That pretty much captures the fight shaping up as cable TV networks wrestle with a sticky situation: their relationships with the multiple-service operators that pay them subscriber fees to include their networks in their consumer offerings. The argument over whether to use content to make subscribers pay -- or open it up on the web to garner the widest possible audience and make up lost revenue in advertising -- is rearing its ugly head as networks such as Viacom's Comedy Central debut full-length streaming episodes of "The Daily Show" and "The Colbert Report" on their own websites.
Alexander Dudley, a spokesperson for Time Warner Cable, told Ad Age the company is prepared to go as far as withholding some of the subscriber revenue upon which networks like Comedy Central have built the bulk of their business model.
"That would be a really nasty route, withholding subscriber fees. It would have to be a last-resort scenario, and could result in litigation fees," said Derek Baine, a cable analyst for SNL Kagan. "Who wants Viacom suing Time Warner or vice versa?"
Likely neither party, but that doesn't do much to assuage Time Warner Cable. "If you put the same content you make us pay you a fee per subscriber for online, why on earth would we pay you per subscriber?" said Mr. Dudley. "The thing about cable is that what makes it appealing is the content on the video package. If that content is free over a really awesome Road Runner ISP connection, that discourages you from buying the video product."
Wherever they want it
"Our point of view is that there is a segment of our audience that is living more primarily online than they are living on other platforms," said Erik Flannigan, exec VP-digital media of MTV Networks' Entertainment Group. "As some of our actions have made clear, the consumer will have many places they want to consume content. As long as we're putting forth that experience and getting the lion's share of the advertising, everybody wins."
Although cable ad revenue is on the rise as the networks continue to win prime-time dollars from broadcast, it's still no match for the revenue that comes from subscriptions. In the case of Time Warner's Turner Entertainment division, which includes TNT, TBS and Cartoon Network, ad revenues accounted for about $1.1 billion of its $2.7 billion total in first-quarter 2008, with subscriber revenues increasing at a rate of 15% to nearly $1.6 billion. Although the company's earnings don't break down digital revenues from those figures, it's safe to say, at best, they're a low-double-digit percentage of that ad revenue.
Time Warner Cable's Mr. Dudley doesn't see this changing anytime soon. "It's not like the ad-revenue business is a 15%-a-year growth model. The growth there is fairly mature. The revenue you generate online is not additive. There are ways to meet your customers where they are without giving your core product away for free."
Although the subscriber/ad revenue ratio is close to 50/50 in the case of some cable groups, Mr. Baine doesn't see any MSOs aggressively shaking that up any time soon. Still, Time Warner and other MSOs better get used to the new media world order. The online unleashing of Stewart and Colbert comes less than three months after the same network created a similar digital library for every episode of "South Park," another popular show that generated hundreds of thousands of illegal downloads from pirate and torrent sites online. Already Comedy Central's move is being echoed by the likes of USA (full episodes of "Monk" and "Psych"), SciFi ("Battlestar Galactica"), TBS ("House of Payne") and Comedy's Viacom sibling network Spike (which just rolled out a new Spike.com player with new episodes of shows like "Factory" and "Pros Vs. Joes").
Because online syndication is interpreted so differently across the cable industry, some network groups often find commenting publicly on their relationships with the cable operators to be counterproductive. An NBC spokesperson said the company's recent public comments on online video distribution left it fielding calls from the five major operators disagreeing with its blanket statement. Plus, companies like Viacom and Discovery, which don't have a broadcast network, can operate without running the risk of contradicting their business models between broadcast and cable content.
Comcast, the nation's largest MSO, views its business relationships a bit differently than Time Warner. In January, the company launched Fancast.com, its contribution to the online-video market and part of its purchase of movie-ticket site Fandango.com last year. Since launch, Fancast has created content partnerships with Hulu, the streaming-video site jointly owned by NBC Universal and News Corp., and now Viacom. The site operates under a revenue-share model where the cable networks sell their own in-video advertising (pre-roll, mid-roll, etc.) and Comcast handles all sales of banner and display advertising on the site, so both companies get a share of the viewership.
And lest the company forget about its core revenue driver, the TV screen, fans who search for shows they can't watch on Fancast are redirected to when they catch the next episode of, say, "The Hills" on MTV.
A Comcast spokesperson added that Fancast has thus far exhibited positive effects on its subscribers' live-TV viewing habits. "We really feel that Fancast specifically is augmenting that viewership. A lot of that is retro content, but a lot is new as well. We're allowing them to watch that content online, which oftentimes complements the content on TV."