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Cable and Satellite: Selling Pipes or Water?

June 25, 2009 | Author: Ibex Marketing

Time Warner and Comcast are collaborating in their “TV Everywhere” initiative, and their CEOs held a joint press conference on Wednesday. The latest word is that the service is likely to launch by the fourth quarter of this year. Just as Netflix wants to put its movie catalog on the Web so that subscribers can stream them on demand, so do these cable companies want to allow their subscribers to watch the broadcast content anywhere they want. Think of a Slingbox without the Slingbox. And they don’t want to just make the programming available in real-time; they also want subscribers to be able to access prior programming on demand. Think of a Hulu with all the content that cable companies show now.

They’re starting with a trial program for 5,000 subscribers beginning next month, using content from the TNT and TBS networks at the start. (The expectation is that more content will be added as the trial progresses.) And therein lies the rub; they have to get additional rights from the content producers to show it over the Internet and on demand.

However, I expect that the content producers will have little choice but to work out some sort of a deal. We’ll assume for the moment that Comcast and Time Warner have the resources to create a system that will scale smoothly to meet demand. (According to The Bridge, the two companies had more than 37 million subscribers, which is a bit of a leap from the 5,000 trial participants.) I love watching Hulu, but I don’t love the too-frequent pauses while the buffer fills. (And I have a high-speed broadband connection, so I don’t think it’s my end that’s the problem.) Working it out so that high-definition streams can be fed to millions of viewers at the same time will require some serious hardware to do the heavy lifting on this project. But hardware is easy compared to negotiating licenses with all the different networks.

But where is this headed? As I see it, the industry is eventually going to have to split into focusing either on the hardware or the software. By this, I mean that there are two entirely different businesses here. The first is in the business of building high speed broadband networks and delivering them to the home. The second is the business of obtaining the rights to the content that people want to see, and then making them available on the Web. These two sides were created together when cable TV was invented; the same company had to lay the wire so that it could sell its content service. In fact, we needed to award sanctioned monopolies to cable companies in order to make it affordable for them to wire a whole community.

That has all changed now, and I fully expect these functions to split eventually. One service will create and maintain the physical infrastructure, and another will aggregate and deliver the content. Netflix is not in the broadband business; the cable and phone companies are already doing that just fine. Initially, cable and satellite companies may have an advantage at rolling out television services on the Internet because they already have experience in negotiation with the content producers. But over time, I see that the goals of these two businesses may not mesh well, leading some of these companies to split the services into two entities.

So will they sell the pipes or the water? It will be interesting to see how it works out.