A huge story has broken in the US press this week, which may have originated in the Associated Press, about the US cable operators going collectively online using free video to subsidize their existing franchises.
Talks between the major cable operators Comcast, Time Warner Cable, Cox, and Cablevision on the one side and NBC Universal, News Corp, Viacom and Time Warner on the other, reveal a terror of all things Hulu and an ‘if you can’t beat ’em join ’em,’ strategy is to be adopted, which was first seen at News Corp and later at Netflix and others ‘ They plan to give away top video content online, but only to paying cable subscribers.
A move on that scale, to annex online viewing, is an antithesis of what the internet is all about, and likely to fall foul of anti-trust authorities. The message is that if you want to view top quality content on the internet, you have to subscribe to a US cable company’s service paying for 200 to 300 TV channels many of which you don’t want.
The idea is to create a kind of super Hulu club, only for Americans (at first) which would stop the content owners from exploiting their own online rights in competition with cable. Most cable networks (TV channels) promise their channels exclusively in a give area to cable operators, and so cannot currently deliver online at all without the blessing of cable companies. If the cable operators sweeten such a deal, then lock stock and smoking barrel, the entire industry would jump to the internet, but only for customers who subscribe at home.
The satellite TV companies and the IPTV suppliers in the US would be up in arms, and sure to mount a legal challenge if the deal goes through.
But it was New Corp, when it owned DirecTV that first mooted the idea, having tried it in the UK with its BSkyB subsidiary, where online films are free to people paying for the top rated satellite subscription. In the US the experiment was less successful, because the company had no broadband lines of its own to bundle, in the UK it owns its own network of broadband lines to several million homes and can use the online service to push that.
But if cable brings its 68 million US homes to the internet, then not only will this accelerate the move to watching online programming, but it will mean that one dominant force in the cable market, becomes dominant overnight in the internet market, a move unlikely to be considered not to be in the interests of the US consumer and which the current administration might find unpalatable.
Cable networks which are said to be in on the discussion include Time Warner’s HBO, Viacom’s MTV, Discovery channel, TLC, Animal Planet, and Cablevision’s Rainbow Media, as well as CNN, TBS and TNT.
This entire fiasco raises the specter of US citizens paying more and more to build out a cable infrastructure, but using it less and less, though in a sense, but promoting DOCSIS 3.0 as a far fatter pipe to each of these homes, the cable operators’ infrastructure would be used to view the content, but purely as an IP pipe.
There are questions such as what kind of advertising would be allowed on the cable networks when online, and who would keep that revenue. There is also the issue of what can be done with overseas rights.
At present many cable operators pay cable networks on a per-subscriber basis, though not entirely, and there are some flat fee arrangements. When this content has gone onto the web in the past, cable companies have complained.
In a way cable operators have to strike now or they are dead. If cable networks can get enough money from other sources until they are less reliant on cable operators then they could blackmail the cable operators with ever higher prices for the top content. Already they extract a price in forcing cable operators to take channels they would rather not carry, in order to artificially create excess advertising inventory. If content owners were any more in control they would be in a position to undermine the infrastructure companies’ entire business model.
Funnily enough the content will go full circle ‘ be made for cable TV, shifted onto the internet, then converted to work on new TV devices and set tops that can increasingly view online entertainment ‘ on that same TV. The idea of doing that is that a pure internet model emerges, not one forced onto the consumer in order to maintain an existing cable dominance. Content companies that see this may be wary of joining in on the bandwagon, but if it goes ahead, it would be even worse to be one of the content companies which are left out.
At Faultline we are fairly sure this would not work if an extra fee was charged for the online content, but if it does take off, it could halt churn in its tracks and decimate any innovative content efforts on the internet. What chance would they stand against the combined content might of all US television.
Another model would be to use the content to hijack the broadband market by making online content only free to those who had a cable subscription AND/OR a cable broadband line. This would strike at the heart of DSL based ISPs and force the majors ‘ such as AT&T ‘ to respond in kind. Tying content to an internet line would have the effect of killing off many of the independent ISPs across the US and this reduction of competition may slow broadband uptake. It may also make Net Neutrality an even bigger fight.
The two options on the table are for the cable operators either to release the content on their own web sites, or to work with the content owners’ web sites. So perhaps by being a Cablevision customer who takes HBO you would get rights to watch HBO at HBO.com automatically. The difference would be that ALL of the HBO content would then be viewed online rather than a fraction.
This has all been triggered by the success of Hulu, a joint venture between NBC and Fox which has freed up more and more content for online delivery, despite being subsidized heavily by the two owners.
The cable operators might be able to stitch up the online entertainment market, but what will they do when content begins to go onto handsets ‘ then the shoe is most definitely on the other foot and the RBOCs hold the whip hand.
An agreement between the cable and content industries which gets through the scrutiny of this US administration may well form a footprint for a global online video transition, but there’s a log way to go before that happens.