Tuesday, September 24, 2013

Content Tells Distribution To Lower Your Margin

In what might be referred to as "the pot calling the kettle black", Content company Disney/ABC CEO Bob Iger told a Goldman Sachs Communacopia conference in NY that cable and telco distribution companies need to start lowering their profit margins.  Likely this means lowering the price they charge to consumers although smaller margins can come from a host of other increased expenditures, including the high costs for content.  Certainly distribution companies might just consider lowering their prices should content companies like the one Iger represents also lowered the cost for access to networks like ESPN, Disney, ABC and other networks that they sell. 

I don't begrudge content companies and content distributors from making a reasonable profit, but the profits have run amok.  For Iger to tell his distributors that they are pricing too high and should seek other revenue streams to make up the slack will certainly not be well received.  Those same content distributors can simply ask Iger to take the first cost cut himself and seek other revenues streams as well.  And while it is certainly not a zero sum game, the growth in new revenue that Iger suggests is partly coming at the expense and declines in other businesses.

Iger can argue that distributors should seek lower margins in their video business.  But Iger should also look to ask for some lower margins in his world, too.   Both sides share the blame in the costs for cable TV while both have also been slow in enabling TV Everywhere to truly be ubiquitous.  I hardly doubt that either side will lower their margins when the pressure on both sides of the business is to grow the profits and increase the bottom line.  Before asking his distributors to lower their profit margins, Iger should practice what he preaches and do the same.  It is indeed "the pot calling the kettle black".

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