Why does Time Warner and Comcast, the two largest pay-TV providers in the US feel compelled to attempt such a service? The internet has broken multiple status quos of the entertainment industry. It started in the late 90s, with the digitization of music, and the illegal distribution of it through Napster, and other Peer to Peer networks. As connection speeds grew faster and bandwidth got cheaper, music files turned into video files. TV series and feature films can now be exchanged in the same way that music previously had. It has made such content much more accessible than it had been in the past. Legal channels were created to allow such content to be accessed digitally, but the profit margins had fallen.
One of the largest status quos that the Pay TV industry has fought to keep alive was the “bundled channels” plan. Most cable networks cannot be subscribed to on an individual basis. Consumers can only choose a package with multiple channels. Distributors negotiate such channels in groups with the content providers. For example, Time Warner owns CNN, TBS, TNT, truTV, HBO and many other cable networks. There have been times when such a company launches new networks, and has them included in the package along with their more popular networks. Pay TV providers generally pay the content providers a per-household price for the owners of the cable networks for the right to carry their network on their systems. The more potential homes that a cable network is in allows them to charge higher ad rates.
With the internet, viewers only have to watch the series which they want to watch, and they don’t need to pay for networks that they DON’T have in order to do so. They don’t even have to pay for the networks that regularly host the shows. This is the heart of the a la carte debate. A lot of money is left on the table when viewers limit their television viewing habits to ONLY the shows that they want to watch. This is very dangerous to cable and satellite TV companies. The prices charged by these providers are routinely panned as too expensive, and the industry has done many studies to show that a la carte is not financially viable.
The cable industry does have an advantage, though. They also provide broadband. However, they are not making close to the money with broadband as they do with television services. Using the cable company’s broadband to watch video leads to high bandwidth costs, much for content that they already provide through their TV services. They also have exclusive content, like live sports. Professional sports organizations like Major League Baseball and the National Hockey League sell streaming video packages of games, but black out games in the local market. The New York Yankees, however, have made a deal with Cablevision to allow streaming of Yankee games in the NYC area, but through a TV Everywhere-like model. In-market streaming will only be available to customers if they are also subscribers of their TV services.
However, although there are legitimate means to watch television content online, be it broadcast or cable series, or even live sports, there is also the underlying possibility of piracy. Time Warner proposed changing the way that broadband is consumed by attempting to change the way its consumers pay for it. Instead of the flat rate unlimited broadband that most consumers are used to, they want to charge for usage, essentially taking the a la carte model that consumers have demanded for video and bringing it to the internet. This obviously had been proven to be unpopular and shelved for the time being. If internet users chose to watch television series online instead of on television, they would have to pay the same price anyway.
TV Everywhere is an interesting initiative, in its early stages. Will it be successful in preventing the demand for a la carte video services, or will it lead to continued piracy?
