Call Participants

Eric Hanselman

John Fletcher

Justin Nielson

Eric Hanselman

Welcome to Next in Tech, an S&P Global Market Intelligence podcast where a world of emerging tech lives. I'm your host, Eric Hanselman, Chief Analyst for Technology, Media and Telecom and S&P Global Market Intelligence. And today, we're going to be talking about the Kagan Media & Telecom Summit that just wrapped up. And with me to get some perspectives on what was discussed and what got covered are Justin Nielson and John Fletcher. Welcome to the podcast to both of you.

Justin Nielson

Thanks.

John Fletcher

Thanks for having us.

Question and Answer

Eric Hanselman

Great to have you here. There was a lot that got covered in this year's conference. But I guess before we dive into some of the conversations were taking place, some of the content, Justin, can you give our listeners are familiar with it? A little background in terms of what the summit is all about, what it covers and I guess, some of the highlights from this year.

Justin Nielson

Yes. No. Thanks, Eric. It's kind of a revival of the summit. So traditionally, Kagan has done a New York in-person event. But with COVID and everything, we switched the format to virtual. So this is the first in-person event that we've had since 2019. And a little shift in focus in the media landscape.

There's been a lot of talk about the consumer shift from linear to streaming platforms as well as the kind of rise in sports rights and the different facets around how the business is changing around advertising and streaming.

So that was the primary focus. And then John can talk a little bit about broadband infrastructure and the BEADs program. But yes, it was great to have everybody back in person in New York and lively discussion.

Eric Hanselman

And well, we're back to doing this in-person thing. Have to get used to really being there with other humans again..

Justin Nielson

We had to wear pants.

Eric Hanselman

It's all sorts of innovations in so many different ways. Well, I guess, maybe start off with something that actually we've talked about, geez, I guess, a while back on the podcast some of the -- really the U.S. video marketplace and some of the things that are changing and evolving in that area.

We talked about what is this transition from what was the traditional linear world, things get broadcast when they get broadcast. To the streaming shift, there's a whole set of what's taking place in a number of different areas that are going on there. What were the subjects and the discussions that were going on at the summit [indiscernible]?

Justin Nielson

It was a nice lead in to our first panel session, which was the evolution of the U.S. video marketplace from linear to streaming. And we kind of looked at it from both perspectives. So from the legacy media perspective, keeping their content compelling and their viewers engaged on some of the legacy platforms.

But investments in streaming and social and other avenues and really how they have transformed their business model to attract those new viewers across the different platforms. So I mean, looking at it from a perspective of -- are the tech companies, allies or adversaries in this marketplace, now with competing products coming out from Google and Amazon and Apple and others?

Are the legacy media companies still able to compete in that marketplace and gain viewing share? So really looking at it from a perspective of how much time that consumer spend on these different platforms. How many different services they subscribe to. So I mean, we've done some research around that in survey data. And on average, I think people subscribe to 7 different streaming services for their programming, including Disney+ and Hulu and Netflix and others.

Eric Hanselman

The whole assembly of everything.

Justin Nielson

Oh my gosh, yes. But then what's interesting is how we're kind of getting back into the bundling aspect. So you've seen a couple of new services come out where they're bundling Disney+ and Hulu and Max now. And now they're including ad tiers to make it less expensive for consumers. So it's become very much more à la carte and then at the same time, a bundle to attract new subscribers.

Eric Hanselman

And that the pendulum continues to swing back and forth. The whole cord cutting motion was supposed to get out of the bundling play of cable services. And now we're getting right back in the bundling, albeit though with streaming capabilities.

Justin Nielson

Exactly.

Eric Hanselman

Well, it was interesting, you mentioned some of the evolution of what was happening in the marketplace. And some of that is taking place in some of the fundamental areas that have always been that bastion of linear, which is sports because games happen when they happen. And yet we've now got a whole set of streaming competitors who were looking to be able to play in that, which means that sports rights are starting to become a bit more of a thing. And we've had a few moments in a number of different areas.

Justin Nielson

Yes. Perfect example of that, that recently just happened in the news was the new NBA rights deal. So you've got both the traditional broadcaster in Disney and ABC. And then now, NBCUniversal and NBC. But then you've got the streaming players. So you've got -- as part of that package, you've got Amazon Prime Video as well as Peacock from NBCUniversal.

So it will be across the different mediums in terms of these live games. And then there'll be exclusivities in terms of the In-Season Tournament, which is now named the Emirates In-Season Tournament will be on Amazon Prime Video. And then Peacock will have some of the playoff games as well as they're going to have kind of carve-outs for different nights. Tuesday is going to be a new night for NBA as well as Saturday.

Eric Hanselman

Well, because, again, you had Amazon in football, in American football. You've now got Amazon in European football or soccer. You've got -- basically, you've got a set of those folks who were really more in that Netflix camp of primarily looking at in-streamed content now trying to get into sports and actually leverage those capabilities.

