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A Virtual MSO Shall Rise, Boxee CEO Says

Jeff Baumgartner
LR Cable News Analysis
Jeff Baumgartner
1/31/2012
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The United States's first virtual MSO will materialize later this year, giving broadband devices a new way to deliver on-demand and live subscription TV services directly to consumers, predicts Boxee CEO Avner Ronen.

The prediction came up during a discussion with Light Reading Cable about a week after Boxee started shipping a component that feeds over-the-air digital TV broadcasts to the Boxee Box. (See Boxee Tees Up Live TV Cord-Cutting Tool .)

But Boxee has no interest in becoming a virtual MSO itself. That's an expensive proposition that reportedly scared off even the deep-pocketed Microsoft Corp. (Nasdaq: MSFT), which opted instead for pay-TV partnerships that send content to the Xbox 360. (See Microsoft Puts Pay-TV Plan on Pause and Comcast, Verizon Connect With the Xbox 360.)

"We don't have an appetite to become a virtual MSO in the sense of us going out and licensing those channels and providing ... guarantees and so on," Ronen says. "We'd much rather [have] somebody like Comcast Corp. (Nasdaq: CMCSA, CMCSK) or DirecTV Group Inc. (NYSE: DTV) or Netflix Inc. (Nasdaq: NFLX) or Amazon.com Inc. (Nasdaq: AMZN) do those deals and for us to support those over-the-top offerings on our platform like we do today for traditional over-the-top."

Still, Ronen thinks there's a good chance that someone, perhaps an incumbent pay-TV player, will try the virtual MSO model this year.

There's seemingly no shortage of candidates that have the scratch, and perhaps the will, to give it a go. Not Microsoft (see above), but maybe Apple Inc. (Nasdaq: AAPL), Google (Nasdaq: GOOG) or Amazon.

Even that group of companies would have trouble creating their own subscription TV services, Sanford C. Bernstein & Co. Inc. analyst Craig Moffett wrote in a report this week. That's partly because the programming power brokers (Walt Disney Co. (NYSE: DIS), NBCUniversal LLC and the like) require MSOs to bundle services together. That creates steep affiliate fees and can stymie a virtual provider's plan to undercut incumbents' prices. Virtual pay-TV providers would also operate under the threat that MSOs could compensate by adopting usage-based, metered broadband policies.

So, maybe an incumbent provider (or a company with ties to an incumbent) makes a more likely candidate to be a virtual MSO.

In that case, EchoStar Corp. LLC (Nasdaq: SATS) would be a decent pick; it's been vocal about plans for an over-the-top video platform, based on adaptive bit rate technology, that will serve up live and VoD content and support a network-based DVR service. Verizon Communications Inc. (NYSE: VZ) is also said to be considering some sort of out-of-market video service. (See EchoStar Readies Over-the-Top Video Play, EchoStar Sets Sights on a Network DVR and Verizon to Stream After Netflix .)

Downplaying the cable angle
Separately, Ronen downplays the idea that Boxee is keying on a strategy of selling boxes directly to MSOs. (See Boxee Playing All the Angles .)

Boxee talks with MSOs about using the Box to deliver their pay-TV services alongside over-the-top content, or using the device to attract customers that only take broadband services. But Boxee is "not going out chasing those deals" with any urgency, Ronen says.

He would still like to see Boxee work with an MSO's TV Everywhere content, but that approach would not be for every Boxee user. Ronen estimates that about half of Boxee's customers are cord-cutters, meaning they don't subscribe to a traditional pay-TV service -- a requirement for access to an MSO's TV Everywhere library.

"We don't care if it's $8 to Netflix or $24 to Comcast. In both cases, we would love the user to get content through the Boxee box," Ronen says.

— Jeff Baumgartner, Site Editor, Light Reading Cable



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