The uneasy alliance between cable network owners and cable operators has always been a tense one, with few prisoners taken and no mercy asked or given, but the battle lines being drawn over tablet content threatens to open up new wounds. This week Time Warner Cable , the second largest cable operator in the US has been sued by Viacom, probably the largest US provider of cable networks ‘ TV channels that run on premium pay TV services.
Time Warner Cable has been pushing the TV Everywhere idea for a full two years and is largely thought of as the concept’s inventor. TV Everywhere is simply the idea that content which is already paid for in a pay TV service can be delivered to multiple screens, whether or not that’s in the same home or available on a wider footing Over The Top. Quite simply if you are a cable TV operator the important fact is that it goes over your infrastructure, to your clients and is viewed in the same home which terminates that infrastructure. If you are a consumer that’s not it.
This is, quite simply, not what the consumer wants. Look elsewhere in this issue and you will find a separate story we are covering on an Accenture consumer survey on just what they would like from internet video. The consumer wants to view his or her content literally everywhere, not in the same place, or over the same infrastructure which pay TV comes over.
A consumer is happy knowing that he or she has paid for the content and can watch it wherever they go, and that includes over the internet on another TV set, in someone else’s home, as long as the viewer with the password is physically present. Placeshifting offered that and it was set to be a big winner, but Dish Network went and bought the prevalent place shifting technology business, Sling Media and that signaled other pay TV operators NOT to play ball with the technology because it was owned by a rival. However placeshifting consumers love the technology, although there aren’t many of them.
A well-kept secret in the UK is that BSkyB has been offering this type of viewing over ANY broadband line, totally over the top, for over three years ‘ including channels with live sports content.
What has stopped US owners of pay TV providers like DirecTV doing the same thing, is that they couldn’t get away with it – content owners made it clear that they need to be paid each and every time a viewer has access to their content over a different method. This is the curse of content owners ‘ they believe that delivery in a cinema, to a DVD, over a Pay TV network, on a pay per view channel or on VoD, and then buried in a repeats channel ten years later, are all separate pay days. Anything else and they are sure they are being ripped off.
Sky in the UK has many of the TV channels it delivers itself, and has been able to force content contracts to supports the real TV Everywhere business model, where it has taken US content which is not from its cousin company Fox, it has been negotiating a non-core territory, not US rights. It is because of this that BSkyB can join in with YouView in the UK and offer its entire content over the internet to a new type of set top box. But this was never going to happen in the US.
The heart of the dispute between TWC and Viacom is down to a single line of the statement Viacom issued when it filed its legal action. It first said that it was always its habit to negotiate distribution based on specific technologies and devices and added that, ‘They blatantly grabbed the rights that their competitors have negotiated in good faith to obtain.’
For competitors read Comcast at the very least and possibly other pay TV operators such as DirecTV. They appear to have negotiated extra content payments so they are entitled to offer online content to their existing customers. Or have they?
Initially TV Everywhere will be offered only to the same homes that have contracted with the Pay TV operator. Probably over the same broadband line. This is simply that it is easy to protect when authentication has to identify the DOCSIS line it is travelling over.
But why would a profit conscious company like Comcast give away an extra service free to consumers, which cost it more money in payments to content owners, if it was getting nothing from the equation. There are two things that this could bring it, the first is a ‘non-negative’, quite simply churn reduction.
We often talk to operators ‘ not just pay TV operators, but cellular operators as well, and tell them that churn reduction is potentially worth $billions, as long as it saves $billions in customer acquisition costs.
We are really clear about the effective of Over The Top internet video delivery on pay TV networks ‘ consumers will eventually, as they come to trust alternative suppliers of online video, switch off pay TV contracts. If they develop an online video habit with the help of their pay TV provider, then they will never learn to trust another OTT operator and so will never switch off. So any pay TV operator that wants to preserve its current margins, and who is prepared to walk away from top content like the Viacom content, as far as its OTT offering is concerned, is committing commercial suicide. Not only does Comcast know and understand this, but so does Viacom and so too does TWC.
