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Internet Is a Weapon in Cable Fight

In disputes between television programmers and distributors, the new battleground is the Internet.

In its continuing contract showdown with Cablevision, the News Corporation tried to extend its blackout of the Fox Broadcasting network to Fox.com and to Hulu, the popular Web site for free TV viewing, on Saturday. Angry Cablevision customers reported being unable to watch episodes of “Glee” and “House” on Hulu.

The blackout caused shock waves because it had not been done before by a programmer. Though the shutdown was brief, the message was unmistakable: do not expect to be able to watch Fox online unless you are paying for Fox on TV.

The attempted Web blockade was leverage for Fox in its contract negotiations, but more important, it was the latest evidence that entrenched media companies hope to replicate their walled gardens in a new medium, the Internet.

Fox blocked shows on Hulu on Saturday.
Source: Hulu
Fox blocked shows on Hulu on Saturday.

Many stood up and took notice; some investors cheered the News Corporation’s action, calling it an important step for the evolving business model of television, but public interest groups and at least one lawmaker cried foul, calling it anticonsumer.

“This certainly seems to be the first shot across the bow,” said Corie Wright, the general counsel for Free Press, one of the groups that condemned the action. She asserted in an interview that “access to Fox.com and Hulu.com is completely unrelated to Fox’s relationship with Cablevision.”

Representative Edward J. Markey, Democrat of Massachusetts, said in a statement on Saturday, “The tying of cable TV subscription to access to Internet fare freely available to other consumers is a very serious concern.”

The action also renewed calls for distributors like Cablevision to allow multiplatform access to TV shows, a concept often times called TV Everywhere.

Since Saturday morning, stations owned by the News Corporation have been blacked out in Cablevision’s roughly three million New York-area homes, depriving customers of sporting events and scripted hit series. There was no indication on Tuesday that the companies were anywhere close to a resolution.

In similar disputes in the past, because of the free streams on Hulu and Fox.com, customers have had an alternative way to watch scripted shows (though not sports — for the most part those games are not streamed free).

One Cablevision customer complained on Twitter that she had planned to watch a marathon of “Hell’s Kitchen” episodes on Fox.com on Saturday but was blocked from doing so.

Julie Henderson, a News Corporation spokeswoman, said the company’s actions temporarily prevented access to Fox shows on Hulu and Fox.com from the computers of Cablevision subscribers. “When we realized we were affecting non-Cablevision video subscribers, we quickly altered our position,” she said.

A Hulu spokeswoman did release a statement to the technology news site All Things D: “Unfortunately, we were put in a position of needing to block Fox content on Hulu in order to remain neutral during contract negotiations.” Hulu refused to comment further.

But for reasons that remained unclear, the blockade did not work in all Cablevision households. Furthermore, within hours, the News Corporation realized that by blocking Cablevision subscribers’ computers it was also blocking some people who pay Cablevision for Internet only and pay competitors like DirecTV for television. Those people were “caught in the crossfire,” Ms. Wright said.

The News Corporation reinstated access in a matter of hours.

The action was hotly debated within the company, according to three people who were aware of the conversations. While some executives said it had helped in the negotiations with Cablevision, others said it had backfired because it stirred up questions about net neutrality, according to people who insisted on anonymity.

The action did not happen in a vacuum. Analysts noted that access to online video is one of the Federal Communications Commission's top priorities as it reviews Comcast’s proposed acquisition of NBC Universal.

For several years, Fox, NBC and the other broadcast networks have been putting most of their prime-time shows on the Internet free with advertisements attached, the same way they are available over the public airwaves. The show “Lie to Me,” for instance, was blacked out in Cablevision homes on Monday night, but it was available free on Hulu by Tuesday morning. Hulu is owned by the parents of Fox, NBC and ABC, and by a private equity firm.

Also for several years, broadcasters like Fox have insisted on retransmission payments from distributors like Cablevision. There is a perceived conflict between these two decisions.

In a widely read investors’ note on Monday, Richard Greenfield, an analyst for BTIG Research, wrote of the broadcasters, “If you want to be paid like cable nets, start acting like cable nets on the Web.” In other words, stop giving away so much content online.

The blockade is potentially bad news for users of Internet TV, because it suggests that online access should be contingent upon a monthly payment to the cable or satellite TV company that also supplies Internet access. That mirrors the TV Everywhere concept, which says customers can pay once and watch anywhere — but so far that effort has focused on cable channels like ESPN and TNT, not broadcast networks like Fox and CBS.

The TV Everywhere concept is complicated, and it has been carried out slowly by distributors, causing frustration on the part of programmers like the News Corporation. But there are scattered examples of progress; on Monday, Time Warner Cable will start allowing subscribers to watch ESPN from any computer, as long as they sign in to authenticate their TV subscription.

For the News Corporation, cutting off Web programming “is just a card that you need to play,” said Jason Hirschhorn, a former executive at MTV, Sling Media, and the News Corporation’s MySpace. “I think it showed how serious Fox was about retransmission,” he added.

So far, retransmission fees have shown more potential to offset declining advertising revenue at stations than have Web streams.

In his statement about the action, Mr. Markey called on the F.C.C. to “defend Internet freedom and consumer rights.” The F.C.C. has not yet intervened in the business dispute.

In another statement on Saturday, Gigi B. Sohn, president and co-founder of the public interest group Public Knowledge, said, “We need to remember that the government’s policy is that consumers should have access to lawful content online, and that policy should not be disrupted by a programming dispute.”

Ms. Wright’s prediction for the next contract dispute: “Online video is going to be used as a weapon.”

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