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Sezmi Pulls Premium Pay TV Service in LA

December 23, 2010

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Pay TV service provider Sezmi has withdrawn its premium tier Sezmi Select Plus service, offering access to cable channels redistributed via digital broadcast spectrum leased from local TV stations. The cheaper $4.99-a month Sezmi Select service, which has already rolled out to more than 30 markets nationally, will continue to be available. Sezmi Select Plus, costing $19.99 a month, was offered on a trial basis in the Los Angeles area.

Select offered buyers of the $150 Sezmi hardware package standard (set-top and indoor antenna-in-a box), over-the-air reception of local broadcast-station MPEG-2 feeds, a broadband connection to internet streaming and on-demand content, and a terabyte DVR. What will disappear while the company retools for an open internet relaunch of Select Plus in 2011 will be the 23 linear cable channels it was delivering through local broadcast stations' leased bandwidth.

In the meantime, the company will be pursuing opportunities overseas, where digital terrestrial TV (DTT) subscribers continue to grow. Screen Digest estimates that in just the past two years, DTT subscribers have grown from 4.1m to 9.1m, the vast majority of them in Western Europe. But Sezmi's first deal is to provide the TV component of a Malaysia quadruple-play service with YTL, Inc. the country's leading utility.

Timing - whether good or bad - is everything, and Sezmi has had some of both. Originally, its offer to lease bandwidth from broadcasters, who had bulked up on spectrum this decade by digitizing their feeds to compress ever more video into viewers' homes, was perfectly timed. Broadcasters embraced the concept, pointing to their Sezmi licensing deals to lobby the FCC to let them keep the bandwidth. But more recently the FCC has been talking about tempting broadcasters to give up spectrum for data services voluntarily in exchange for part of the auction proceeds. That was bad timing, just as Sezmi got ready to move out of LA.

But ultimately, time is on Sezmi's side in two ways: It had basically been pursuing the hybrid broadcast/internet approach because the bandwidth wasn't there on the internet to deliver decent video when the founders set up Building B, Inc. in 2003. Now Apple, Netflix and others have shown they can field a service that looks a lot like TV over the internet - and at a low cost that's quickly getting lower for bulk buyers.

Furthermore, now the subscription TV business is losing subscribers for the first time. That doesn't sound like good news for an upstart subscription TV business, but it could prove to be. The losses are happening among cable subs - with telcos and satellite TV sub-counts holding up - and operators report that the losses are at the low end of their tiers. The recession has hammered household formation among the young people who used to take those $30-$40 tiers. Many existing households of young people are stretching to pay bills, and are tech-comfortable enough to give something new like Sezmi a try for $20 a month.

With a carriage fee load that we estimate is about $9/sub/month, the model could work-especially as the delivery-cost component of an internet-delivered nationwide service ultimately proves much cheaper than licensing bandwidth and building facilities in scores of markets around the country.

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