There was more buzz about whether (and how) cable companies should make their content available over broadband at the annual Cable Show confab in Washington D.C. this past week.
According to the report in Variety, Comcast is developing “On-Demand Online,” an initiative similar to Time Warner’s plans for “TV Anywhere,” which would provide subscribers with access to their cable TV content over broadband.
As I argued in a previous post, it makes sense for cable companies to allow subscribers to access premium content through authenticated online access. If I subscribe to HBO, I should be able to watch HBO programming from wherever I am, including from my laptop while traveling. This type of ubiquitous access is already available for much of the traditional “free” (that is, advertising-sponsored) broadcast programming. Services like NBC Universal and News Corp.’s Hulu and TV network web sites like ABC.com already provide on-demand online access to standard TV programming.
The monetization schemes behind both of these — premium content and “free” television — easily map into the online world. My subscription fee for HBO should include access to the same content over any transmission channel. And, even though Hulu’s ad revenue doesn’t yet match that of traditional broadcast television, over time it should. (Although I won’t digress into the details here, online advertising offers a number of benefits over traditional broadcast advertising that should help it eventually to create more value.)
There’s a dark cloud floating over this sunny scenario, however: How to handle channels from the middle, “basic plus” tier of cable content. Many of these channels generate revenue in two ways: advertising and fees paid by cable companies to carry the channel. As a BusinessWeek article recently noted, the cable carriers who pay those fees would not be pleased if this content were also available for free online:
[T]he cable companies … are trying to prevent cable networks from putting their shows online. In recent months, Big Cable has reminded USA, Bravo, TNT, and hundreds of other channels that the cable companies provide about half their revenues, in the form of fees to carry their shows. The implicit warning: put your content online and forfeit nearly $30 billion. “If I don’t have a customer,” says Time Warner Cable [CEO Glenn] Britt, “the programmers aren’t going to have a customer.”
Although these cable channels have long benefited from having two monetization streams, these two approaches to revenue are now in conflict. These channels are straddling a gap between premium subscription content and free, ad-sponsored content, both of which have (or will soon have) an Internet monetization model. If these channels are to move onto the Internet — which they resist doing at their own peril — they will need to decide which path they intend to follow online.
Given the weak revenue stream currently provided by online advertising for video — and the not-so-veiled threats from the cable companies — I suspect they’ll gravitate toward the “premium content” option. It is unclear, however, whether users will tolerate ads in authenticated, subscription-based content, which leaves these channels in a precarious position.