Justin Nielson

Yes. And you look at it from a perspective of how much they're spending on these rights. So we track that, and we look at it from a perspective of where total U.S. TV streaming rights were only a few years ago, which is around $20 billion back in 2020. And we're already at almost $30 billion this year, and it's only going to increase over the next 5 to 10 years.

Eric Hanselman

More competitors, more people buying for the rights, that's certainly good for those that hold the rights.

Justin Nielson

Yes. And then you've got the rise of women's sports. So as part of the BA package, the WNBA got some media partners and were able to increase their media rights fee as well. So more games on TV, more fans and more ticket sales hopefully.

Eric Hanselman

Yes. And actually, in the previous episode, we were talking about the acceleration of the National Women's Soccer, WSL, which I think had -- well, I don't remember exactly what the factor was something like an eightfold increase in rights valuation in between 2 contracts. Crazy stuff.

Justin Nielson

Yes. And actually, Brian Gordon, who was from the National Women's Soccer League was on our panel session. I'm talking about those right deals and how they've taken an approach where it's a little bit different than what the MLS did with Apple in terms of exclusive rights. Where they're picking and choosing their rights deals across multiple partners and seeing what works.

Eric Hanselman

Yes, it was interesting. We got into the discussion of the fact that, in fact, NWSL games are now going to be -- I think it was 3 different providers that we're actually delivering content, depending upon the game and where they happen to be.

Justin Nielson

Yes, exactly.

Eric Hanselman

Interesting things. Well, the other piece of the summit is also talking about how this content gets delivered and the broadband piece of this. John, there's a lot that's been going on in the broadband side. What was covered at the summit?

John Fletcher

Yes. It's important. As you guys have been talking about the video business is in transition right now and a lot of direct-to-consumer streaming, SVOD, wherever you want to call it. It's over the top. Over the top of broadband connections. So actually, this year was the first time the summit has had a broadband panel because it's become such an important part of how consumers are watching video.

My speaker was Lori Adams from Nokia. She's been working on closing the digital divide for her whole career. And it was really interesting to talk about -- we talked about BEAD, which is the government has earmarked about $43 billion to help the U.S. close the digital divide.

And to kind of quantify what the digital divide is, we estimate about 90% of homes in the U.S. have a broadband connection, which means we've got $40 billion or so to connect the rest of the 10% who don't have broadband. And I kind of think it's a similar initiative to connecting coast-to-coast with the railroads in the 1800s or freeways in the 1950s. Except now, we're using high-speed Internet for everything we need. It's not really a nice to have. It's definitely a need.

And one of the things we talked about on the BEAD panel was some people are complaining about the amount of time the money is taking to go from the government to these ISPs so they can take that government funding, and connect these unconnected homes. And on the one hand, I agree. It's like, yes, it was announced almost 4 years ago now.

And no ISPs have yet to catch a check and do anything with it. However, at the same time, it's not like a surprise that governments move slow. I thought we're dealing with a 5-person start-up here. And they added in the element that I think is really important to make sure that this money goes and stretches as far as it can go. It goes from DC to the states.

So the states get a chunk of money, and the states get to determine where the digital deserts are, and which ISPs are in the best position to close them. So I think it will be a more efficient way in the long run of closing the digital divide.

But like Lori was saying, she doesn't think the funds are going to arrive until next year or so. But once they do, we think it's going to be kind of hit the ground running. And the next few years are going to be really exciting for broadband infrastructure and growth in that space.

Eric Hanselman

Well, just for those of our listeners who aren't familiar with it. It's a Broadband Equity, Access and Deployment program. But it's something that there's been a lot of conversation about actually what qualifies even as broadband, and a lot of debate. And so a lot of the time that it's taken, has been spent really just sorting out the definition of broadband, who qualifies. That seems like that's been a whole rigmarole into and of itself.

John Fletcher

Yes. It's definitely a moving target. And if you're an old guy like me, you remember when the 56k modems came out, you were like, "What are going to do with all the speed?" But now we have -- the old U.S. definition was 25 megabits per second download speed was technically broadband.

The FCC and other agencies are saying, "You know what, we really need to be 100 megabits per second download and 20 megabits per second upload," in order for us to say, "Yes, you're broadband. We'll write you a check for it."

And this is actually controversially why Starlink has been excluded from these funds because the company has not been able to consistently provide uplink speeds north of 20 megabits per second. So we think a lot of this money is going to go to rural fiber providers and rural wireless Internet service providers.

And of course, some of the Tier 1 operators, some of the big names we all know, they're going to get some of this money, too. But we think it's going to be a big boost for fiber and fixed wireless specifically.

