Over the past week or so, several people have forwarded me a post that Bill Gurley, partner at the Silicon Valley venture capital firm Benchmark Capital recently wrote titled, "When It Comes to Television Content, Affiliate Fees Make the World Go 'Round," in which he correctly observes that "over-the-top" disruption of cable/satellite/telco delivery of premium TV programming isn't going to happen very quickly due to the importance of affiliate fees. His main argument - that cable networks receive $32 billion in annual affiliate fees from cable/satellite/telco distributors that they are loath to jeopardize - is right on the money (no pun).
This of course has been the central reason that cable, as opposed to broadcast, programs have been scarcely available online. I've argued the same point for a while now, going back to "The Cable Industry Closes Ranks" in which I tried to explain how the cable industry works and why it would fight tooth and nail against disruption. Gurley further notes how TV Everywhere cleverly defends the industry against free distribution, which I agree with as well.
While there's plenty of media hype around the prospect of "cord-cutting," it's essential to understand the business dynamics in play and what impact they'll have in slowing this trend. It's rare to see a Silicon Valley VC take such a sober approach to potential disruption (because funding exciting tech start-ups is largely about funding disruption after all), so I thought Gurley's post was both refreshing and worth the read.
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