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on digital platforms, also known as Internet-Protocol-Television (IPTV) or over-the-top video.
Statements made on several earnings calls the past week indicate they remain a very long way from seeing eye-to-eye. As a result, IPTV will continue to evolve gradually with consumers able to receive only some of the programming they pay for on cable on multiple platforms in the near-term.
Currently, cable MSOs want to include exclusive digital rights in the large affiliate fees they pay the networks each year and make that programming available anywhere–but only to those who subscribe to their cable services.
However, cable networks do not want to commit to such an exclusive arrangement since it’s early days and they do not want to leave money on the table by giving everything away to the MSOs. As a result, only a limited amount of content has been made available beyond the set-top-box (commonly referred to as “cutting the cord” or “over-the-top TV”).
NETWORKS THINK THEY SHOULD RECEIVE HIGHER AFFILIATE FEES WITHOUT GIVING AWAY EXCLUSIVITY
From the Q409 earnings call for Time Warner, which owns many cable networks like Turner Broadcasting and HBO among others:
“Turner with the strength in programming…is in a very good position to capture the economic upside, let’s say, as all of those networks become more important and reach and success of their programming continues to be successful…and we do think that the moves towards TV everywhere will simply support the growth in affiliate fee revenue as well.
I think it’s really important to emphasise and we said this in so many ways across our networks, our film division and our publishing company that we are going to make our content available to consumers in the brands they love the way they like to use them and every manner of interactive and on demand method.”
Time Warner is saying that it too believes that the digital opportunity is large enough to warrant higher affiliate fees being paid by the MSOs. However, for now it also believes it should be able to distribute that content on many other devices without having to go through the cable company.
BUT THE CABLE MSOS STILL BELIEVE THEY SHOULD BE THE MIDDLEMEN FOR IPTV DISTRIBUTION
Time Warner Cable said on its conference call that it expects programming costs to increase at a greater rate this year than last year, driven by affiliate fees. So, the MSOs are apparently still paying higher fees to the networks without drawing a line in the sand when it comes to digital rights.
However, the MSOs appear to firmly believe that they will be the middlemen who control the distribution of cable network content to multiple platforms:
“I don’t think people wanting more content on more devices is anything but a good thing for our [cable] Company. Whether we make that content, whether that encourages them to use the content more, and therefore, in and out of the home…(at CES) you had these two very different extremes that the consumer wants, something really small and portable and something really big in the home. And I think we continue to find ways to service and want to be servicing those needs.”
Despite the fact that there is nothing stopping the cable networks (programmers) from directly distributing to devices and platforms like those showcased at CES, the cable MSOs still believe they should be the ones who control this distribution.
AND DON’T THINK CONSUMERS SHOULD BE ABLE TO CHOOSE AND PAY FOR THE INDIVIDUAL CHANNELS THEY WANT ANYWAY
Some MSOs still do not believe that they will be forced to offer programming in a manner that doesn’t require consumers to pay for unwanted channels. From the Time Warner Cable Q409 earnings call:
“Everybody on this call knows that going to full ala carte is completely impractical. It is impractical for the program economics…But I think if this industry and the programmers work towards an environment where we offer more variety of packages, some of which might be slightly smaller, I think that might be consumer friendly and I think we would be in better shape as an industry including programmers.”
So for now, the best the MSOs can consider offering are packages that are only “slightly smaller.”
Bottom Line: It’s hard to envision an ending to this where programming isn’t offered in a more a la carte fashion and on many different devices and platforms. As long as cable MSOs and cable networks sit on opposing sides of the table, however, it will likely take years for the transition to take place in full.
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