Bob Wright, former head of NBC (Photo credit: Steve Rhodes)

The first thing I thought of when I heard earlier this week that News Corp. had threatened to make Fox a cable-only outlet if it doesn’t win its suit against Aereo is how much things have changed since Bob Wright threatened to do the same thing with NBC.

In 1999, then-NBC President Bob Wright warned that the network might replace affiliates reluctant to renew their contracts with NBC “in a sensible fashion” with a local cable system. ¹ ABC indicated that it was also considering such a move.

At that time, of course, the Internet had yet to emerge as a mass medium, and the pay-TV ecosystem was entrenched and growing by the day, even as broadcast television, though not as all-powerful as it had been 10 years earlier, was still quite formidable. Because of this strength, there was no need to completely dismantle the network-affiliate relationship, though eventually reverse compensation would soon become the standard.

This time around, we are asked to believe that Fox, CBS and Univision would be willing to give up the revenue from their own TV stations to deny Aereo the chance to “pirate” their broadcast signals. My sense is that it won’t come to this, because no one wants the regulatory intervention that seems likely to develop once it becomes possible that “free, over-the-air television” will disappear altogether, even though more than 90% of U.S. households subscribe to a pay-TV service.

Here are some of the best takes I’ve seen on the issue this week.

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Veteran media-fund manager Hal Vogel has watched, warily, as media and entertainment stocks have mounted a spectacular run-up in the past year, with an average gain of 42% among big conglomerates Time Warner Inc., CBS Corp., Walt Disney Co., Comcast Corp., News Corp. and Viacom Inc.

He’s staying on the sidelines, because he’s convinced that a stock market crash is coming. He’s seen the signs in the past, and there are too  many to ignore now.

“Look, there are some that may go a bit higher,” Vogel, the chief executive of Vogel Capital Management, said in an interview with Over Most Of These Stations. “I don’t know when the market’s going to turn. The media stocks have done very well, but when the market turns, advertising and media stocks have always been very sensitive to spending and the GDP and all of that. Even if they’re strong for the rest of ’13, there’s the question of 2014. And in ’14, I’m not sure things are going to be good.”

Vogel is concerned that the Federal Reserve has set the U.S. on a collision course by slashing interest rates to nothing.

“Interest rates don’t belong at zero, and that hurts the retirees and people on fixed incomes. The pension plans cannot get a return on bonds anymore; when they invest in bonds they assume they’re going to get 7-8% return, and they’re getting 0.5%. So a lot of retirees are not going to be getting their money, and it’s basically bankrupting the whole society. There is no real price in the market. It’s all being manipulated by the Fed. What they’re doing is forcing people into the riskier part of investment, which is the stock market.

“This is a catastrophe that’s being set up right now. The Fed says, ‘We want household wealth to go up, so we’re forcing you to take more risk. And so we want you to buy stocks, we want you to buy houses, we want you to do this and that and help employment … and they’re forcing you out on a limb (the stock market). And while you’re out on that limb, there’s a little beaver that’s chewing on that limb. When the interest rate finally turns, it breaks the limb off the tree, and takes everybody with it. It’ll be like 2007 and 2008 all over again, only worse.”

“I don’t know when — I’ve been wrong about the timing — maybe it’s a little too early. But when it happens, media stocks will not be immune,” Vogel said. “The canary in the coal mine is that the 10-year Treasury note is rising, and the Fed can’t control that very well. Your 401k when to 201k in 2008? It’ll be 101k by the time this is done.”

Vogel thinks the economy has already had a greater impact than the industry will acknowledge on the most reliable part of the entertainment ecosystem — cable-television subscriptions.

“I believe [cord cutting] is more widespread than they think. Now, it’s hard to separate the basic macro factors; for example, the recession led to a housing collapse, and that pulled down lots of cable subscriptions …

“[Time Warner Cable CEO Glenn] Britt is right. A lot of these packages are not affordable. It has reached a point where the sports rights are driving the costs for consumers, and I don’t think that’s right. There are people who are very devoted to sports, and can’t live without them, but there are a lot of other people who say, why should I pay an extra $5-$10 a month to subsidize ESPN for somebody else?

