Last Updated Sep 23, 2010 5:09 PM EDT
"Young people are pretty smart. They're not going to pay for something they don't need to," he said. "Over the top is going to be a pretty big issue for cable."Without the bundle to aggregate dollars, which are then allocated by the cable companies to various channels based on their ability to sell the bundle, distribution will become all about data. That opens the way for cellular companies as much as anyone else. Customers will choose between speed and convenience. We might even see Verizon re-establish the bundle as a combination of FIOS at home and cellular data on the go.
But that's an issue for Verizon (VZ), too, right? Seidenberg's company sells its own version of the cable bundle, via its Fios service, and it has 3.5 million customers. And Seidenberg noted that the TV bundle isn't going away immediately. But it will, he said. [ ...]
Seidenberg's argument is that over the top is a much bigger deal for cable guys like Comcast (CMCSA), who have an entire business built around the bundle, than it will be for his company, which is a relative newcomer to video. Theoretically, he'll be be able to replace some video subscribers with subs who paying for robust broadband connections. But like it or not, it's going to happen, he says.
Cutting cable out of the media equation has other implications that go beyond the entertainment business. But let's stay in the world of glamor pusses for a minute because there's something interesting happening there. Tom Barrack runs a $30 billion private equity fund called Colony Capital that's been making some odd investments of late. They bought Annie Leibovitz's debts and Michael Jackson's Neverland. Now they're the new owners of Miramax.
What gives here? Another example of money men buying social access and wanting to hang around with movie stars, perhaps -- it certainly looked that way from the outside. But Colony has a lot smart people working there, including Richard Nanula. Barrack went on CNBC to explain his thinking. You don't have to sit through all 13 minutes to hear him say around 1:50 that he thinks the changes in distribution create an opportunity for owning entertainment properties.
If it were anyone else but Barrack behind this, one would be tempted to snicker. But Barrack is someone you ought to be wary of betting against. He was an early investor in distressed real estate properties that got cut loose during the Savings-and-Loan Crisis a generation ago. He rode real estate for the next decade and a half, eventually getting into the casino and resort business often as a buyer of distressed properties. Leibovitz and Jackson were certainly distressed properties. Miramax, in the eyes of most of the entertainment business, is one too.
But how Barrack hopes to make money from any of these holdings -- or by working with that production heavyweight Rob Lowe -- is a mystery. Still, let's take a guess. Conventional wisdom about the entertainment business is that the consumer pays for distribution, not content. You buy the magazine, you pay the cable bill, you purchase a ticket at the movie theater or pick up a book at the store. In each case, you've paid the bulk of your money to the distributor, not the content producer.
When consumers go "over the top" as Seidenberg puts it above, they're paying the content producer directly. Even with Apple taking a 30% distribution fee, the producer is making more margin on each sale. That should -- and already has -- driven prices down.
If Barrack can sell Miramax movies to Netflix and over iTunes to net more than he paid for the studio's 700-film library -- which was around $700 million or $1 million per movie -- then he'll see a solid return. If he can use Miramax as a base to begin low-cost production to feed content directly to those over-the-toppers, he might eventually build a valuable operation at a fairly low cost.
Does this strategy make sense? Not yet. But, then again, Barrack is betting that Miramax can grow in time to meet the increasing demand created by the decline and fall of the cable model.