First the companies need content. And broadcast and cable
networks are determined not to make the same mistake of the
hollowed-out music industry, done in by the economics of digital
distribution. At stake is the $100 billion a year in fees the
networks share with cable, phone and satellite providers, which
charge viewers about $80 a month for programming bundles.
"In music it was getting stolen and then Steve Jobs came to them
and said, 'Let me sell songs at 99 cents and you'll get paid for
something,'" said Laura Martin, a Needham & Co. analyst in Los
Angeles. "But that unbundled the album, which has been
disastrous."
TV networks are "deathly afraid" of the same outcome, said Ms.
Martin. That's why they are refusing to unbundle their channels for
Silicon Valley companies, which want to offer TV to a new
generation of viewers already accustomed to finding shows on the
Internet.
Industry Upheaval
Technological upheaval is nothing new for TV programmers. It
began with stringing cables in the 1960s to improve reception,
evolving into hundreds of channels of paid programming. In the
1990s, DirecTV and Dish Network began
beaming TV from satellites to homes equipped with small dishes. A
decade ago, phone companies laying fiber-optic lines crowded in.
Today 101 million U.S. households pay for TV.
In addition to monthly fees, the TV industry collects $59
billion a year in ad sales, with most going to network owners like
Walt Disney, parent of
ESPN and ABC, CBS Corp., Comcast's NBCUniversal, 21st Century
Fox and Time Warner.
To obtain their shows, tech companies will have to agree to
offer programming bundles and pay a 20% premium above what current
providers are assessed for packages that include broadcast TV and
cable channels like CNN, Discovery and ESPN, according to Ms.
Martin. Those are the terms Hollywood demanded of telephone
companies when they were getting started.
The price may be worth it, as tech companies seek new revenue in
the wake of slumping personal-computer sales and as they try to
cash in on the soaring mobile ads market.
Utopian TV
Technology companies have been trying to shake up TV for years
with little success. In 2007, Intel introduced Viiv, a PC designed
to work with living-room TVs. In 2010, Qualcomm Inc., the largest maker of chips for
mobile phones, closed FloTV, a service for small screens, citing a
lack of customers.
"It isn't clear to me that there's a different formulation that
will be as popular and as profitable to all the participants,"
Glenn Britt, chairman and chief executive officer of Time Warner
Cable Inc., said in an interview. "There's a sort of shallow view
where others think they can disrupt this whole thing and it will be
wonderful."
Intel and Sony are both working on pay-TV products. Intel is
developing a set-top box for sale in stores this year, Eric Free, a
vice president and general manager, said in June. The product will
be sold with a monthly subscription providing live and on-demand
entertainment.
Media talks
The Santa Clara, Calif.-based chipmaker has held talks with
companies including Viacom Inc., the owner of MTV and Nickelodeon, and Comcast's NBCUniversal,
people with knowledge of the situation said in March.
In talks with content owners, Intel has touted something called
frame accurate dynamic ad insertion, technology that replaces
commercials with more user-relevant ads when a show is watched on
demand.
"The television experience is approaching an inflection point
with changes in consumer behavior and significant advancements in
the business rules and technology," said Jon Carvill, an Intel
spokesman.
Tokyo-based Sony, which runs successful film and TV studios
alongside its electronics business, has also held talks with Viacom
Inc. and NBCUniversal, according to people with knowledge of the
situation who sought anonymity because they weren't authorized to
speak publicly.
Program bundle
The company is considering selling a bundle of programming over the
internet that can be seen with almost any Sony device, including
PlayStation game consoles, Bravia TVs and Blu-ray players, said the
people.
Dan Race, a Sony spokesman, declined to comment, as did Mark
Jafar, a spokesman for Viacom. Cameron Blanchard, an NBC
spokeswoman, didn't respond to a request for comment after normal
business hours. The Wall Street Journal reported in late 2011 that
Sony was considering such a service.
Apple is seeking to work with pay-TV providers, at least in the
near term, to offer services letting current cable subscribers
watch using an Apple device. Tom Neumayr, a spokesman, declined to
comment.
Meanwhile, Google is again discussing buying streaming rights
from Hollywood, according to people with knowledge of the matter,
after years of investing in original YouTube channels and faltering
with Google TV, a home screen and navigational tool built into some
sets from Sony and LG
Electronics Inc. The company would still have to address the
industry's concerns about piracy.
Leslie Miller, a Google spokeswoman, declined to say whether the
company is talking with network owners.
Hulu factor
Price and channel choices aren't the only obstacles tech companies
face. Broadcasters and cable networks are pursuing their own web
initiatives, through services like Hulu, which is owned by
Disney, Fox and NBCUniversal, and with
incumbent pay TV providers to offer shows on tables and
smartphones.
"Cable operators today are extremely strong because people are
watching more TV than ever and have a dependence on broadband,"
said David Zaslav, chief executive officer of Discovery Communications Inc., owner of the
Discovery and Animal Planet networks. "The overall package
of TV, broadband and phone is still the most compelling offering
out there, and it doesn't look like there's anything in sight right
now that has that kind of strength and value to consumers."
~Bloomberg News~
