; it moves as decisively as any company I've ever seen; it is the most important player in the digital television landscape (as you'll see later).

Skip forward a couple of years and the follow-the-data approach starts to get interesting. The company with the most complete information (Weigel, obviously) announces another, more ambitious superstation called METV, a classic TV channel built around old but prestigious shows like Mary Tyler Moore, Columbo and the Twilight Zone (making very limited use of block programming to allow airing of fifty different programs a week) and promoted a surprising elaborate campaign. In-character station ads featured Betty White as Sue Ann Niven, Ed Asner as Lou Grant, Carl Reiner as Alan Brady and Bob Newhart as Bob Hartley.

The company that arguably had the second best information and experience was Weigel's long-time competitor, the Tribune Company's WGN. Tribune had data from its stations (including KTLA which carried ThisTV in the Los Angeles market), experience with one of the first and most successful cable superstations and finally the inevitable back channel communication you would expect from Chicago's famed television community. It is not a coincidence that Tribune launched its terrestrial superstation, AntennaTV about the same time METV went on the air.

After LA and New York, the two most important television towns are Chicago and Atlanta so it's not surprising that the next terrestrial superstation came from Atlanta. A few months after the launch of AntennaTV, Andrew Young and Martin Luther King III founded BounceTV as an over-the-air alternative to BET.

This is a good place to stop and note something interesting about all of these terrestrial superstations. Neither ThisTV, METV, BounceTV nor AntennaTV have regularly scheduled infomercials. This is a business model built on program driven advertising and we are going on five years of data that seems to say that it works.

2013 continues the trend of more investment on terrestrial television by bigger players. A few months ago NBCUniversal unveiled COZITV. COZI is the only terrestrial superstation with infomercials but, like Bounce, it also has original programming [link added].

And now there's this:

Movies! is an upcoming American digital multicast television network, that will feature an emphasis in its programming on feature films. The network will be a joint venture between Chicago-based Weigel Broadcasting and the Fox Entertainment Group subsidiary of News Corporation, and will be available in the United States through the digital subchannels of broadcast television stations, as well as on select cable systems. Movies! will broadcast 24 hours a day in 480i widescreen standard definition.

I have limited this post to commercial, general interest, English language stations created specifically for digital broadcasting. That's a small sliver of what's available over the air but it does, pretty much conclusively, show that the model is viable and that, unlike so many recent tech and media fads, the more data comes in, the more interested serious players get.

An actual quick one on broadcast TV

My last post on the topic went a bit longer than I had planned so I'll keep this one brief.

From the New York Times:

The Nielsen Company, which takes TV set ownership into account when it produces ratings, will tell television networks and advertisers on Tuesday that 96.7 percent of American households now own sets, down from 98.9 percent previously.

There are two reasons for the decline, according to Nielsen. One is poverty: some low-income households no longer own TV sets, most likely because they cannot afford new digital sets and antennas.

Of course, you don't need 'new digital sets and antennas.' You need a forty dollar converter box (thirty if you shop around. Closer to twenty used). Any antenna that's UHF compatible will work (in other words, any antenna). I've used one from the 99 cents store -- worked fine.

Here are some more details:

Nielsen’s research into these newly TV-less households indicates that they generally have incomes under $20,000. “They are people at the bottom of the economic spectrum for whom, if the TV breaks, if the antenna blows off the roof, they have to think long and hard about what to do,” Ms. McDonough said. Most of these households do not have Internet access either. Many live in rural areas.*

I'm sure that some of these people can't afford a thirty dollar converter or a thrift-store TV, but there are certainly others who went without because they were misinformed about the costs. misinformed in part because reporters increasingly feel like it's their job to protect consumption rather than consumers.

* Having grown up in the Ozarks and taught in the Mississippi Delta, I can tell you from experience that rural areas face extraordinary challenges that are generally ignored if not openly mocked. For some of these people, the switch to digital really did end their access to free TV, greatly compounding problems with isolation. I'd like to respond to this with a major push to get high speed internet access to rural areas but that's a topic for another column.

Another quick one on broadcast TV

At the risk of flogging a long dead horse, this passage from a Yahoo Finance post struck nerve:

Living in Oregon, we have a lot of rainy days, and without the television for the kids to watch on occasion, it could get ugly. I must admit, I am also a primetime junkie, and that is my relaxation time, as well as the time when we all get to sit down and enjoy family time together. So despite how much this service costs, it is one that will always be a part of our budget.

As I've mentioned before (a few times), not only is it still possible to watch TV for free, the technology has improved tremendously. The signal is digital and stations can carry multiple channels. I get over a hundred here in LA. In other words, my rabbit ears give me something about one or two steps up from basic cable.

For free.

