Cable TV’s Big Worry: Taming the Web

Like newspaper owners, media moguls are looking for new ways to protect their investment from the ravages of the Internet. And, as with the newspaper industry, the answer remains elusive.

AP

What is at stake is perhaps the last remaining pillar of the old media business that has not been severely affected by the Internet: cable television. Aware of how print, music and broadcast television have suffered severe business erosion, the chief executives of the major media conglomerates like Time Warner , Viacom and NBC Universal have made protecting cable TV from the ravages of the Internet perhaps their top priority.

“The majority of profits for the big entertainment companies is from cable programming,” said Stephen B. Burke, the president of Comcast , the nation’s largest cable company.

The major worry is that if cable networks do not protect the fees from paying subscribers, and offer most programming online at no cost — as newspapers have done — then customers may eventually cancel their cable subscriptions.

One idea, advanced most vocally by Jeffrey L. Bewkes, the chairman of Time Warner, and embraced by many executives, would be to offer cable shows online for no extra charge, provided a viewer is first authenticated as a cable or satellite subscriber.

Mr. Bewkes has called the idea “TV Everywhere,” but others in the industry refer to it by other names: “authentication,” “entitlement,” and Comcast has called its coming service “OnDemand Online.”

“If you look at TV viewing, it’s up, even though the questions and stories are all about the role of video games and Internet usage and other uses of time,” Mr. Bewkes said.

The first test of the new system, which will authenticate cable subscribers online and make available programs on the Web for no additional charge, will be announced Wednesday, between Comcast and Time Warner. The trial will involve about 5,000 Comcast subscribers, and television shows from the Time Warner networks TNT and TBS.

“We’re talking about taking the TV industry to a new era,” Mr. Bewkes said.

Because of antitrust concerns, the companies that create cable programming are reluctant to come together and agree on a solution. A few weeks ago, newspaper executives held a secretive meeting in Rosemont, Ill., to discuss ways to charge for news online — a gathering that critics said flouted antitrust law.

The electronic media chiefs, including Mr. Bewkes, Jeff Zucker of NBC Universal and Philippe P. Dauman of Viacom, among others, have been more careful, so as to avoid being accused of collusion: much of the discussions have been on the telephone and in private, one-on-one chats during industry events. Pricing is rarely, if ever, discussed, according to executives involved in the discussions.

“We can’t get together and talk about business terms, but we can get together to work on setting open technology standards,” said Mr. Dauman, the chief executive at Viacom, which owns cable networks like MTV, VH1, Comedy Central and BET.

But the problem is that if each goes in different directions — some offering more shows free, others holding them back only for cable subscribers — then the economics of the industry could crumble.

“It’s the classic prisoner’s dilemma,” said Mr. Burke, referring the famous problem in game theory. “If there’s a vacuum, and some start to inch in to the water hoping others will hold back, the whole industry could be affected.”

Unlike broadcast television, which relies solely on advertising, cable networks have another revenue stream: fees paid by cable operators. Comcast, for example, pays Disney roughly $1 billion a year to carry ESPN. This is why Hulu.com, the popular site owned by News Corporation and NBC, is mainly a destination for broadcast shows like “The Office” and “The Simpsons,” and not cable programs.

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In some ways, the plan of Mr. Bewkes could be perceived as a direct shot at Hulu, which does offer some cable shows on a delayed basis, after some time has passed since the show was seen on television.

“That stream is so important to every entertainment company that everybody is looking at that and saying, if we are not careful we could start to harm that model,” Mr. Burke said.

There is no sign of that happening anytime soon, but a recent poll by the Sanford C. Bernstein research group found that about 35 percent of people who watch videos online might cut their cable subscription within five years.

“We don’t think that it’s a problem now, but we do feel a sense of urgency,” Mr. Burke said.

And Wall Street is watching closely. The movement of video, whether it be television shows or movies, to the Internet, “is perhaps the single largest investment controversy in the media sector,” Michael Nathanson, an analyst at Sanford C. Bernstein, wrote in a recent report.

Another analyst, Laura Martin of Soleil Media-Metrics, has said that $300 billion of market value — her calculation of the current worth of all the companies involved in television production and distribution — is at stake. She said the risk is that television’s economics could be overturned, just it has for newspapers and music.

One holdout among the major chief executives appears to be Robert A. Iger of the Walt Disney Company . At an industry conference this year he warned that gambits like TV Everywhere could be “anticonsumer and antitechnology” because such a plan would place cable programming behind a pay wall.

Mr. Iger is more interested in finding new ways to get additional fees for online content, a puzzle that has bewildered the newspaper industry.

Last month, Comcast agreed to pay Disney a monthly fee to offer its Internet subscribers ESPN 360, the sports network’s online channel. One analyst, Richard Greenfield of Pali Research, has called that deal “a watershed event for content owners in a broadband world, albeit that event occurred with little to no fanfare.”

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Meanwhile, some executives say that TV Everywhere is a simple concept, but that it has major technological hurdles. At one recent meeting of cable executives, a whiteboard displayed a list of nearly 80 potential problems with the service.

“The key is you have to be careful to protect the security” so hackers cannot get in, said Mr. Burke of Comcast.

Mr. Dauman of Viacom said: “It’s not going to be a light switch moment. It’s going to be an evolution.”

This story originally appeared in the The New York Times