Bit Rate

The Radical Cable-Cutting A La Carte Fringe

11/12/2008 4:33 AM

Some of the feedback I’ve heard on our cover story last week about "cable cutters" – people who’ve cancelled cable TV, satisfied with what they’re able to procure online and over the air – has been along the lines of: It’s a fringe movement that MSOs really shouldn’t worry about.

So what if a few nerds are going through the trouble to hook up their PCs to their televisions? (See Breaking Free from the Nov. 3 issue.) By and large, according to some programmers, online video outlets like Hulu and iTunes are additive to TV viewing — not cannibalistic. Nielsen numbers show that hours spent watching TV keep climbing, not declining.

And hey, even if there are people opting out of cable TV, the operators still get their $50 or $60 per month on broadband service, which by the way has made Hulu, Joost, YouTube, Veoh and others possible in the first place.

Fringe movements, though, sometimes go mainstream.

The trend, nascent and tiny though it may be, has a few big cable operators worried. On a CTAM Summit ‘08 panel this week, Peter Stern, executive vice president and chief strategy officer at Time Warner Cable, said programmers ought to provide some type of exclusive Internet distribution rights to their affiliates instead of undermining the model by offering it online for free.

“The question of whether broadband video upends the cable business lies with the programmers,” said Stern (see TWC’s Stern Urges Exclusive Web-Video Deals).

Yes, video viewing on PCs is a different use case than watching it on the living-room TV. But there are a growing number of paths for Internet-delivered video to televisions, as Stern pointed out.

Comcast, on the other hand, has embraced Web video and is chugging along with Fancast, its Hulu-fueled video destination. The Comcast strategy is to (eventually) provide value in bridging the gap between the the Internet and traditional cable TV (e.g. scheduling DVR from the Web, play Internet-delivered content on the TV).

RealNetworks CEO Rob Glaser, speaking on the closing CEO panel at the CTAM Summit yesterday, said Internet video distribution presents more of a "creeping" threat to the pay-TV model, rather than a massive frontal assault: "All of a sudden, kids graduate from college and they’re happy to use iTunes and Hulu and they don’t buy multichannel video — it’s subtle."

To compete in this landscape, MSOs must provide context around the content, Jeffrey Rayport, chairman of marketing consulting firm Marketspace, said in his Monday keynote at CTAM conference. By that he means social networking, video sharing and recommendation features. In Rayport’s shorthand: If Cable 1.0 was connectivity, and Cable 2.0 was content, then Cable 3.0 is context.

That makes sense, and I am sure we’ll see cable operators develop interactive services to enhance the TV viewing experience along these lines (e.g., the hooks between Fancast and Comcast’s cable VOD and linear TV). 

But I think perhaps the most disruptive effect of Internet TV distribution is this: It explodes the cable channel-bundling model. Content online is available a la carte – in the embeddable/shareable/electronic sell-through models that have emerged – and distributors are re-bundling it together in new ways (e.g., Joost’s "groups" allow members to essentially program their own channels).

Note that the music industry has been altered as much by iTunes’ a-la-carte pricing as it has by piracy. 

On the Internet, people are "self-programming" their TV experiences. They like the control and the personalization they have. And, the cable-cancellers I talked to also like the fact that they aren’t forced to pay for channels they never watch. The Web is producing a world of a-la-carte TV options, and that may be the most serious long-term threat here.

 

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