Split Decision on Paying for TV Everywhere

Comcast Interactive Media President Amy Banse electrified the crowd at the NewTeeVee Live conference in San Francisco last week by confirming that On Demand Online, which she described as “Comcast’s expression” of TV Everywhere, would be available to subscribers at no extra cost “by Hanukkah.”

A few hours later, just down the coast in Los Angeles, Walt Disney CEO Bob Iger sent a different message. “[W]hen you serve consumers better, when you provide more convenience or more utility, you should be able to charge for that and charge an appropriate amount,” the chief Mouseketeer said during Disney’s fourth-quarter earnings call. “And some of what we have heard about TV Everywhere suggests that interest in charging the consumer for greater access is not necessarily a priority, and we believe it should be.”

He also made it clear that Disney, which owns ESPN, The Disney Channel and ABC Family, does not intend to be bound by any authentication systems Comcast or anyone else might come up with.

“We also believe that we should still have the ability if we go to a world where there is authentication and TV Everywhere for the multi-channel subscriber, we should not be precluded from offering our product directly to consumers who may not be subscribers to multi-channel services,” Iger said. “[T]he master that is most important to serve for us is the consumer.”

Those contrasting visions, expressed at back-to-back events by Comcast and Disney executives, highlight a critical gap in the industry’s TV Everywhere plans that I discuss in the “Ultimate Guide to TV Everywhere” report, and which will have to be closed for those plans to reach fulfillment. The interests of cable programmers and distributors are not fully aligned with respect to TV Everywhere and could, in fact, conflict.

For cable system operators such as Comcast, TV Everywhere is essentially a defensive move — an effort to forestall cable cord-cutting and ward off competition from over-the-top video delivery. Their goal is to enhance the value of subscribing to a pay-TV service by including broadband access as part of the package without raising prices.

While cable programmers are anxious to preserve their existing dual-revenue stream business model (advertising plus affiliate fees), and therefore share operators’ interest in discouraging cord-cutting, TV Everywhere also represents an opportunity for them to expand the distribution of their networks. And as Iger made clear, when content owners grant expanded distribution rights they expect to receive payment for those rights in return.

That could raise programming costs significantly for cable and satellite operators and would radically change the economics of offering TV Everywhere as part of a basic cable subscription.

Not all cable programmers are in as enviable a position as Disney, of course. ESPN is the most valuable pay-TV brand in the business and already commands higher affiliate fees from cable and satellite providers than any other network. Other network owners will not necessarily have the same leverage with distributors as Disney has. But that’s unlikely to be much comfort to distributors. Excluding ESPN and other “must have” networks like MTV, Nickelodeon and CNN from TV Everywhere in an effort to keep down programming costs would only undercut the value of the service to consumers and would invite over-the-top competition from distributors willing to pay for the rights. At the same time, charging subscribers extra to cover higher programming costs seems counter-intuitive for a service meant to discourage cord-cutting.

Ultimately, it’s just a distribution deal, like many others, from which both sides stand to benefit if favorably concluded. What you see both in Comcast’s haste to roll out On Demand Online and in Iger’s comments, is the sort of posturing that typically precedes serious negotiations. But the gap between the two sides’ interests is real and large. It’s not a given that the deal will get done.

Question of the week

Could TV Everywhere succeed if it did not include top-rated cable networks?
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Paul Sweeting

Principal Concurrent Media Strategies

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10 Comments Subscribers to comment
  1. TV Everywhere has the marketing power of your own MSO behind it, so any incremental content could be noticed. But if it’s just another Hulu with a more stringent log-in system and a plug-in to download, consumers will stick with the free and easy content they’ve already become accustomed to. That’s why you always hear Comcast using the Entourage example.

  2. TV Everywhere doesn’t need the top-rated cable networks to guarantee success. While “content is king,” time and place to enjoy content are becoming just as important.

  3. Four predictions:

    1) TV Everywhere is available as an add-on to your basic cable subscription and free for premium subscribers;

    2) Hulu goes behind a paid wall;

    3) Cable programmers significantly restrict availability of free content in return for an increase in affiliate fees;

    4) Free to air Networks agree not to increase re-transmission fees in order to participate on new On Demand networks – including network DVR’s.

    Net result – continued shift from linear to On Demand model leaving linear channels as “barker” channels for on-demand platforms.

  4. Can’t say I would disagree when any of those predictions, Michael. See my earlier post on Hulu (http://pro.gigaom.com/2009/10/hulu-and-the-end-of-free-tv/).

  5. whatever, they are horseless carriage-in’

    they can’t absorb the internet’s rebuttal, they can only be a repackaged content portal, essentially an app for their brand that while everywhere is less dynamic and static

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