TWC has tried to bluff Viacom in the past, and come up short. In the run up to Christmas in 2008 if was about to lose 19 Viacom channels because of a dispute over an carriage increase, set during renewal negotiations. The result wasn’t pretty ‘ TWC caved in and both made up and were friends. The same will have to happen this time, because it’s not just the TWC money that’s at risk. If TWC doesn’t have to pay, then why should other companies that have already agreed to pay extra. In fact most of them have ‘most favored nation’ clauses in their contracts, so it just can’t happen.
The other side of the equation is that one day the US will sort out some form of clarification on Net Neutrality. It has to, because if there is no Net Neutrality principle operating, then why would any operator carry Netflix content at all.
And if this becomes resolved, then Comcast and other signatories will have the content rights to go on the offensive, and offer its content OTT as a pay service, even over other company’s broadband networks. It is a long way from what they are thinking right now, but as this practice becomes better understood in other territories, it is only a matter of time before we are all talking about reduced ‘off-footprint’ offerings.
First we have to see how much cord cutting becomes a reality, and during that time we would only expect pay TV operators in the US to offer OTT to their existing homes. They want the insurance of indoctrinating their existing customer base with the efficacy of their OTT offering, as a means to keep them happy. After that the gloves come off.
If Time Warner Cable can win its own court battle ‘ it is seeking a declaratory judgment court ruling to have its iPad App approved to carry the Viacom Networks channels. Viacom in return is suing TWC for breach of contract and copyright violation. Some, less loved, TV channels will gladly allow TWC to take then online, and this may encourage TWC to push ahead without the Viacom channels, and replace them in its OTT bouquet for the time being.
Already, not wanting to be left behind, the always fractious Cablevision operator which supplies the New York area has added its own iPad app and this has its full 300 channel bouquet, again only for delivery in the home, a strategy which is going to either see it run headlong into similar trouble with cable networks like Viacom unless it has already negotiated extra payments for broader content rights.
News Corp’s Fox Cable Networks has already sent cease-and-desist notices to Time Warner Cable to add its weight to the Viacom suit. Whatever the final license agreements between these uneasy bedfellows, both of them have to be seen to be doing something about TWC, or they would incur the wrath of their other pay TV operator clients. Viacom and Fox simply cannot accept a ‘fait accomplis’ they have to sue, but if they lose the court case, they can still tell other licensees that at least they tried.
There is no denying that consumers want this kind of application ‘ that’s is underlined by the 360,000 downloads of the TWCableTV app, and the 50,000 of the more recently launched Cablevision App.
There is something of an issue here which is purely about Tablets and shows how much everyone has invested in the Tablet concept. No-one sued when TV Everywhere was first mooted, or even when it was delivered to laptops. It’s the fact that it’s being delivered to a new platform that can move around the home, and which can eventually interact with the TV programming ‘ for instance bring up more data about what’s on TV, or use applications which are aware of what’s being shown on your home TVs.
The concern is that potentially there is a lot of money on the table and Viacom and its ilk cannot leave it there ‘ if the Tablet grows to become the secondary viewing platform of the home and on the road, and it missed the opportunity to cash it, it could be like letting early TVs have movies for free, but charging the cinemas.
Comcast may have first mover advantage here in that it may have already negotiated online content before the Tablet was a recognized force in TV viewing. Although we back Viacom to win in this type of dispute, it has 10 million viewers to lose if it ends up with a carriage agreement dispute that sees TWC pull the channels off its bouquets, and although that hurts TWC more than it hurts Viacom, hurt it, it will.
There are those that see this as a long game for content businesses, they will go straight to the internet with their content and bypass network owners like TWC. That’s laughable given their skill set. Viacom knows how to create content and other parts of the business know how to sell adverts. That’s it. There is no know how in technology, customer care and service and service marketing. So these two old dinosaurs are tied together at the hip. Either both survive or neither do.