Pay-TV: Too Costly to Replicate Online?

Over-the-top (OTT) video is popular, but thePlatform Inc. CEO Ian Blaine says he doesn't see OTT companies aiming to replicate the video packages that consumers get today from telcos, cable operators and satellite TV providers. (See A Virtual MSO Shall Rise, Boxee CEO Says and Intel May Launch a Virtual MSO .)

Instead, Blaine, whose online video publishing company is owned by Comcast Corp. (Nasdaq: CMCSA, CMCSK), expects to see some OTT video companies to jump in with the kind of rights that will let them market a reduced package of video content. "Big deals are being struck between content holders and distributors that maintain the [pay-TV] model for the foreseeable future, so that means you won't see something that replaces it," he predicts. Besides, a "full-boat" OTT video offering "is not economically feasible for most players ... but they could create a more tailored package."

The economics of a full pay-TV package have already scared off at least one company that happens to have some pretty deep pockets. Microsoft Corp. (Nasdaq: MSFT) thought about creating a subscription video service for the Xbox 360, but the high costs associated with that idea caused it to instead work out deals with traditional pay-TV operators to secure rights to some premium content. (See Xfinity TV Meets the Xbox 360 and Comcast, Verizon Connect With the Xbox 360.)

When asked to predict who might try to offer a smaller subscription TV package, Blaine put Apple Inc. (Nasdaq: AAPL) on the list of likely candidates. "Somebody will test the waters," he said.

And speaking of Apple, he said the iPad is already changing the way people watch and use television, offering a way for users to catch up on shows on a personal level. "It lets me watch all of the content that my wife will not," he joked. But it's also becoming an important companion device to help consumers navigate and interact with the TV. "It's a great steering wheel for the TV," he said.

Separately, Light Reading Cable talked to Blaine here at the show on camera to discuss the company's expanded multi-screen deal with NBCU, some of the trends and challenges being faced by the still-developing TV Everywhere market, and how the proverbial cloud is helping to power Comcast's next-gen X1 video platform. (See Where Will Comcast's X1 Land Next? and Comcast's X1 Video Platform Lands First in Boston .)

— Jeff Baumgartner, Site Editor, Light Reading Cable

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Flook 12/5/2012 | 5:29:18 PM
re: Pay-TV: Too Costly to Replicate Online?

Given that much of the world is unwired and with stats pointing to an increasing  proliferation of mobile devices, I see a huge opportunity for OTT. Also, people don't want to pay for big a package of pay TV channels that they have no interest in. And, as someone here pointed out, there is a generational difference, meaning between older people who are used to pay TV and the younger generation when it comes to video habits.

Ultimately, as people in the industry like to say when pushing IPTV, consumers want the choice of what they watch and where/how they watch it....and it's all going in the unwired direction.

Duh! 12/5/2012 | 5:29:18 PM
re: Pay-TV: Too Costly to Replicate Online?


We're all speculating here, but I strongly suspect you're right:  sports is going to be the edge of the wedge in driving from a bundled content model to an OTT model. 

The sports networks are too greedy, to the detriment of consumers and the game, as well as the MPVDs.   As we saw in the hassles between Cablevision and the YES network, and TWC and ESPN, the sports networks have been able to leverage the fan base against any MPVDs who try to hold the line on their costs (and pricing).   This is of course to the detriment of consumers, especially those who are not interested in sports, or  (especially in two team markets like greater New York) are fans of another team.  OTT shifts the balance.   I can envision a time when contracts start to come up for renegotiation, and MPVDs start telling the regional sports networks to go OTT, with their blessings. 

The other thing that could be interesting is what would happen if the leagues took control of OTT game rights from the teams - even within their own markets- and shared the revenue.   That might have the effect of making the small market teams more competitive, and making the game more interesting. 

(Red Sox fan here, more from civic pride than passion for the game.)

shygye75 12/5/2012 | 5:29:19 PM
re: Pay-TV: Too Costly to Replicate Online?

Hi, Seven -- This will be an interesting next 20 years, with lots of "tipping points" (some real, some ultimately inconsequential). Using your Yankee example, I'd say one real tipping point will be if or when YES decides to sell its content on an OTT basis, bypassing cable and satellite middlemen. That's probably at least five years away, but the pace of change continues to accelerate. I do think that the major content providers will move to OTT and sell direct, but only when the economic advantage of doing so is established and low-risk.

