With the latest fight over retransmission fees heating up between Time Warner Cable and Disney, it might be time to consider the role online video plays in how consumers get their content — now and in the future.
Time Warner Cable and Disney have until September 2 to reach an agreement on retransmission fees that the MSO will pay to broadcast hit shows like “Modern Family,” “Desperate Housewives,” and a package of ESPN stations on its cable network. On that day, the current carriage agreement between Time Warner Cable and Disney expires, and Disney could pull its programming from Time Warner cable systems. The issue fueling these very public negotiations is that Disney is attempting to increase the amount it collects per subscriber for carriage of its stations; Time Warner Cable argues that such a move could end up raising rates for its subscribers and is fighting back.
What does it all mean? That ABC stations could soon go dark on Time Warner Cable systems, forcing consumers in affected markets to go online to find their favorite broadcast content. But that possibility also underscores the reason Time Warner might be unwilling to pay more for Disney’s content.
Online Video is Proliferating
As always, money is at the heart of the negotiations, but there are no doubt other factors at stake in Time Warner Cable making its appeal to the public so early. Chief among them might be the proliferation of online video services and availability of ABC and ESPN content that’s already online.
It’s easier than ever for consumers to stream their favorite shows directly to a TV. And now, broadcast content from ABC, Fox and NBC is becoming available through connected devices like Samsung TVs and Sony PlayStation 3 gaming consoles via a $10 a month subscription fee to Hulu Plus. In other words, consumers will soon have even less reason to pay a cable provider for some of their favorite shows.
Like most broadcasters, ABC makes most of its linear programming available on sites like ABC.com and Hulu. This has mainly included carrying a limited number of full-length, current-season episodes from each show that are available online for a limited amount of time. The networks maintain this strategy is a way to monetize catch-up programming online for viewers who might have missed the linear broadcast or want to re-watch it at another time. To this point, networks have said they view online video as complementary, not cannibalistic, to their broadcast properties. And so far, short-term worries over the possibility of consumers “cutting the cord,” or even canceling their cable subscriptions, seem overblown. Indeed, more consumers in the U.S. pay for subscription TV services than ever before.
Taking the Fight Public
Even so, Time Warner Cable doesn’t want to pay more in retransmission fees for content Disney is making freely available to consumers online. The cable company argues that it manages only a modest net income for shareholders; any increase in fees for content will generally get passed on to consumers through higher subscription rates.
Most carriage agreement negotiations go down to the wire before cable distributors and programmers launch campaigns meant to stir up public support for their positions. The fact that both parties have gone public so early in the fight could be an ominous sign for how the discussions proceed; if the companies are putting their spat in front of consumers now, they must be very far indeed from reaching an agreement.
They’re also taking the fight to the Internet. Time Warner Cable is bringing back its “Roll Over or Get Tough” marketing campaign it originally launched during its retrans spat with Fox at the end of last year. Disney, meanwhile, is reminding consumers they could always switch providers with its own newly launched “I Have Choices” campaign.
Time Warner Cable has been one of the most aggressive among the major cable operators in drawing retransmission discussions out to the last minute and having them appear in the public eye. As noted earlier, the MSO got into a public spat with Fox in December 2009, leading to Fox threatening to pull popular programming such as “American Idol” offline if a deal couldn’t be reached. And a year earlier, Time Warner Cable had its negotiations with Viacom (s VIA) over its carriage of Nickelodeon, MTV and Comedy Central programming reach the public eye when Viacom put out full-page ads in local papers depicting a teary-eyed Dora the Explorer. Clearly the MSO is trying to take a stand against ever-rising cost of the programming, but it could also be fighting against the rising tide of network content that is becoming available for free online.
Is Online Video a Solution?
So far, Disney has not suggested viewers switch to ABC’s online programming if the feed on Time Warner Cable goes dark. And why should it? Disney would much prefer the dual revenue stream that comes with getting per-subscriber fees and advertising revenue from its broadcast properties. Which is why, on its “I Have Choices” page, the conglomerate suggests viewers tune into its programming on AT&T, Verizon or DirecTV.
But if push comes to shove, online is where consumers might have go if their ABC feed goes dark, since that would be the only place Time Warner Cable customers could find that content. And if history is a guide, Time Warner Cable might help them in looking online: In late 2008, Time Warner Cable even threatened Viacom to show fans of its programming how they could get that content online — and how to hook their computers up to their TVs to watch that content on the big screen. Since Time Warner Cable would most likely remain their broadband provider, it would still benefit from subscribers watching ABC content this way.
The question is if consumers will be willing to watch that content on-demand and online as opposed to through the regular linear broadcast, or if they will do as Disney suggests and find another pay TV provider. We’re pretty confident that the two sides will reach an agreement before anyone’s screen goes dark. But should the latter happen, will online video be a good enough substitute for linear broadcast?
Video quality online is, typically, not nearly what viewers can generally find on their HDTVs, and few users actually have PCs or connected devices that can connect to their TVs. Perhaps more importantly, viewers might not want to wait until the next day — or in some cases, the next week — to watch the same content online when their friends are able to watch those shows live. In that sense, the victory leans in favor of Time Warner Cable.
Nonetheless, there’s always the potential that consumers could eventually migrate online and become comfortable with that distribution model. Time Warner Cable would still make money from broadband subscribers, but those users won’t carry the same value as higher-priced cable packages. And Disney would still make advertising revenue from its web video business, but not nearly as much as it does off the combination of linear broadcasts and retransmission fees. In that scenario, both parties would lose.