Of course, a smaller urban center like, say, Portland, Oregon, will have fewer channels but as you can see here, the selection is still pretty good, particularly when compared to the thread-bare line-up from "Comcast Portland Regional - Standard" which not only offers fewer total channels, but also includes just two satellite stations, Discovery and WGN.

Unless you're a Cubs fan or you really like cable access, you'll probably get better programs through an antenna (for example, right now Portland broadcast TV is showing a Sundance winner that's not available on basic cable). You'll also have less image compression, you won't have to deal with the cable company and, just in case this point isn't plain enough, it's FREE!

I'm sure the author wasn't trying to give bad advice here. I'm certain she just didn't know about the other options, but of course that's the problem.

Between cable TV and the internet, consumers are feed an unprecedented stream of advice, but most of it is really bad, an ugly mix of lazy writing, inadequate-to-non-existent research and, worst of all, dependence on the very companies that provide the products and services being purchased.

One consequence of this is that consumers hear almost nothing about options that don't have the backing of a major industry. Another is that narratives are shaped to suit business interests. Check out almost any CNBC clip from say 2007 for excruciating examples.

Free TV vs. Hotel Cable

I've written quite a bit about over-the-air (OTA) digital television. It's an impressive advance in a major consumer technology and I'm a satisfied customer, but the most interesting aspect of the OTA story might be the coverage that it doesn't get. It took the New York Times months to produce a single (factually challenged) story on the subject though bloggers like Rajiv Sethi had long been on the case.

The absence of coverage fell in line with a couple of suspicions I've long held about the current state of journalism. First, journalists tend to view the world almost exclusively through an upper-middle class perspective (which, given the pay many of these journalists make, is really strange). Second, journalists have grown more passive, more likely to wait for someone (usually someone with a vested interest) to tell them what to say.

Though they might not be talking about it, media companies have taken notice. Both the Tribune Company and MGM have quietly moved into the field with AntennaTV and ThisTV, while the cable companies have been issuing carefully worded statements about how they are not worried about the recent drop in subscribers.

I'm pretty sure they are worried, and and a recent encounter with hotel cable explains why.

For some reason, hotels seldom splurge when it comes to cable (other than the mandatory HBO). This could be because rigorous cost-benefit has shown that all those extra channels don't pay for themselves or it could be because it's an easy item to cut and corporate politics tends to reward short term savings. Either way, you're looking at the most basic of basic cable.

As I was settling in for the evening during a recent trip, I turned on the TV and surfed through the channels. The best thing I could find, honest to God, was Spy Hard on TBS. To add insult to injury, the signal had been severely compressed so the picture was strangely blotchy.

It struck me that I would have been much better off had the hotel simply put an antenna on top of the TV. Being in a major metropolitan area I would have gotten more channels including multiple choices from PBS (I get ten in LA) and at least one OTA superstation like ThisTV or AntennaTV. The programming on these two runs the gamut from from awful (Benny Hill) to good (Philadelphia, La Cage aux Folles) to great (Lean's Great Expectations). ThisTV in particular has been bringing its A-game (It's currently showing Billy Wilder's One, Two, Three. All about Eve is coming up tomorrow).

Cable is largely based on a commitment/upsale business model. You get customers to sign a contract for the economy package then bump them up into progressively more expensive options. This creates a hard (contractual) and soft commitment (you often find yourself hooked on one or more of the shows in the higher tier).

This model worked extremely well for over thirty years but now viewers in much (if not most) of the country have an alternative to basic cable that offers more channels with better programs in higher quality with no commitment for free. All that's required is an appropriate antenna. When we add other elements (Redbox, Netflix, online video, even the DVD section of your local library) the picture becomes more complex but not in a way that improves the situation for the cable companies.

How do you use an upsale approach when your cheap option isn't as good as the free one? I don't see brand-building as a viable solution; the relevant brands here are the shows and networks, not the providers. That leaves two choices: improve basic cable; or hope that the lobbyists for the cellular industry manage to shut down OTA television and grab the bandwidth before consumers realize what's happening.

I would probably have gone with the first choice, but the cable companies may know something the rest of us don't.

Rajiv Sethi was there first

While going through the comment section of this post by Tim Duy, I was reminded that Rajiv Sethi was talking about broadcast HDTV long before the rest of us and was doing a remarkably thorough job of it.

Someone finally notices the orphan technology

As I mentioned before, over-the-air broadcasting has been a conspicuous hole in any number of media stories, probably due to the demographics of that market and the lack of interested parties pushing the story. Eventually though, once the market included enough young, photogenic professionals, the New York Times did pick up on the story (from this Sunday):

Many pay TV customers are making the same decision. From April to September, cable and satellite companies had a net loss of about 330,000 customers. Craig Moffett, a longtime cable analyst with Sanford C. Bernstein, said the consensus of the industry executives he had talked to was that most of these so-called cord-cutters were turning to over-the-air TV. “It looks like they’re leaving for the antenna,” he said.

