Cable Companies Hyping Over-The-Top Video, But Where’s The Business Model?

With all the news this week about Comcast’s “On Demand Online” trial and the number of broadcasters who announced they will be offering up programming for the trial, I'm still not seeing where the business model exists for such a service. How many consumers are going to be willing to pay an additional fee every month on top of their cable bill, just to get the same content they get on their TV to their PC? Why do content owners think consumers are going to pay for the same piece of content over and over, simply to be able to consume it on different devices?

I don't think I'm different than most consumers, when I say that I would not pay more money on top of the $95 a month I already pay for cable and Internet, simply to be able to get that same broadcast signal to my Mac. What's the added incentive for me to spend more money with the cable company? Why wouldn't I just go out and pay a one-time cost to buy a Slingbox and then watch TV on any device I want?

While I keep hearing people say that over-the-top video delivery threatens to disrupt the traditional TV model, I don't see that being a reality. If cable companies actually thought about adding such services for free, to enhance their current offering, it would make a lot of sense. But you know that no cable company is going to offer any kind of over-the-top service for free. And while some have speculated that such services could be offered with a "small additional fee", I have yet to see any study that says consumers are willing to pay for it and what exactly is classified as a "small fee". We all know it's not going to be just a few extra bucks a month.

For all the talk of online video disrupting the traditional cable TV model, keep it mind that online video as yet to change the financial aspect of the business. Yes, it's been a disruptor as far as the technology goes for getting video to lots of devices, but it has not changed the underlying business models that exist today. I know the bigger picture here is what it will do for the future, but right now, only Comcast is even talking about testing a service, to a base of only 5,000 customers. Nothing is being disrupted, as measured by actual revenue from such a service and won't be for years, if at all.

Keep in mind that every time such a service is talked about, rarely does anyone talk about penetration numbers, how many consumers will sign up for it, over what period of time and what it will cost. It takes a really long time for any new service like this to make any significant impact and even longer when the business model makes no sense on paper. This also applies to STBs and all of the other devices like Xbox 360, TiVo and Roku's that are capable of playing a role in the over-the-top debate.

I think the key point here is that no cable company is willing to have over-the-top replace your cable but rather try to make it look like they are providing you with more value and as a result, charge you more money each month, for the same content you're already paying for, but to a different device. Does that really sound like a compelling offering to consumers that would get them excited? It doesn't to me, but maybe it does to others.

And while I'm on the subject, I hear phrases like over-the-top (OTT), Web TV and Internet TV all used interchangeably but rarely are they well defined. What do people think these phrases mean and what's the differences between them, if there is one? Maybe it's just semantics, but I'd be interested to hear how others would define these phrases.

  • Anothertry

    Dan, good article – but what if this is an offensive move by the MSOs to collapse the growing Subscription VOD window? I look at this as a way to cut Hulu and other ad supported and/or subscription product (e.g, Netflix) off at the knees. If the MSOs via. their carriage agreements can restrict the reach of this content by requiring it to be tied to a STB based cable subscription it is a huge win for them, not for the consumer.
    If they are not doing this and lets say a Hulu launches a Subscription product (which will greatly expand their content licensing reach) – it puts further pressure on the MSOs and will erode their perceived value.

  • MJ

    Dan, great questions but if they are anything like providers in Europe (who have launched or are considering these same things) they won’t explicitly charge extra for online access – they’ll use it to add value to your current package, keep you from canceling and justify a price increase for the whole bundle down the road. they can’t make the business case work by assuming that x% of customers pay $y extra, etc. because enough people won’t want to pay extra…

  • http://on10.net/blogs/benwagg Ben Waggoner

    I describe over the top as:
    “Content from your cable/sat provider, but delivered via normal internet protocol, not broadcast protocols.”
    So, if you watch a channel on your set top box, it’s not going to be OTT (although that could change). But “On Demand Online” would be OTT, since it’d be using streaming-style delivery, even thought the bits are coming into your house over the same wire.
    So it’s more a technical term of art than something a consumer cares about. And I can certainly imagine the line blurring further as we get STBs and TVs capable of consuming streaming content directly.
    Web TV and Internet TV seem a lot more vague to me, but if we have to retroactively define them, I’d suggest Web TV is initiated from a browser (like Hulu or Netflix on the PC) and Internet TV would be TV programming delivered via IP broadband.
    So, if I watch Netflix on my PC, it’s both Internet and Web TV. But when I watch Netflix on my Xbox 360, it’s Internet TV (coming over DSL) but not Web TV (no browser).
    Of course, those lines are going to blur as well as more and more devices deliver browser-like functionality.

