Every major TV brand has placed its new Internet connected TVs on the shelves this past Holiday Season, and people have already been watching more and more video content through the Internet on other devices. For independent cable operators, this shift in how video is being consumed means an increase in broadband delivery cost without any accompanying increase in revenue. In some cases this even means a termination of traditional cable TV service in favor of on-demand online only, a concept known as cord cutting. One possibility to offset some of these costs and to enhance linear content subscription retention is for operators to offer TV anywhere.
Until very recently, only the largest cable and satellite companies offered TV anywhere. Their customers, who pay for access to programming, are also able to watch their television programs on any computer connected to the Internet, and potentially even on a cell phone. A number of companies, ranging from Microsoft to Cisco have started offering products and services to assist TV anywhere deployment. They focus mostly on selling the necessary set of tools to large Multi System Operators (MSOs) to offer and manage online content.
One innovative company, USTVNow, based in New York has taken a different approach. Reminiscent of Jerrold Electronics; who pioneered cable television in the 50s, USTVNow has recently announced that it will make available it's live and on-demand TV anywhere infrastructure to smaller independent cable operators at cost. This is the same infrastructure it developed in-house to deliver live TV online to the U.S. military. USTVNow's secure hosted network DVR allows it to offer recorded programs online more cost effectively than through expensive Internet-connected set top boxes. In some instances USTVNow and its partners even subsidize the minimal needed equipment and provide legal advice regarding what programs may be put online.
Many independent cable operators also provide Internet service and are experiencing an ever-increasing consumption of bandwidth per user on their networks. This increase is a direct result in the increased usage of Internet video websites such as Hulu, YouTube and Netflix. As most broadband customers do not expect to pay extra for this increased network utilization; the cable operator is stuck with paying for the increase in broadband usage.
Unlike, large vertically integrated media companies such as Comcast and Time Warner, independent cable operators are not able to offset increased broadband network costs by selling content directly online.
Large media companies are able to monetize TV anywhere, possibly bypassing smaller cable companies, by charging for it directly or indirectly through advertising. This is because they not only distribute content but also create their own and have exclusive and extensive copyrighted media libraries.
This advantage is one of the major concerns of the Comcast NBCU merger. Some stakeholders argue that Comcast could offer TV anywhere in a way that is not competitively fair. They argue that unless some transfer pricing safe guards are in place, Comcast's dominance of TV anywhere would be detrimental to smaller cable companies and consumers. The rationale is that if other companies are not able to offer content online with the same ease as Comcast, the entire industry would lack the necessary innovation incentive, which will hurt consumers in the long term.
According to Dr. Mark Cooper, Director of Research for the Consumer Federation of America, the merger (NBCU Comcast) would send a signal to the industry that the decade's old game of mutual forbearance from competition will be repeated at the next level of vertical integration, spilling over into the online market. He believes AT&T and Verizon to be next in line for major content acquisitions. He predicts that when that happens, it will be extremely difficult for any company that is merely a programmer or distributor to get into the market. He warns that barriers to entry will make it nearly impossible for vertically integrated incumbents to be challenged.
Dr. Cooper also points out that that over the past quarter century there have been a few moments when a technology comes along that holds the possibility of breaking the chokehold that vertically integrated incumbents have on the multi-channel video programming market, but on each occasion policy mistakes were made that allowed the vertically integrated incumbents to strangle competition. He believes that this is the first big policy moment for determining whether the Internet will function as an alternative platform to compete with vertically integrated incumbents.
Regardless of the Comcast NBCU merger, smaller MSOs and independent cable companies have not been able to roll out TV anywhere or alternative internet TV platforms of their own to keep pace, let alone compete, with vertically integrated cable or satellite companies. Monetizing content online is expensive and complicated. First, most worthwhile content is subject to complex and ambiguous distribution contracts as to give the copyright holder maximum strategic flexibility and the content distributor maximum restriction. Second, the necessary platform to offer and monetize online content securely and reliably is expensive and requires knowhow not easily found in-house. Third, smaller MSOs and independent cable companies don't have the subscriber muscle to negotiate favorable online distribution rights with programmers.
One exception is rural central Pennsylvania cable operator Nittany Media, Inc. Nittany Media has served central PA communities since 1956 and was selected as PA cable operator of the year 2009. During a discussion with officials of Nittany Media it became evident that TV Anywhere is not a privilege reserved for only the largest cable and satellite companies.
Through a partnership with USTVNow, Nittany has already made available some of its content to their subscribers online. In an interview, Michael Hain of Nittany Media discussed his company's recent TV Anywhere deployment. "It's about retention - keeping our customers happy by satisfying their appetite for new technology and convenience. Not only can we provide place shifting, but USTVNow enables us to do time shifting as well. Our customers can initiate a recording on their iPhone and later view it conveniently at home or vice versa. By offering "TV anywhere", we truly exemplify our slogan "Driving Technology Home.
Still there is much ambiguity regarding Internet distribution in content contracts. This puts independent cable operators on the fence on whether to roll out TV Anywhere. Some enlightened programmers have taken online distribution into account and have no special restriction on selling their content online, so long as this is done securely and in a way that compensates them. Unfortunately this is not the case with most programmers. Program executives typically work out contracts with larger cable and satellite companies first before creating a smaller distributor partner version at a later, unspecified time. It is paramount smaller cable operators get some clarity regarding these distribution contracts before they see a significant number of their customers cancel their TV subscriptions or before they are so far behind the competition that they can no longer catch up.
There are some great agencies that can assist in helping reduce this online content ambiguity for independent cable operators. One such organization is the American Cable Association. The ACA represents nearly 900 small and medium-sized independent operators that serve more than 7 million households and businesses. The ACA, which is not negotiating or participating in contract talks for TV anywhere content, is working to ensure that its members are treated fairly in the marketplace and in Washington. Robert E. Shema, VP and COO of the ACA, heads the effort to make members aware of the existence of the TV anywhere concept and the technology that is available to help make this a reality for smaller, independent cable companies.
In summary, smaller MSOs and independent cable operators should be able offset some of the costs associated with increased network traffic. They can do this and improve retention at reasonable or no cost by working with a 3rd party TV anywhere enabler. By first placing content online that has already been authorized for online distribution, they will have laid the foundation for such time when more content becomes available for online distribution.