TELECOM Digest OnLine - Sorted: Re: Cable TV Races to Keep Up With Consumers

Re: Cable TV Races to Keep Up With Consumers

Clark W. Griswold, Jr. (spamtrap100a@comcast.net)
Tue, 11 Apr 2006 21:55:44 -0600

Neal McLain <nmclain@annsgarden.com> wrote:

> Slotting fees? That's news to me. Can you provide some more
> information, or perhaps cite a source to back up that statement?

"Slotting Fees" is a term from the grocery industry, where
manufacturers or distributors pay the grocery store to put their
product on the aisle endcap. Those fees can take the form of cash,
extra product to sell at a future date, advertising support, etc., but
the most common is a cold hard cash payment to the store or chain,
based on the number of days the product is displayed on the end cap.

In the case of cable or satellite TV (known as a MSO), the most common
example of this are the so called shopping channels. While I can't
provide any direct links at the moment, its been widely reported that
those channels pay a fee/percentage of the channel's gross sales to
the cable company. How they handle a situation where both cable and
satellite carry the same channel in the same zip code, I don't
know. Maybe they ask the buyer what channel number they are watching.

In addition to that, its not unusual for a new channel to offer cash
to an MSO in order to get picked up and distributed. These payments
can go on for years until the channel either gets a large enough
audience to exist on ad revenue and popular enough to extract a per
subscriber fee from the MSO, or the channel gets dropped. This by the
way, is a major reason why it is so hard for a new channel to launch
in today's bundled environment and why the theory that niche channels
will disppear if ala carte were implemented is specious.

Finally, most ad supported channels provide what are called local
insert ad slots. These are preemptable ads that the MSO can replace
with their own ads. Think "Boflex", "Pseudo Viagra" and all those
goofy "Fat Burner" ads, with the MSO keeping all the advertising
revenue.

All of these revenue sources for the MSO disappear when the business
model for programs is direct sale from the producer or content owner.

The problem is obvious, when you have a system where the pipe is
controlled by someone who has a financial interest in providing
content over that pipe, what happens? We learned this lesson when oil
companies owned pipelines and most retail stations and movie studios
owned the theaters. Guess what will happen this time around?

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