A Hulu for Cable Networks? Not Any Time Soon

How Free Online Video Threatens Pay-TV Model

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BOSTON (AdAge.com) -- Now that Hulu is an out-of-the-box success story for broadcast TV, when will cable get its one-stop online video site? If two panels at the Cable Telecommunications Association of Marketing Summit in Boston on Tuesday are any indication, not any time soon.
A few exceptions have occurred recently on the cable network side, most notably from Viacom's Comedy Central, which has made the entire libraries of full-length episodes of many shows, including 'The Daily Show With Jon Stewart,' available online for free, ad-supported streaming.
A few exceptions have occurred recently on the cable network side, most notably from Viacom's Comedy Central, which has made the entire libraries of full-length episodes of many shows, including 'The Daily Show With Jon Stewart,' available online for free, ad-supported streaming.

The prospect of major cable groups such as Viacom, Discovery and NBC Universal following the likes of NBC, Fox, ABC and CBS to streaming full-length episodes of current shows online has always seemed like a long shot, given that cable networks still receive half or more of their revenue from cable subscription fees. But an underdeveloped ad economy and a robust video-on-demand market has left cable networks feeling cautious at best about giving away their core product for free online.

Model doesn't need fixing just yet
"The cable channel business is a good business model, and we want to continue to be partners with the distributors," David Zaslav, CEO of Discovery Communications, said in the summit's closing keynote panel. "We don't want to train [viewers] to watch our best shows on [free online] platforms. Most of our research shows if we move our content mostly in clips, we can create an environment where we can mostly satisfy our viewers with consumer content on other platforms but do it in a way that doesn't take away from our core business."

In a separate panel on digital distribution, titled "Cable 2.0," Karin Gilford, senior VP of Fancast, said there is a misconception among consumers who consider their cable subscriptions to be less valuable when their favorite shows are available for free online. "The content appears to be free to you, but you're consuming advertising around it to pay the bills," she said. Fancast is a streaming video site created last year by Comcast Corp., the largest cable operator in the U.S.

Although Fancast is the largest distributor of ad-supported broadcast content on the web, having the biggest library isn't going to be enough to differentiate itself a year from now, she said. "I don't think the digital revenue models have completely caught up in such a way that they can replace the money in the traditional ecosystem. There's a little bit of a balance we need to strike. Investing in Fancast and being the largest purchaser of video content in the world, we are perfectly positioned regardless of the model. And if we have to preserve some of those models that have existed for decades, we're prepared to do that."

Ken Lagana, senior VP-ad sales for CBS Interactive, argued that the online video audience is still not large enough to replace the network TV model. "If you didn't have network TV, you wouldn't be able to create a show like 'CSI' -- it just wouldn't exist," he said.

The CBS Interactive group recently launched a digital production studio to produce original short-form programming for the web, where the revenue model can support content that doesn't originate on broadcast TV. "We're better positioned to do that. It's lower-cost, lower-quality web original series that do pay for themselves through ad sales. But we're not at a point where an episode or a series like 'CSI' could live on its own."

Cablers open libraries
In recent months, however, a few exceptions have occurred on the cable network side, most notably from Viacom's Comedy Central, which has made the entire libraries of full-length episodes for "South Park," "The Daily Show With Jon Stewart" and "The Colbert Report" available online for free, ad-supported streaming. But even with entire episodes available for free the morning after they air on TV, all three shows have still achieved record ratings on a live basis on Comedy Central.

Because of that, Greg Clayman, exec VP-digital for MTV Networks, said the company still has to be judicious when choosing digital distribution partners to promote its shows so as not to erode traffic to its own linear networks and websites. "The model where people are paying to watch TV and we're getting paid for our content drives the development of the content we have," he said.

John Zehr, senior VP-digital product development for ESPN Networks, said although the web can't deliver everything a viewer wants to see on TV, it's still a great discovery tool that reinforces the linear networks. "For a sports fan who's very connected, they want to see that game," he said. "But if you're a displaced fan, you could see long-form cricket events or long-form rugby events. We're broadening that programming slate [online], and we see from the consumer feedback they're very happy about it. You're just seeing the ability for people to consume things they just weren't able to consume before."
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