Jeff Baumgartner 12/5/2012 | 5:29:21 PM
re: Pay-TV: Too Costly to Replicate Online?

Interesting analogy.  But I hope the model established by MLB.com sticks around... i like the idea of keeping up with my home team and being able to tune into other out of market games and see teams i don't typically get to see very often.  And aside from the fact that you still need to pay for broadband, of course, the price isn't bad for the value.

But the way that service is structured, it keeps the local TV deals intact because you are blacked out if you try to stream the game on MLB and you happen to be located in the DMA of the home or away team.  And I'm guessing those big local TV deals help to keep the price on the MLB.com service reasonable. I don't know the way the financials are structured based,  but I do see your point that the existance of the MLB's OTT servcie could give the small market teams some leverage they didn't have before.

As for the broader OTT discussion, Dale Merten of Toledo Telephone had some interesting thoughts on Aereo... he'd love them to set up in Washington so he can offer access to bcast TV channels as part of his OTT package on Roku boxes.  Makes me wonder if Aereo has some other potential optoins available to it can avoid an injunction. they could set up in other markets and offer the service directly, of course, but perhaps also establish partnershps with ISPs that want to assemble OTT video packages that at least offer access to the bcast channels.   Aereo's got some other issues to solve first, but... JB


paolo.franzoi 12/5/2012 | 5:29:21 PM
re: Pay-TV: Too Costly to Replicate Online?



To be clear, what I was trying to talk about is LONG term.  Imagine 20 years from now.  Does local or even national broadcast video matter or is it all OTT?  If it all goes OTT what is the restructuring that occurs along the entire chain.  I used my one example (stadium ownership to local TV rights to ???) in the baseball world.  That is why I think you can not look at one aspect alone and come up with an answer.



paolo.franzoi 12/5/2012 | 5:29:23 PM
re: Pay-TV: Too Costly to Replicate Online?


I was thinking about this and have 2 comments then will follow with my chain of thought following a particular thread.

1 - I think there is a generational component going on (i.e. older folks won't change habits).

2 - I think the value chain is a LOT more complicated than we talk about it.

I live in Northern California but was born in New York and am a lifelong Yankees fan.  I compare the finances of the SF Giants and the NY Yankees.  The Giants are in a huge media market but have an inferior payroll by quite a lot.  Why?  TV deals.  The Giants focussed on building and owning what was Pacbell Park.  In the 90s, owning your own park was the gold mine of the baseball world.  The Yankees formed the Yes network and thus have a much bigger and brighter deal at the moment.

I wonder what will become of MLB.com (which has quite an extensive site) over time.  Will Teams want their own online content?  If it remains a common site, will the "small market teams" (like say Kansas City) end up in an awesome economic position due to their share of the common site?  Will payment be based on viewership over time?

From an MLB club standpoint all of this impacts their revenue stream and they are the content owners.  Of course, they really are part of a content aggregator (ML Baseball) which sells content directly (MLB.com) and through partners (local distribution like Comcast and KNBR for the SF Giants - as well as ESPN and Fox for national distribution).  

This leads me to the following conclusion:  The content distribution market is going through "disruption".  Predictions of outcomes here are going to be vision based not analysis based as they are likely to be non-linear.

The change in the structure of the content distribution industry will have large impacts on the content creation business.  (Law of unintended consequences)



craigleddy 12/5/2012 | 5:29:25 PM
re: Pay-TV: Too Costly to Replicate Online?

So the idea of content creators using OTT to disintermediate aggregators is ... kaput?

I'd like to hear what others have to say about that. My sense is that cable and other SPs are reacting to the OTT threats and opportunities but there's still a long war ahead.    

shygye75 12/5/2012 | 5:29:25 PM
re: Pay-TV: Too Costly to Replicate Online?

So the idea of content creators using OTT to disintermediate aggregators is ... kaput?

craigleddy 12/5/2012 | 5:29:25 PM
re: Pay-TV: Too Costly to Replicate Online?

A cheaper alternative to the big bad cable companies, without all the channels that you're paying for and may not watch, and that you can view on all sorts of broadband connected devices.

But the rights fees get in the way of the "cheaper alternative" concept, and the cable industry itself is making more video available online by streaming to iPads etc and launching TV Everywhere services for cable customers.   

shygye75 12/5/2012 | 5:29:27 PM
re: Pay-TV: Too Costly to Replicate Online?

Craig -- What's the rationale for having an OTT content aggregator at all?

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