Eric Hanselman

And $42 billion hopefully starts to bring this together, but it is that challenge that if we take a look just across the country. But certainly across the planet, the digital divide in a world in which connectivity really has become a fundamental piece of an expectation about how you live your life. That's something that hopefully goes a long way towards being able to deploy capabilities out to that chunk aside that doesn't have it.

John Fletcher

And that's -- I looked at that $42 billion, I said, "Well, what does that mean?" It's a big meaningless number because it's so big. But 10% of the U.S. homes that don't have broadband, that's 14 million homes. That means if you divide $43 billion by $14 million, that's about $3,000 per home that's not connected to provide an Internet connection to.

And what does that mean? That means fixed wireless to connect a new home, it's about $700 per home. So if we were to connect all those unconnected homes with fixed wireless, there's plenty of money and money left over for all of us to go to Great Wolf Lodge and enjoying [indiscernible] fiber connections. The fiber connections were a lot more..

Eric Hanselman

Improving this connectivity there.

John Fletcher

So you can join us next time. Fiber connections are probably 4x or 5x more expensive than that realistically. And the digital divide, there's 2 parts to it. There's people who live out in the boonies like me, on a ranch, and running a wire in the ground to get here is really expensive.

So that's why the Tier 1 operators just haven't done it yet because the return on investment, just -- it hasn't really worked out. It doesn't really make sense. So you have those people not being able to get broadband. But then you also have households that live in urban areas where they have a fiber line right in their wall, but they just don't have the disposable income to pay for it.

And unfortunately, as far as I can tell now, BEAD is not earmarking money to kind of make up for that. And there's a plan called the ACP, which is subsidizing broadband at $30 a month, but that expired in May. So that's kind of another conundrum that the industry is working through this year, is trying to figure out, "Okay, well, they lost that subsidy. How can we keep them online?"

And that's where the operators are going to start competing and lowering prices and doing what they can to keep them from leaving. But ultimately, some of them are going to have to just cut that broadband connection, which definitely doesn't help.

Eric Hanselman

So this is, I guess, maybe a little bit more like the Rural Electrification Act way back when, that the idea that it's really looking to extend into -- that, that reach out in the rural communities, those who are beyond the reach of normal connectivity. And then separate programs that are going to have to be able to manage what are the economic viability pieces of who can actually afford, even though if they do already have connectivity is available.

John Fletcher

Did [indiscernible] mentioned that because Lori brought that up. She says a lot of success stories with rural broadband and government agencies have to do with where the government initially ran power to really remote areas because they already have the infrastructure. They got the expertise of running a business out to rural areas.

So she said there's a lot of success stories with those similar municipalities with the electrical power as being kind of a municipal service. They do really well when they just flip a switch and start doing broadband, too. So yes, that's a really good point.

Eric Hanselman

Yes. I mean rural electric cooperatives got funded by the REA, again, built these local community cooperative associations to be able to deliver power and to do it in a way that made sense or made dollars in cents and potentially, they're a vehicle. But it is something where there's an awful lot of competition from, as you pointed out, all the major players in broadband connectivity as well.

John Fletcher

I mean, yes and no. I mean, because -- and I know that because we've just moved on the other side of the digital divide. I don't have much to brag about in terms of broadband speeds, but holy cow am I glad to have it. I'm only getting 20 megabits per second, but that's wonderful.

And I do have the option of going to Starlink, which would be a lot faster than the fixed wireless service I have now. But out in these rural areas, there's not a lot of competition for broadband, which is kind of -- that's what we see in our surveys we ask. We ask -- it's a beauty contest. How satisfied are you with your Internet service provider?

And the Top 2, according to 20,000 customers we surveyed, fixed wireless was #1. 56% of them said they're very satisfied. And they're followed by Starlink at #2 at 52% or something. And I'm like, "That's weird. Those are the slowest services. Why are they so high?" And it's like, well, because there's really no other option for people who live in rural areas. So they might have the fastest speed, but they're very happy to have what they can get.

Eric Hanselman

Compared to no connectivity, it's doing really well.

John Fletcher

Yes, or that 56,000 modem I was talking about earlier. Right.

Eric Hanselman

They do still exist out there. Well, so I'm curious for both of you, what are your takeaways from the summit? And what do you see as some of the more impactful points that got raised? You were saying that some of the broadband piece is there, but Justin, I'm curious, from the media side, what are your takes?

Justin Nielson

Yes. I think one aspect that we haven't really discussed is the advertising components to the linear and streaming business. So these streaming businesses like Netflix and others really gain subscribers out of their ad-free packages, and now are coming to a point where they're basically offering ad tiers. Or like in Amazon's case, basically switching all of their drivers to the ad tier and then selling advertising for their retail services.

So it's interesting that marketplace has been kind of transformed overnight in the sense where you have all this inventory now in connected TV and these brands are spending money across, not only cable TV platforms and stations but now streaming video.

