Cable Grapples With Striking Balance Between TV and Web Video

In several sessions at last week’s NCTA show in Washington, operator, network and other executives advanced different ideas for developing a responsible, lucrative business model for the content convergence concept. It’s known as “TV Everywhere” or “everything-on-demand.” Even though at least two major cable operators soon plan to test authentication tools for offering a wider variety of online TV programming to paying cable subscribers, operator and network officials failed to reach broad consensus on the best way for the industry to move forward.

Cable operators don’t like the idea of programmers putting their video content on the Web for no charge while they pay affiliate fees and charge subscription fees for the same programming. Worried about the growing number of traditional TV shows becoming available online for free, they fear that this trend will lead to cable customers “cutting the cord,” junking pay-TV subscriptions for broadband-only subscriptions.

To stave off such cord-cutting, Sam Schwartz, president of Comcast Interactive Capital, said his group is now building a “cross-platform experience” based on Fancast, the cable operator’s online video hub. The idea, he said, is to “create a cable-friendly model good for consumers” that protects cable’s current dual-revenue stream from subscriptions and advertising fees. Plans call for Comcast to test a national subscriber authentication system in support of this model sometime this summer.

“We're sort of in the bottom of the second inning of this game,” Schwartz said. “Consumers want to consume video in other places than the living room. We're just at the beginning of trying to understand” the solutions.

Unlike Comcast, Time Warner Cable doesn’t intend to use its portal, Road Runner in its case, to distribute broadband video content. Instead, Peter Stern, TWC chief strategy officer, said he would rather “lay a foundation for an ecosystem” where cable programmers, advertisers and consumers “can all get what they want” without hurting the industry’s traditional dual-revenue streams. He said the company, which is promoting its own authentication scheme, is “now working with two major programmers” to put in place “browser-based solutions” that would allow cable video subscribers to watch that same content online.

“We look at TV Everywhere as the way to sustain and grow” cable’s financial model, said Stern. He noted that more than 90 percent of cable broadband customers already pay for multichannel video subscriptions. “The big risk we have is, if we don’t find a way to make it easy for them, they'll turn to piracy. But, if we offer it for free, we could lose some subscriptions.”

David Purdy, vice president and general manager for video at Rogers Communications, said high broadband penetration, faster speeds and greater peer-to-peer traffic have created “a perfect storm for piracy” in Canada. In a multi-cultural market where 44 percent of the households speak a language other than English and French but ancillary video programming rights are held back by the studios, he said most households are left with “no legitimate sources for TV content.” As a result, he continued, many households are forced to use P2P services to obtain copyrighted video illegally. “The world looks very bleak if we go from a dual-revenue stream to a single-revenue stream,” Purdy said. “This notion that everything should be free online, I'm not sure it’s valid.”

Several major programmers objected to the idea of cable operators controlling what network video programming might be made available to cable subscribers online. They also expressed concerns about how operators would share any additional revenue they received from subscribers for online viewing rights to network programming.

Rebecca Glashow, Discovery Communications senior vice president of digital media distribution, said her company definitely wants its content to be “everywhere on every platform.” She stressed that Discovery also wants to retain control over the rights to its content, including how, and in what form, it’s made available for TV, Web and mobile uses. Currently, she noted, Discovery uses a multi-platform strategy to extend the reach of some of its programming without running full-length episodes online. “We feel like we can play with our content in a way that not everybody can,” Glashow said. “We're happy to help grow that [cable] business model. But we have a current model that’s very effective for us … . Online is not a competitive platform for us right now.”

Similarly, Lynne Costantini, Scripps Networks executive vice president of affiliate sales and marketing, said it views its Web site as “an extension of the on-air experience,” complementing its TV shows with “broader and deeper” content. She said this strategy is particularly effective for Scripps’ decorating and design programs. “We don’t see any cannibalization of our ratings,” she said. “In fact, our ratings have never been higher.” Like Discovery, Scripps, which owns such channels as HGTV and Food Network, doesn’t place its long-form video content on the Web. “We're marching down the same road with you, Peter,” Costantini said, endorsing TWC’s TV Everywhere concept in principle. “But I'm a little skeptical of how this scales and how quickly you can make this work.” She said it’s also unclear “how collaborative” the arrangement between cable operators and networks would be.

Panelists generally agreed that whatever Web video system emerges must have quick and effective subscriber authentication and authorization to succeed. They also said the system needs savvy, intuitive interfaces, easy-to-use navigational guides and extensive audience measurement tools. In addition, they called for Nielsen, comScore or some other entity to start counting TV and online viewing together so that advertisers gain a better picture of how many people are actually watching network shows.