“So I think lower-priced packages are coming. The last thing people in cable want to do is cut prices, because they’re accustomed to raising prices 3-5% a year, come what may. They don’t care. This is their birthright, to raise the price. And I believe that things are quite bearish for the economy, so you’re going to see more pressure to cut prices, especially if the price of gas continues to go up. I doubt that it will go to  $4.50 a gallon, but should it happen because of an international event or economic event, people are going to cut back somewhere else.

“And, you’ve got a real technological shift going on, and pressure from that technology will increase,” he said, referring to so-called “over the top” providers of video services via broadband, such as Netflix and Amazon Prime.

At the same time, Vogel notes that TV Everywhere has not gone “as quickly or as smoothly” as the industry would have preferred. “It’s going to be a tough sell,” he said, given the other factors in play.

– David B. Wilkerson

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Read the Storify here.

– David B. Wilkerson

(A note, for those familiar with WordPress: There’s some situation between WordPress and Storify that has made it impossible for a significant percentage of Storify users to place that program’s stories directly into a blog post. I had been able to use it as recently as late last month, but now the functionality has been disabled.)

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Cablevision Chief Executive James Dolan.

Cablevision’s lawsuit this week against Viacom for “illegally” bundling desirable cable networks with channels that have low ratings must offer the cable operator advantages that can only be seen in the sealed court documents, because they don’t otherwise seem very clear.

After chatting Wednesday with communications law expert Fritz Messere, dean of SUNY Oswego’s School of Communication, Media and The Arts, and Tuna Amobi, media and entertainment analyst at S&P Capital IQ, it seems that each potential rationale for the move seems implausible or facilitates a scenario that would have been possible without litigation.

Rationale #1: Cablevision simply realizes it made a bad deal with Viacom last December (perhaps one in which it pays more money than a rival like Time Warner Cable), and sees a chance to get out of it.

In the cold, hard world of American business, isn’t a deal a deal? Surely that would be Cablevision’s argument if a programmer said it wanted to tear up its existing contract and charge Cablevision more money, after all.

The other difficult question in legal terms is why Viacom, acting exactly like every other owner of widely-distributed cable networks, now constitutes a particular threat to Cablevision that is not posed by Time Warner Inc., Walt Disney Co. or News Corp.

“Cablevision would have to convince the court that the consumer is somehow being harmed by not dis-aggregating these services,” Messere said.”Is Viacom so strong that it can dictate terms that impact all of major program providers?  I’d be inclined to say ‘no.’  I’d almost be inclined to say that Disney has such power with ESPN, not Viacom.”

Amobi agrees. “[Bundling] has been an accepted norm in the industry, so I don’t know how Cablevision is going to claim that it was forced into a contract that it had no choice but to sign. They really face an uphill task.”

Rationale #2: Cablevision wants to set a precedent that will be useful when it comes time to negotiate once again with more formidable companies like Time Warner, NBC Universal, Disney and News Corp.

The problem here, Amobi said, is that Viacom doesn’t participate in the two areas most typically associated with rapidly rising costs for pay-TV distributors.

“They don’t own a broadcast network or TV stations, so they’re not part of the noise over retransmission,” Amobi explained. “And you could argue that they’re not a player in sports … So that’s why I’m frankly surprised that Cablevision would pursue this.”

Said Messere: “Could it be proven that, on a year-over year basis, that programming costs have become anti-competitive? I don’t know. I don’t think it could be proven that only Viacom was anti-competitive.”

However, he added that Cablevision could feel that this is a good time to make noise about these matters, with the Obama White House looking to make its mark during a second term.

“We do have a Democratic administration for the next few years. 2016 is not that far away, and that’s 20 years after the Telecommunications Act of 1996,” Messere pointed out. “There may be a movement on the part of some Congressmen to start rethinking the must-carry rules, the multiple-ownership rules, the programming rules as relate to a level playing field. I think the courts would go crazy if someone tried to regulate cable in the way that broadcasters are regulated.

“But I do think there’s a discussion there, and where there’s a discussion, there could be action. Where there’s smoke, there’s fire.”

Messere thinks a la carte could once again be on the table, perhaps with someone like New York Sen. Chuck Schumer out in front.

Amobi isn’t so sure. “I think a la carte is still a long shot. I don’t see the political will to push it through in Washington, and the FCC has a pretty full plate.”