Eric Hanselman

Yes. I think it was [indiscernible] who was on last year. He was talking about free ad-supported television and some of that shift, in terms of what's happening both with transitions to digital delivery. A lot of the technologies that are underneath it. But of course, the advertising model that drives all this is the fundamental piece of ensuring that it actually makes sense to deliver over the various mechanisms.

Justin Nielson

Yes. And I hate to say it, but we're going to be getting a lot more political advertising in the next few months.

Eric Hanselman

So you think there might be?

Justin Nielson

Yes, those. Maybe outlets are going to be very happy to have that influx of cash for advertising.

Eric Hanselman

Yes. Well, that is the interesting thing. In big election years, election advertising spending is such a huge driver, granted it's only happening in election cycle. But that's something that really kicks up the advertising businesses when it's in play.

Justin Nielson

Yes. I mean it's definitely -- from the TV station business, a large share of their uptick is political. I mean it's expected to be about $4 billion this year.

Eric Hanselman

Wow. Nothing to [indiscernible] at. Well, what are you both looking at as takeaways from the summit? What are you going to be looking towards? And I guess, are there follow-ups for looking forward?

John Fletcher

Yes. I think the 3 things jumped out at me is real positive highlights from the event. It was really interesting in all the morning discussions. There's one parallel across all the discussions was women in sports. Women's sports leagues are becoming a real thing. And as a girl data, I've got a basketball player and a softball player at my house. That's a big deal when people are talking about women's ports as being a real thing just outside of -- now it just doesn't stop at college.

It goes a step beyond. I think that's interesting to watch that kind of grow. That was a really positive development. I think in terms of BEAD, I think the next few years of broadband deployment are going to be really exciting to watch and see how this plays out. And for people like me who've been watching this industry forever, the first 90% of households to connect were pretty easy. That's the low-hanging fruit. This is the tough.

The next section is going to be tough. It will be fun to watch that close the gap. And then Eric, as you mentioned earlier in the call, kind of the return to the bundle. One of the panelists said, "Skip using back to the future." And it's funny because I've been doing this for so long. When I started 20 years ago, everyone's complaining about their cable. "Well, I'm not going to watch 200 channels. I just want these 3. I want to pay for these 3."

And we finally got there pretty much with Netflix kind of launched in '07 and now you can go pick and choose your services. But we're all confused and we're losing track of the services we have. And we're like, "You know what will be great, is if we could bundle these."

And so we're starting to see Comcast rebundle some streaming services and content providers like I think Disney was combining Disney and ESPN and one other together. So you're absolutely right. I think we're seeing -- going to see a return to the bundle going forward as well.

Eric Hanselman

Maybe DeLoreans and Skateboards are in our future. We'll have to see.

John Fletcher

Finally, I want the floating skateboard. I always wanted one of that.

Justin Nielson

Right. Right.

Eric Hanselman

Absolutely. Justin, what are your thoughts?

Justin Nielson

Yes, I would agree with what John's comments were. And I also would add that live sports is kind of the blast bastion of appointment viewing for video. And that was definitely a point of emphasis in terms of the discussion points that the reason that these media rights for sports are increasing twofold or threefold, in some cases, is because it is the last kind of appointment dealing TV that we have. And for advertisers and media outlets and distributors, that is really important that sports is part of their package.

Eric Hanselman

Well, I'll be watching on-demand Olympics tonight. So maybe I've stepped beyond the linear angle on this so.

Justin Nielson

Yes, yes. No. I mean it's interesting because a lot of these games now are going to be on Peacock. So we can watch the Gymnastics final on-demand, but at the same time, how can you avoid knowing who wins?

Eric Hanselman

We've gotten pretty good in my household. It's a total media silence but -- well, we take that away from the soccer season. So yes, all those things that are happening on earlier time zones, it's got to blank out the world. But draw the curtains, put on the aluminum foil hat.

Well, I will also point out to our listeners that the summit is available on demand. So speaking of being able to stream capabilities and that they've got access to it. Just simply registering, you'll be able to see a lot of the content and a lot of the great discussions. Well, thank you both for all the perspectives. This has been great. A lot of good things that have been discussed, but we are at time for this episode, but thank you both for being on.

John Fletcher

Thanks, Eric.

Justin Nielson

Thanks, Eric. That was fun.

Eric Hanselman

And that is it for this episode of Next in Tech. Thanks to our audience for staying with us. And thanks to our production team, including Sophie Carr, [indiscernible]; and the Marketing Events teams at our agency partner, The One Nine Nine. I hope you'll join us for our next episode where we're going to be coming back to the impacts of AI on data centers, but digging into some of the energy concerns that are being raised, And digging into that in a little more detail. We'll touch on it a little bit, but we'll be doing a deeper dive on that. I hope you'll join us then because there is always something Next in Tech.