It looks as if Sony's much-anticipated online TV service won't come cheap. The New York Post recently reported that programming costs have driven up the price of Sony's proposed new over-the-top video service to somewhere between $60 and $80 per month.
Similarly, Dish Network LLC (Nasdaq: DISH) is struggling to keep the price down for its upcoming online TV service. According to a report by Variety, Dish would like to separate broadcast channels from its basic TV bundle and have consumers use antennas to access those networks for free over the air. Eliminating broadcast channels -- if Dish can swing it -- would cut the company's licensing fees, which would in turn allow it to cap subscription fees at a lower rate.
The dilemma that Sony Corp. (NYSE: SNE) and Dish are confronting is the same one that every other pay-TV provider has faced for years: how to keep subscription fees down while still offering enough content to keep viewers happy. The industry is littered with companies that have already tried to do this and failed. Microsoft Corp. (Nasdaq: MSFT) abandoned its TV efforts early in 2012 because of content licensing difficulties, while Intel Corp. (Nasdaq: INTC) sold off its assets from the development of its OnCue TV service to Verizon Communications Inc. (NYSE: VZ) earlier this year because of troubles with programming deals. (See Microsoft Puts Pay-TV Plan on Pause and Verizon Snatches Intel Media Assets.)
The situation has only gotten worse recently. Some smaller cable companies are now de-emphasizing video in their service bundles because of mounting programming costs. And both Verizon and Comcast Corp. (Nasdaq: CMCSA, CMCSK) discovered that consumers aren't willing to pay for even a cheap OTT offering on top of their existing video services if it doesn't come with a compelling library of content. (See Is Dumb Pipe the Smart Move? and Gone in a Redbox Instant.)
Even Google (Nasdaq: GOOG) is having a tough time. The gigabit network provider told attendees at the COMPTEL telecom conference this week that the cost of TV programming "is the single biggest impediment" to the company's fiber deployments. It's hard to sell Internet access without TV service, and traditional TV programming is supremely expensive.
IP video services are growing, but they can't and won't offer a cheaper alternative for the same content that consumers are used to seeing on TV. Netflix Inc. (Nasdaq: NFLX) and Amazon.com Inc. (Nasdaq: AMZN) have shown that it's possible to get creative by combining long-tail movies and shows with some popular newer releases, and original programming. It may not look like standard TV, but it's likely the only way service providers will be able to offer a cheaper bundle.
Sony and Dish are learning that lesson the hard way.
— Mari Silbey, special to Light Reading