Kagan’s Column: The Audience Splinters—And the Crowd Roars

By Paul Kagan

When I've given presentations on media things to come, I've enjoyed talking about new windows of distribution in the film future. They go out beyond the decades, although I can't always name each one because I don't know what forms they'll take. "I can assure you," I've told producers, distributors and financiers, "that it is certain that new technologies will continue to create new markets for your products." That future is now here. All this came to mind when I saw the mid-August news that 1) in July U.S. broadband subscribers surpassed dial-up subs for the first time, and 2) Major League Baseball (MLB) is biting the digital network bullet.

The Nielsen/NetRatings report of 63 million domestic users of high-speed service versus 61.3 million of the narrowband kind implies that nearly 45% of the whole population is online (assuming that most people under 5 and over 80 are not on eBay, Amazon, Yahoo or Google). As we pass the 50% mark, peer pressure will develop and saturation will set in. This process will not take long. The biggest imponderable is whether competition will force pricing down, which will only speed up consumer acceptance.

Rapid high-speed adoption is whetting the appetite of content providers, who are as much in need of new distribution outlets as operators are in need of new marketable services. Now that the Internet revenue model has settled into subscription mode, the next trauma to hit like a tsunami is the flood of subscription offers flowing down the pipe into the American home and office. Baseball is just one of the programmers hoping to turn on a high-speed faucet.

MLB, like its immediate predecessors in the digital game, NBA and NFL, is a perfect example of how the new spectrum works. With its regular games already fully loaded on Fox and ESPN networks--both analog and digital--it first went to its bench by selling Internet access to game radio broadcasts. Now baseball is reaching into its bullpen for new-old stuff to sell to its fans: reels of classic contests, spring training and minor league games. Once considered relics in the vaults, or virtual pickup games for tryouts, these elements of baseball now mean business in a fragmenting society that wants more personal gratification than an all-you-can-eat network provides. Technology has sliced the common denominator to ribbons, and pro teams essentially are charging their fans to watch practice or hear what goes on along the sidelines.

Although cable operators are finding growing success with SVOD packages, it was DirecTV that woke up the new-era subscription TV market with the NFL Sunday Ticket. Pay TV started out at a cost of $7-10/month or $4.95 per title, but now more than 2 million football fans pay up to $219/year for the privilege of watching any NFL game they choose. Never mind that the price works out to only $1.29 per game. You know how hard it is for any TV distributor to get viewers to shell out $219 (or $54.75/month for four months) for just one set of programs. All the top pro and college teams are now viewed with such season passes, and the genre will deepen with more streaming content as high-speed speeds up. Pay TV didn't steal programs from broadcasters; it just piled more on.

It is a little more than five years since streaming fever broke out, but it is taking that and a bit longer for the cable and satellite builders to bulk up their capacity. Like most new tech innovations, a look back after 10 years is more rewarding than after just five. As more packagers like the NFL, NBA and MLB join the movie industry in growing efforts to sell beyond the stadium, arena and theater, consumers will find their leisure budgets going up, and their time further splintered between TV, computer and phone.

The amazing thing about this trend is that oversupply has not thus far impacted pricing. DirecTV has nearly doubled its NFL Ticket tab since it began carriage, and American entertainment fans seem determined to keep buying their favorite program packages, even in DVD form to see them all over again. That's why high-speed must be so popular--they can cram in more viewing in the same 24 hours.

Paul Kagan is an analyst and investor in media companies, but he does not own a Major League ballclub. Information in his column is not intended as a recommendation to buy or sell securities.