Daniel A. Dougan

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Dan's Blog

Marketplace bullies strangleholding innovation

Posted by danieladougan on November 16, 2012 at 9:45 AM

Progress is almost always a good thing for humanity. But there are always winners and losers. The automobile not only made travel much faster and more efficient, but it improved public health by reducing the need for horses to get from point A to point B. (Horses are beautiful animals and usually enjoy being ridden, but their leavings presented real disease problems in large cities when everybody needed one.) Unfortunately, for blacksmiths, the demand for horseshoes dropped significantly as more and more people bought cars. Such is the price of progress, but I think most people will agree it was worth it.

Fast forward to 2012, and we are faced with innovation happening at breakneck speeds. If you purchased a then-revolutionary iPad in 2010, you are now three versions behind. All in all, this rapid innovation brings us better and better consumer products. Couple that with changes in how content is delivered, and you can find most things to watch on demand, from pretty much any device for a low subscription price. (And, of course, there are plenty of people who use the Internet to download content illegally, but that is a different conversation.)

Unfortunately there is one industry that does not like this at all: the cable/satellite providers. For decades they have had a cash cow in requiring people to pay hefty fees for a lot of channels that they don't watch. Some monthly cable bills are higher than an annual subscription to Amazon Prime.

So why doesn't everybody just cut the cord on cable and satellite? The barrier that comes up for most people is the ESPN family of networks and, to some extent, the NFL Network.

I get it. People want to watch live sports. So do I. But what I dislike is the business model. Rather than giving consumers what they want, which is a direct subscription to the content provider, ESPN is choosing to milk the cash cow by only allowing cable and satellite subscribers access to content. They have even built the online architecture to enable live streaming, so they know it can be done.

I get that ESPN pays handsomely for its exclusive rights to televise big-time sporting events, and they need to earn good returns on that investment in intellectual property. But they are not serving their true customers -- the viewers -- well by refusing to offer other subscription models because they would rather deal with the cable and satellite companies who know how crucial ESPN is to their very survival.

Why can't Amazon Prime or Netflix try to negotiate a deal with ESPN? Why can't ESPN sell online live streaming plans directly to consumers who want the access?

If ESPN decides to wield some monopoly power and gouge customers, it should present an opportunity for a new competitor to emerge who can bid for some of these broadcast contracts and create a pricing model that is more efficient for everyone.

But ESPN (actually its parent company Disney) will fight it tooth and nail, flexing its muscles to preserve its stranglehold on the market for sports broadcasting. Consumers will lose, and there may be justification for antitrust action just like what happened with Microsoft bundling Internet Explorer with Windows to drive out Netscape in the 1990s.

New contenders emerged in the browser wars, and now we have real choices like Google Chrome and Mozilla Firefox. Hopefully new contenders will emerge that allow us to cut the cable cord forever. Anybody want to watch Monday Night Football on Hulu?

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