Then, too, he said, it would be unusual for a pay-TV operator to favor actual a la carte, which could upset the industry’s entire apple cart at a time when “over the top” video providers are gaining traction.

Rationale #3: Cablevision wants to apply public pressure to Viacom that will help it renegotiate better terms, making the owner of MTV and Comedy Central look greedy.

“I think there is some posturing here,” Amobi said.

However, this is exactly the kind of public stance that both sides take when there is a dispute over carriage fees. The distributor tells its customers programmer is charging fees that are too high, which ultimately gouges the consumer. The programmer tells its viewers the distributor doesn’t want to use the huge sums of money it charges the average Joe or Jane each month to pay its fair share for the TV networks everyone loves, and should be urged to do the decent thing and let people see their shows.

No lawsuit is necessary to do this.

Viacom’s ratings weakness, especially at MTV and Nickelodeon, should provide enough ammunition, as proved to be the case for DirecTV in its dispute with Viacom last year.

– David B. Wilkerson

• Courts could eventually help Netflix, Google and others in cable wars

I’ve argued in this space that Netflix, Amazon Prime and other “over the top” online video providers can only be as successful as the conglomerates who own studios and networks allow them to be, since they decide what content to license, and the terms of those licensing agreements.

Therefore, I said, it seems unlikely that these newer players could dis-intermediate the traditional structure of the cable industry, which has served the entertainment industry so well financially.

While this may prove to be true, the situation is complicated by precedent that would prevent the studios from simply freezing any video provider out, according to Fritz Messere, dean of  SUNY Oswego‘s School of Communication, Media and The Arts.

In an interview Wednesday, Messere said that if the studios decided to create onerous terms for non-traditional providers of subscription-based TV shows and movies, federal courts would likely step in and force those programmers to negotiate terms commensurate with those offered to cable and satellite companies.

“The reason I think that is that cable didn’t like the idea of a home satellite industry, before direct broadcast satellites came about,” Messere said. “And Congress and the FCC forced programmers to sell to home satellite customers through the cable company at the same rate.”

He refers to the Satellite Home Viewer Act of 1988.

Beginning in 1980, wealthy consumers could mount gigantic C-band satellite dishes and receive broadcast and satellite signals for free. As the decade progressed, those signals were, of course, scrambled, creating a market for companies that would sell bundled programming packages to C-band dish owners.

William Roberts, senior attorney with the U.S Copyright Office, explained the dilemma that developed, during testimony before a Senate Banking Committee in 2000:

“These program packagers, who were typically the same concerns that sold the dishes as well, needed to clear the copyrights to the broadcast signals that they were delivering to their customers. In 1986, satellite providers first approached the Congress seeking creation of a compulsory license under the copyright law, similar to that enjoyed by the cable television industry, that would allow them to easily license broadcast programming without engaging in costly face-to-face negotiations with the copyright holders of each and every broadcast program.”

Before the Act was passed, C-band owners often ended up paying fees much higher than cable bills, due to these complicated one-show-at-a-time agreements.

To be sure, the landscape is far different today. There are many more pay-TV providers, a much bigger video-game industry, DVD/Blu-ray, and an entire mobile market that few could have even dreamed of in 1988.

Messere also points out that the big cable and fiber operators have video-on-demand platforms that are more or less equivalent to Netflix and its peers. “How can you offer VOD on the one hand, and not want to offer the same [content] to the [online video] providers on the other hand, when you have the opportunity to make money from the transaction?”

There is a further complication, which is that on a “level playing field,” the programmers would argue, Netflix would be charging its customers as much per month as the cable operators charge. $40 for the most basic plan, rather than $8.

“So it’s something we don’t know the ultimate answer to,” Messere acknowledged. “But I would think that if you’re a programming provider, you almost have to provide universal programming, if asked.”

– David B. Wilkerson

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Viewership for Sunday night’s ABC telecast of the 85th annual Academy Awards ceremony was up slightly over last year, according to Nielsen’s national overnight measurement of of the U.S. television audience.

The show, which aired from 8:30-11:40 p.m., was seen by an average of 40.3 million, up from 39.3 million in 2012.

Among adults 18 to 49 years old — the demographic most prized by advertisers, the Oscars generated a 13.0, rating, representing an 11% gain from last year.

