"If you want to watch your favorite TV network or shows through
broadband on any device -- PCs or mobile -- you can do it as long
as you subscribe to any multichannel provider," Mr. Bewkes told
Advertising Age. "It's a natural extension of the existing model."
The initiative, dubbed "TV Everywhere," is intended to be an
industrywide effort, and Mr. Bewkes expects to ready a test of it
this year. "This is not just for the cable industry," he said.
"It's about keeping the health of all these fantastic networks
while making them available at no extra charge on the online
platform."
Cable TV is one of the few sources of subscription-based content
that most Americans have shown a willingness to pay for. Yet that's
what keeps most of its programming off the web, as the networks
fight to keep the 50% of their revenue that comes from cable
subscriptions from suffering the same fate as newspapers or record
labels.
Advertising vulnerability
Both the networks and cable operators have a lot to lose if the
subscription model breaks down, but the networks are particularly
vulnerable. For the last two decades, cable has dined out on
broadcast ad dollars, moving from 20% of their revenue from
advertising to 50% today. But the salad days are over; TV
advertising is flat, and operators such as Viacom have sustained
themselves with subscriber revenue in the midst of flat or
declining advertising.
"At the end of the day, the cable operators are going to be fine
because they will charge for the service they provide, which is
access to the ones and the zeroes whether that service takes the
form of linear video or broadband," said Bernstein Research cable
analyst Craig Moffett.
The cable networks, however, don't get any subscription revenue
from broadband viewers. And if they put their content online
directly, they risk weakening their hand when they negotiate their
next round of carriage deals with operators. Here's how "TV
Everywhere" would work: an individual, or a member of a household
that subscribes to cable, satellite or any of telco's TV offerings,
would be able to have online access to the programming included in
their pay-TV package. With broad industry buy-in, it wouldn't
matter if your TV provider is Verizon FiOS, Time Warner Cable, or
DirecTV. You log in, put in some subscriber information for a
pay-TV operator, and unlock a host of shows not currently on the
web, such as HBO's "The Wire" or TNT's "The Closer."
For 85% of U.S. households, the added access would be,
essentially, free. Mr. Bewkes said he anticipates there will be a
web-only option for those who don't have pay-TV service.
Not-so-small details like how many people could use one account,
whether say, a kid in college would qualify, or how, exactly it
would all work, are still being hashed out. But Mr. Bewkes said he
believes the system would err on the side of making it convenient
and easy. The goal is to keep households from dumping pay-TV
subscriptions, while expanding a nascent business, which benefits
from scale.
"The networks love it if five people are watching TV in a
household; I think the same is true in this world," Mr. Bewkes
said.
Universal appeal?
Mr. Bewkes' project, in a sense, is like Project Canoe, an industry
effort to fulfill the long-promised goal of targeted, customized TV
advertising over cable networks. And like Canoe, it really only
works well if a critical mass of networks and operators join up.
Earlier this month, The Wall Street Journal reported on talks among
cable companies and networks about creating a plan for online
distribution, but Mr. Bewkes is eager to make the plan
universal.
As partners in Hulu and major owners of cable networks, buy-in
from NBC U and News Corp. could help this plan along. With a
critical mass of TV -- but little cable programming -- Hulu has
built itself into the fourth-largest video service on the web in
less than a year. Hulu could provide the back-end technology to
make such a system work, those with knowledge of the talks
said.
Insiders at Viacom, NBCU, and Discovery said they're working
with Time Warner, while talks have begun with News Corp. and
Disney. Comcast is pursuing a different strategy with its "On
Demand Online," which seeks to add cable TV to its Fancast service
for Comcast subscribers, but execs there said they don't see their
initiative as conflicting with "TV Everywhere," and could be
compatible with it.
Even among the networks that are looking at "TV Everywhere,"
there is plenty of skepticism. In addition to getting broad
industry cooperation, it would require a change in behavior online,
and erect a hurdle for consumers now accustomed to easy access to
TV on the web.
"Just look at the old expression, 'How's it working for you?'
Look at the music business. You put your stuff out on the web --
how's that working for you? Most newspapers are free on the web.
How's that working for them? Broadcasters are putting their content
on the web. How's that working for them?" said one industry
leader.
Throwing spaghetti
But many feel like something needs to be tried, and a year ago many
still doubted that Hulu could be made more appealing to users than
piracy.
Cable networks operators such as Viacom and NBCU are already
pushing ahead with free online distribution of cable, and making
the argument that it boosts awareness, and ratings, for a show.
Viacom's "The Daily Show" and "The Colbert Report" both saw
series-high ratings during election season, despite the same
episodes being available online hours after their live broadcast.
USA's "Monk" and "Burn Notice" also continue to see ratings
increase on a weekly basis despite being available on Hulu.
But joining the effort would be an admission to multichannel
providers that online distribution isn't all promotional, and it
may soon replace cable TV, threatening the lifeblood of the
industry.
There's also an ad play in that such a system would allow TV ad
dollars to more easily follow the video. One cable network
executive said including those who watch online could increase a
show's TV rating by as much as 10%. "In a flat-is-the-new-up
universe, 10% is a big gain. Until you start to put it in those
terms, you're not going to move dollars from TV to online," he
said.
Strong hand
The subscription revenue stream isn't yet threatened: Even as they
put cable shows on the web, networks have a strong hand to play in
negotiations with the operators, including video-on-demand rights,
which networks desperately want to build their own advertising
businesses.
There is also much debate whether cable disconnecting due to
Hulu is a significant phenomenon, or a creation of the media.
The number of minutes spent watching video online grows each
quarter; up to 2 hours and 30 minutes a month, on average in the
fourth quarter, according
to The Nielsen Company. But TV viewing is also on the rise,
over 142 hours a month, and much of the video being consumed on the
web isn't traditional TV.
Further, a
Leichtman Research study of U.S. adults found that those who
are watching TV online are more likely to also subscribe to premium
channels, HDTV and use On Demand services. They were significantly
less likely to cut their subscription or change providers.
Time Warner Cable CEO Glen Britt, however, argues that the
phenomenon of consumers dumping cable for free content on the web
is a significant and growing problem.
"Traffic on our data network is increasing exponentially and the
overwhelming majority of that traffic is video traffic," said
spokesman Alex Dudley. "It's a clear indication this is a growing
phenomenon and we have to find a way to incorporate that into our
business model."
Test run
Time Warner claims to have something of a proof of concept. In a
trial in Wisconsin, local cable subscribers were allowed to
download HBO shows by inputting their subscription details. HBO has
been eager to distribute content online, and investigated options
to do so without destroying its subscription business model. The
program will be expanded to additional cities this year.
What's at stake? Turner Networks and HBO accounted for a third
of Time Warner revenue in 2008, but nearly 50% of the company's
operating profit. The model has been good to the cable industry so
far, the question is whether it can hang on to it. It's a model
that hasn't yet been destroyed by the web, the question is whether
they can keep it that way.