The article has its problems. There are factually challenged passages like this:

The new antennas do pull in more programs than your grandfather’s rabbit ears, because of new channels that broadcasters added during the transition to digital signals. The broadcasters can fit multiple digital channels into the same frequencies that used to carry one analog channel.

In St. Paul, for example, where Ms. Bayerl lives, there are extra channels from ABC and NBC with local news and weather, four public television channels and a music video channel. Big markets like Los Angeles have 40 or more channels, according to Nielsen.

(I live in LA county and, according to my digital converter I get 114 channels. There are at least a half dozen more I could get if I wanted to invest in a better antenna set-up. When you're off by a factor of three, "or more" just doesn't cut it.)

The article also completely overlooks the role that the Hispanic market plays in the over-the-air broadcasting story which is a bit like ignoring the role commuters play in the NPR audience.

Still, compared to what we've seen up till now, this account is almost cutting edge.

Update:

While picking up a printer cartridge this morning I fact-checked the following passage from the NYT story:

Modern antennas, which cost $25 to $150, pick up high-definition signals that can actually be crisper than the cable or satellite version of the same program, because the pay TV companies compress the video data.

Actually HDTV compatible antennas the one I use for my 114 channels are available at Target start at $10.98.

Nobody loves an orphan technology

And the loneliest orphan of them all is over-the-air television. It's the kind of story you would expect to find in a Lemony Snicket novel, complete with evil guardian trying to kill it off to get to the family estate (bandwidth).

OTA television has few friends. Cable and broadband get all the attention while the media has been committed to the death of broadcasting/networks for more than three decades now.

Of course, one of the problems with being committed to a narrative is that it forces you to ignore the details that don't support the narrative and these have an unfortunate way of being the interesting ones.

Case in point: this story on the growth of Univision, though a bit credulous ("Univision set to become top U.S. broadcast network"), contains some impressive statistics about the growth of the network. It does not, however, contain any mention of this:

Univision is concerned because nearly 28% of Hispanic households — and 43% of homes where Spanish is the primary language — watch TV only via over-the-air transmissions, according to a 2005 National Association of Broadcasters report to the FCC.

Given that Univision skews toward the Spanish-language only households, that means a big chunk of its audience is coming in over the air. That means that selling off that part of the spectrum would have big consequences for the fast growing area of Spanish language media. That's an awfully important detail to leave out.

Orphans in the Advocacy Economy

Monday night on the Big Bang Theory, Sheldon Cooper (Jim Parsons) lovingly cooed to his laptop that Ubuntu was his favorite Linux-based operating system. It was one of those pitch-perfect geek-chic allusions that the show specializes in, a reference to a piece of software beloved by computer nerds and all but unheard of among the surface dwellers.

I remember thinking that I had never heard anyone mention Ubuntu on television (I'm not even sure I've heard anyone talk about Linux), but I didn't give much thought to the underlying economics until the next day when I saw a piece from Forbes on what they termed 'rip-offs,' products and services with cheaper alternatives. It concluded with a section on basic cable:

The Rip-Off: All you want is basic cable, but your cable company wants you to have so much more--and pay through the nose for it. That's why it bundles in a whole mess of channels, including dozens that even the most feckless of couch potatoes won't watch.

How to Avoid It: Hulu.com offers thousands of videos, TV episodes (new and old) and full-length movies--all free. And Netflix charges as little as $9 a month for access to more than 100,000 TV episodes on DVD, as well as 12,000 movies.

I could sympathize with complaints about cable -- I had dropped it a few years earlier because they kept moving my favorite channels to more expensive tiers (TCM was the last straw) -- but I was surprised what the article didn't list.

I pay around $250 a year for pretty good high speed cable. Netflix starts at $60 a year and that limits you to two DVDs a month (I don't have an account). But the cheapest option, by far, is digital broadcasting (DTT). I bought a $45 dollar converter ($5 after coupon) and hooked it to rabbit ears I picked up at a 99 cents store. I now get over fifty channels with better quality than I used to get with cable, good enough to burn DVDs off the shows I record.

Ubuntu and DTT are orphans; they have no representation in markets where all their competitors have advocates. In theory, journalists are supposed to fill in the gap but that seldom works. As seen here, reporters generally limit their approach to repackaging the information and arguments generated by the advocates of the products they're writing about.

I use a lot of orphan products, mainly because I am very, very cheap and orphans tend to be great bargains. Ubuntu is free. DTT is free once you have a converter or a fairly new TV. Tap water is provided by my landlord. And when I was running a small business I generally found that no one could compete with the postal service on price.

Of course, these bargains indicate market inefficiency. This suggests an analogy to the legal system. We expect the courts to reach fair decisions given the condition that both parties have adequate representation. If we're going to expect market efficiency, perhaps we need to have a similar requirement.