Will Cable Nets Kill Their Golden Goose?

By Will Richmond -- Multichannel News, 4/4/2011 12:01:00 AM

I’ve been dismayed, though not entirely surprised, by reactions from cable TV networks over the launch of Time Warner Cable’s new iPad app (see Cover Story): That it is an unauthorized use of their content, per their interpretations of their affiliation agreements.

That may well be the case, and TWC may well be pushing the edge of the envelope in this implementation of its larger TV Everywhere goals. However, in my opinion, the bigger question that cable network heads should be asking is, by resisting initiatives such as these, do they want to risk contributing to killing their golden goose?

Ask any media executive whose business model they most envy and invariably they will respond: “cable- TV networks.” Why? Because cable networks enjoy a “dual” revenue stream — both monthly affiliate fees received from distributors like TWC and advertising.

Affiliate fees are consistently important and highly sought after, totaling $25 to $30 billion annually in the U.S., according to most estimates. Peruse the quarterly financial performance of any publicly traded media company that owns cable TV networks, and you’re guaranteed to find these among their best-performing assets.

Having built hugely successful businesses, cable networks are rightly justified to be guarded about the implications of delivery to any new device or over any new platform. Th at brings us to TWC’s iPad app. The financial health of cable networks is, of course, inextricably tied to that of their pay TV distributors. Distributors are in a battle for the hearts and minds of their subscribers and face a formidable set of competitors, led primarily by Netflix, which is upping the ante at every turn.

Cable networks need to find a balance between protect ing their rights and supporting their affiliates. No doubt there were months of behind-thescenes haggling by TWC to formalize its rights to distribute cable network programming via its iPad app (which is available only in subscribers’ homes). Some networks are likely holding out for additional payments. Some likely want further tests. Some likely want more assurances that viewing will be accurately measured, so it can be monetized fully. The problem is that while all these “wants” take time to get addressed, consumers and the market relentlessly move forward.

This is today’s new reality, and reactions to TWC’s iPad app once again show that cable networks, with some notable exceptions, have not yet fully grasped this. Internet companies have long known that it is better to release an imperfect product quickly to gain some momentum. The online video era will not offer cable networks the near-perfection of their traditional operating environment.

The sooner networks realize this and get on with things, the higher the likelihood that they will help preserve the health of the golden goose so that it may in turn continue laying its precious monthly affiliate-fee golden eggs.

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Will Richmond is president of Broadband Directions LLC and publisher of website Videonuze.