Grahame Lynch, publisher of CommsDay wrote a piece yesterday that got me thinking. I wrote the following as a reply to his post to Facebook.

The future of lean back entertainment is everything on demand. Broadcasters today can still earn good to great money for advertising on live sports events but it’s a race to the bottom for the filler ads on the reruns of Gilligan’s Island on the digital dividend junk channels. I’m not currently buying ad spots but I believe the News shows and early evening still command a reasonable premium because they are watched live. Other entertainment shows are being recorded on PVRs and the ads skipped. The PVR industry, under the influence of broadcasters under the Freeview brand have tried to limit the amount of storage in PVRs to 1TB because they know every show stored in the box is another lost opportunity to display ads during live shows. When you add VOD services operated by the PVR vendor there is an added incentive to reduce recording because it impacts VOD revenue. Along comes Netflix with the equivalent of a infinite back-catalogue of TV shows and old movies. Binge watching ensues.

The ISPs deluded themselves that they would get to clip the ticket on video services but when the opportunity to do it via their monthly access charges came along they stuffed it up. They _are_ dumb pipes and every time they try to be anything else it’s either by being highwaymen holding customer performance to ransom or by building the sorts of bundled-with-crap services only telcos can dream up. To win, build a set of products that customers need, price it to make a profit, provision, rate and bill it correctly first time every time and provide awesome customer support services. But the commercial model of the NBN makes it very hard to make a profit unless you have vast numbers of highly profitable low consumption customers. Many of those are quietly shifting to mobiles as the PSTN is turned off in NBN service areas.

Fixed line ISP retailers are going to have to raise their retail prices or face sharply falling profits.

Years of begging the ACCC for increased margins by forcing the reduction of Telstra’s wholesale prices in a market with a dominate ex-incumbent with three parallel private access networks have left them with no way out.