The viewership of 40.3 million was the largest for an entertainment (non-sports) program in three years.

Aside from a period between 1971 and 1975 when the Awards were seen on NBC, ABC has carried every Oscar telecast since 1961. See The 10 highest-rated Academy Awards telecasts; ’70 show tops list.

“Argo” was named Best Picture of 2012. Best Actor honors went to Daniel-Day Lewis for “Lincoln”; Jennifer Lawrence won Best Actress for her role in “Silver Linings Playbook”; Ang Lee was named Best Director for “Life of Pi,” and Quentin Tarantino‘s script for “Django Unchained” was a surprise winner in the Best Original Screenplay category.

– David B. Wilkerson

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Analyst Todd Juenger of Sanford C. Bernstein & Co. offered a cogent view on Friday of Nielsen‘s announcement that its ratings will soon take online video usage into account.

“The monetization of this viewership could be increased with better holistic cross-platform measurement, but that would mostly help the YouTubes of the world at the expense of the TV networks,: he said in a Friday research note.

“When advertisers are able to understand the impact on total reach/frequency … of their campaigns from moving dollars from ‘TV’ to Internet video, on the margin that will likely increase dollars to Internet video and decrease dollars to TV.”

“On the margin” is one of the keys to that statement. Juenger does not think this dollar shift will be very big, at least initially.  He seems inclined to believe Nielsen’s most recent quarterly study of cross-platform viewing, which concluded that time spent watching video on tablets, phones and other devices is still miniscule compared to traditional TV.

For all the panic that occurs daily in network office suites about disappearing audiences, the biggest national advertisers have largely stayed with tradition. According to a Kantar Media study released last December, only about 12% of the biggest buyers of national television ads also buy online video spots.

Juenger said the issue, as ever, is supply and demand, and advertisers won’t automatically pay more because the audience is somewhat larger than had been assumed.

“Simply increasing reported audiences doesn’t translate to increased ad revenue …  Revenue depends on demand,” he explained. “Everything else being equal, by increasing the reported audience delivered, advertisers need fewer spots to achieve their marketing objective.”

If the networks are going to get more ad revenue from non-traditional viewing, they’ll have to get it from video-on-demand, Juenger asserted. Among other things, he said, this means VOD streams must “uniformly carry advertising,” and the networks have to find a way to get the most value for shows that are seen more than three days after airtime.

One key to VOD advertising will be so-called “dynamic insertion,” in which fresh commercials can be inserted into the video stream of a show. “We doubt any advertisers will be willing to pay for ad impressions against commercials that are a year old,” Juenger said.

As the analyst also pointed out, much of the viewing Nielsen discovers will be via subscription video-on-demand services such as Netflix and Amazon, which don’t carry advertising.

– David B. Wilkerson

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People are underestimating DVD kiosk-rental provider Redbox, according to B. Riley Caris analyst Eric Wold.

“What is lost in most arguments against Redbox is that physical rentals are still a $5.3B market – of which Redbox currently only has [an approximate] 35% share,” Wold said in a research note on Thursday.

“With an entrenched consumer base that still prefers physical rentals to digital and diminishing competition in this channel, we believe that a stronger copy-depth effort along with a ramp in legacy Blockbuster kiosk locations should drive improving trends into 2H13.”

There is, of course, a significant part of the video rental market that hasn’t signed on to streaming. It isn’t just people who are on the wrong side of the “digital divide,” or elderly people who are behind the curve.

There are people who  had a bad encounter with streaming, due to buffering problems that ruined the experience. Others are just perfectly satisfied with DVDs and Blu-ray discs, and find them convenient enough. Some people enjoy the extras that often come with discs, including audio commentaries, “making-of” documentaries, biographical shows about one or more of the stars, and more. I fit into this last category. To be sure, an older actor or director might barely remember having done the movie or TV show he’s supposed to comment upon, and either be silent for much of the track or ramble on about things that have nothing to do with it. But a good commentary track can be fascinating, adding considerably to an overall appreciation of the content.

Video distributors are still profitably able to put out deluxe box sets containing an entire television-series run on DVD and Blu-ray. Large studios do it, but it’s also being done by smaller, independent outfits that license content. Bob Emmer, co-founder of the independent DVD distributor Shout! Factory, discussed the phenomenon with me last fall.

