This post will piggyback off of my post last week. Last week’s post, titled “Do you pay for cable television? If so, you’re INSANE!” talked about free over-the-air (OTA) television along with a new service called Aereo that is trying to change the game in the cable television industry. Well just this past week, there was a cable-industry annual conference in Washington. Among the topics was over-the-top TV, a service that would allow organization to stream cable television stations to many different devices via the Internet. This would cause more people to cancel their cable subscription in favor of Internet TV, but they would obviously still need to pay for Internet service, which could be the same Cable provider.
Before we begin, let’s clarify who the players are in this industry. First, there’s the TV stations themselves (ABC, CBS, NBC, HBO, etc.). Second, there are the distributors, the cable and satellite providers (Time Warner Cable, Charter Communications, Comcast, Dish, DirectTV). Last of all there are the customers, who are getting screwed by the distributors because they pay a premium for 200 plus TV stations when they only primarily watch a few.
Intel, the technology company most known for its processors, is trying to launch an over-the-top TV service this year called Intel TV. Their innovative plan will differentiate themselves from the others by selling some sort of bundle of TV stations viewable via the Internet. The problem is that they can’t get any TV stations to jump on board even if they will pay more money to the TV stations than other distributors. Why is that? Well, the cable distributors are trying to make it difficult if not impossible for Intel and others to become Internet distributors because it will lessen their revenue. They have been in an ideal situation for a long time where they’ve been over-charging the public to fatten their pockets. They surely don’t want that to change. According to Brian Stelter of the New York Times, “each confidential contract between a distributor and a channel owner is different. Some contracts include clauses that expressly prohibit the channels to be sold to an Internet distributor like Intel, while other contracts merely discourage such competition by including financial incentives or penalties.”
Richard Greenfield of BTIG Research sums it up for customer’s best by stating “This is most certainly bad for consumers, as it limits competition and prevents the emergence of distributors who can provide revolutionary new ways of experiencing live linear and on-demand TV without being encumbered by legacy infrastructure.” The cable industry is a mature industry, meaning that just a few major distributors have settled in as the major players. Trying to enter this market is extremely hard to do. So Intel is trying to bring something unique to this industry in order to gain some market share. Since the industry is so mature in that contracts are keeping new distributors from competing freely, the Government is going to have to intervene. It has been reported that the Department of Justice is already looking into it. The Federal Communications Commission might need to get involved as well.
Mature industries eventually fade in time and evolve into a similar yet different industry built on innovation and customer demand. It’s clear that something must be done to help the customer get more choices is what the public wants. If Intel TV can somehow overcome this multibillion dollar barricade, then don’t be surprised to see Google, Apple, Microsoft and Sony follow suit. Also, some of the distributors will jump in also because they won’t have a choice.
When cable companies begin to lose more and more cable TV subscriptions, how much will they charge for Internet service only? Will it change from its current rate? Currently Verizon FiOS charges $49.99 for Internet only. Will Intel TV, or any similar online streaming service, be a la carte? Or what will their options be for TV stations? How much will their options look like, assuming there will be more than one option? Maybe, at some point, you could pay for what you actually watch and not for the 200 plus TV stations that you don’t.