To Have, And To Have Not


Content may be king online, but among cable and telco broadband providers, there are the haves and the have-nots when it comes to offering video.

Not surprisingly the largest high-speed providers — Comcast Corp., Time Warner Cable, Verizon Communications Inc. and AT&T Inc. (formerly SBC Communications Inc.) — deliver the most robust content in the form of games, music, news, sports and other clips.

On the flip side, smaller cable companies have opted out of spending the millions of dollars it takes to license and stream content from cable programmers and other online video distributors like NASCAR or Major League Baseball.

Adding to the uncertainty over offering video is the desire of programmers to duplicate the video model and collect license fees for online content. Operators vow to resist that as much as possible, but some executives suggest a stratified future, where powerful operators like Comcast and Time Warner enjoy the leverage to escape paying monthly fees of up to 25 cents per subscriber that smaller operators are subjected to.

Even the most video-saturated sites offer mostly aggregated content. Comcast’s on-demand delivery of National Hockey League games is an exception, but otherwise there is little on MSO portals that is unique or innovative. That’s not surprising considering the lack of incentives for operators to spend money or produce content.

Only 20% to 30% of customers regularly head to operator portals, according to Jupiter Research. “None of the MSOs are as successful as they would like to be in terms of the regular usage of the portal they provide,” says Jupiter analyst Joe Laszlo, adding that most users are online vets who tend to visit their favorite sites.

The importance of navigation is a different matter. Comcast designed its pie-shaped “Fan” wheel to provide access to information quickly and intuitively. Each slice of the dart board-like device contains a link to content from such content providers as CBS.Com,,, and Disney Connection.

“It’s about having the site uncluttered and calling out critical features people care about the most,” says Elizabeth Schimel, senior vice president of content development for Comcast High-Speed Internet.

“We’re not looking to replicate what people can do leaning back on the sofa,” adds Steve Cook, vice president of Time Warner Cable’s Road Runner high-speed service. “It’s a balance between what the technology can do and what consumers actually want — how they want to consume that content.”

Even the Comcasts and Verizons of the world see high-speed Internet competition in different terms than mid-sized and smaller MSOs like Cox Communications Inc., Cablevision Systems Corp. and Insight Communications Co., which have limited video offerings.

“We realize we’re not a 'walled garden.’ People will be going to Google or the Wall Street Journal. We want to offer enough engaging content features to make it appealing to spend more time upfront with us and come back to us in the same session,” says Bill Helig, director of content and partnership strategy and management at Verizon DSL, which offers a robust menu of video largely through its partnerships with Yahoo Inc. and MSN.

Behind “The Fan” and other tools on Comcast’s site is a strategy of delivering the most popular Web content while keeping people in-house.

“The most important things they want to do are packaged in an easy experience, that is non-threatening and enables them to tap the power of our broadband connectivity in an enjoyable and seamless way,” says Comcast’s Schimel.

In other words, broadband users come to Comcast’s portal not for original content, but the best place to find the most engaging video online. That philosophy stands in direct opposition to operators like Cox, which offers movie trailers, AP news and little else on its portal.

“Our strategy has never been to compete with some larger portal because of the sheer cost and magnitude of what it entails,” says Steve Gorman, vice president of high-speed Internet marketing at Cox, who says there is little evidence that a heavy dose of video would affect churn.

He suggests that people are happy enough with the text-based information and other tools on its portal. Instead of clips from ESPN or CBS News, Cox offers additional e-mail addresses for kids, and tools linked to Cox’s telephony service.

Research from Horowitz Associates backs that view — with a caveat. In a September online survey of 1,098 broadband and dial-up users, 77% said speed was the key driver in choosing a service provider followed by cost (74%). Only about one-third of cable-modem users said that content was important.

But the research company’s president, Howard Horowitz, warns that operators aren’t off the hook. “Access to content is the next wave,” he says, comparing Comcast’s aggressive pursuit of on-demand video content to what might happen online within a few years.

People have already accepted the idea of paying for some content like gaming on portals. Once that notion expands, content will trump price and speed, Horowitz predicts.

Operators say they will change their priorities when the world changes.

Cable companies have two major headaches as they face the future. Most immediately, digital subscriber line providers hope to force cable’s hand sooner rather than later with a strong video offering. Verizon and AT&T already hold partnerships with Yahoo, and BellSouth Corp. will join up next year.

The telcos point to declining Hollywood box office totals — film attendance is down 8% this year, according to box-office tracker Exhibitor Relations — and ABC’s deal to place its biggest primetime shows on Apple’s iPod as proof the public is ready to embrace video over new platforms.

BellSouth director of portal services Tim Hill says the telco will encode video at more robust bandwidth levels in 2006 in order to enhance its offerings. To show its bullishness on original content, BellSouth this year launched a 90-second cooking show. The first episode — with a recipe raspberry crème brulé — attracted hundreds of thousands of streams.

The second problem for operators is programmers’ intent to get paid for content, such as ESPN 360 and MTV Overdrive.

“There are a variety of different financial models that support some of these common elements,” says Brian Smith, vice president of broadband services for Insight. “As they are adding more content, they are essentially adding more cost.”

Unlike in the early days of cable, tough competition limits MSOs’ ability to raise rates, he adds.

“I’m running into situations where people want to come and say, 'Pay us 25 cents a sub for this content,’” Smith says, adding that some want to double-dip. “In a lot of cases you get repurposed video content marked up to look like broadband programming.”

Obviously operators with access to strong programming libraries — like Time Warner’s corporate links to Warner Bros. and Comcast’s link to Sony Pictures Entertainment — are in a better position when all of this hits. But reports in October that Comcast and Google were talking about buying a stake in Internet service provider America Online suggests that at some uncertain date — when online portals become as important as on-screen programming guides — the definition of “big” regarding media companies may yet again become obsolete.