Meanwhile, Redbox has of course launched its own streaming offering, Redbox Instant, in a joint venture with Verizon Communications Inc. Wold expects to get more clarity on the product during an analyst meeting Feb. 27, “including 1) overall capital contributions to the JV (we expect it to be well less than $150M); 2) plans for additional content and device connectivity; and 3) expectations for reaching profitability (which we project is attainable within 12-18 months after launch).”

Wold has a buy rating on Coinstar, with an $80 price target. The stock was down marginally at $53.72 Thursday morning.

On the depressed Nielsen ratings for the broadcast networks, and the potential impact on this year’s upfront, though the companies tried to sound as optimistic as they could about advertising demand:

“You always have to position yourself going into upfront season, but you never know exactly how it’s going to turn out. I would think there’s more pressure on them than there has been [in recent years], because obviously there are a lot of different ways to view some of the same content.

From a corporate perspective, it might matter less that there’s something that could bite them a little bit on the broadcast side, if they can then sell some fully depreciated content to Netflix and Amazon and the other [video streaming providers].”

Goss noted that CBS was able to offset much of the ratings problems it had during the first half of the 2012-13 season with ad sales related to the election cycle, as well as sales of time for Super Bowl XLVII and its pre- and post-game shows, as broadcast revenue rose 3% in Q4.

On the networks’ desire to make C7 the primary currency for ad rates, rather than C3, now that a number of shows get ratings boosts of as much as 50% over the course of seven days:

It will still come down to how time-sensitive an advertiser’s needs happen to be, he said. Retailers and movie studios will want to be sure that potential customers see ads within a couple of days. “But if you’re selling Tide, and someone sees an ad for Tide seven days later, rather than three days, rather than live — what difference does it make?”

Where the industry stands on TV Everywhere, after the initiative’s momentum slowed down last year:

Goss is convinced that programmers and pay-TV distributors still see value in the concept and want to make it work. “I wanted to see a basketball game during the middle of earnings season, and while I was on the rain, I was able to see part of the game on my iPhone using the WatchESPN app. Having these options do allow you to capture things you wouldn’t be able to otherwise, and might extend the reach of advertisers.

Cable companies are sometimes left for dead because of the assumption that people are going to cherry pick the shows they want to see without subscribing to a big package of channels. Goss is among those who thinks the big players are going to get paid, one way or another. “Time Warner Cable and Comcast know that they’re not just video providers; they’re broadband providers. If somebody streams 13 hours of ‘House of Cards’ on Netflix, and whatever else, there’s going to be usage-based pricing that takes that into account.”

On whether there’s a movement toward divesting of non-television assets, as News Corp. spins off its newspaper publishing businesses, Time Warner distances itself from most of Time Inc. and CBS looks to sell its outdoor business.

“There may be more pressure on these management teams to figure out, ‘What are the best horses to create a growth profile, and therefore the best stock price.”

Goss pointed out that Comcast is conglomerating while much of the industry is doing the opposite. Tellingly, though, it is doing so with an enterprise in NBC Universal that is primarily focused on television and film production and distribution, the kind of assets that remain the focus of the big companies that are divesting.

Favorite stocks right now:

Goss is impressed with CBS and Lions Gate Entertainment. He thinks CBS Chief Executive Les Moonves is moving in the right direction with retransmission fees, reverse compensation and other avenues that allow the company to generate more revenue from its content that is not directly tied to advertising.

Lions Gate is a favorite for several reasons, including the company’s success with the “Twilight” and “Hunger Games” franchises. While the “Twilight” series is ending, there are three more movies on the way in the “Hunger Games” saga.

“And they have other franchises they hope to create,” Goss said. “They’ve really cracked the big leagues. They’ve been very smart about it. Instead of trying to compete with the other studios on July 4th weekend, they’ll use March or November. Instead of trying to compete with Warner Bros. on primetime [broadcast] network series, they’ll look at cable.

He pointed to the company’s ’10-90″ proposition with FX, in which they proposed that if the first 10 episodes of the Charlie Sheen sitcom “Anger Management” reached a certain ratings level, FX would order 90 more episodes, assuring the series of the magic 100 needed for syndication. The show did reach its ratings goal, and FX did order another 90 episodes.

– David B. Wilkerson