  • http://www.videonuze.com Will Richmond

    Dan – Key point of clarification. Comcast’s and Time Warner’s CEOs emphatically stated in their June 24th press conference (where the technical trial was announced) that there would be no additional charge for accessing programming online. Have a look at the press release as well. Point #2 under their “principles” is: “Video subscribers can watch programming from their favorite TV networks online for no additional charge.” http://www.timewarner.com/corp/newsroom/pr/0,20812,1906715,00.html. Maybe this will change in the long-term, but at present, online access is being positioned purely as a value add.
    Also, with respect to definitions, in my view, “OTT” services are meant to disrupt incumbent cable/satellite/telco video services (i.e. to incent you to “cut the cord”) while using broadband ISPs’ facilities (hence the “over-the-top” concept). Therefore a cable/satellite/telco provider by definition wouldn’t offer OTT services themselves; OTT services are offered by would-be competitors (e.g. Netflix, Hulu, etc.). Lots more details on these issues at videonuze.com

  • http://www.BusinessOfVideo.com Dan Rayburn

    Hey Will, I did see that but the problem is that Comcast didn’t say, at least anywhere that I could find, what the “programming” would be? So anything Comcast owns and controls may be free, but what about all of the other content publishers and syndicators?
    I’ve already spoken to some of those content owners who have agreed to be in the trial and they have said they expect to be paid for their content under this scenario. One could suppose that Comcast could pay the content owners and then not charge the consumer, but what are the chances of that taking place? Comcast will already be losing money with this service just based on the cost to deliver the content every month. I don’t see anyway that Comcast or any other operator keeps this as a free service.
    If I am wrong, that’s great for all of us, but I just don’t trust the cable companies to think they are going to give this away and lose money on it.

  • IntheKnow

    Dan,
    You miss the point of why TVEverywhere, et al is happening right now. The potential model is, of course, an extension of carriage or share of advertising. You would likely pay $5 to have your content “to go”, accessible from anyplace. Look at sling and the impact of piracy to know that freedom of location accessibility will matter. Even if you won’t spend $5, you will be less likely to cord cut with the perception that the MSO is giving you value – thus an operator business model of churn reduction is created. This is a real metric in the cable space.
    But remember that the MSOs are not offering cable or broadcast nets new revenue for their On Demand Online/TV Everywhere content. They feel they paid those affiliate fees and are not going to pay again. The networks thus use Hulu, online syndication and other models to try to put pressure on the MSOs – to get affiliate fees in the future for online/on demand content.
    Therefore, this is the main reason why TVEverywhere is being so marketed right now. The MSOs want to push the press machine about them making content available online, but will drag out any actual deployment. They want to hurry up and do nothing. They want to derail any innovation that could happen over the top on Hulu or via Netflix or other non-cable distributors by holding out the carrot and stick to the content networks – dissuade them from going online without the MSOs, and entice them that just maybe there could be some affiliate or ad revenue available by being in the service (and after cable’s complete failure to deliver dynamic ratable ads in VOD, who can blame the content networks from seeking new affiliate fees.)
    All a consumer can hope is that Netflix, Apple, Amazon, Sony, Vizio, ATT, etc. and the content networks don’t fall for the trick and keep pushing online to bring a new type of over the top delivered bundle of first run TV content.
    In sum – the business model would be what it is in regular TV. But for the MSOs leading TV Everywhere / OnDemand Online the model is nearly irrelevant at this stage. If they accomplish the appearance of innovators they curry favor with the public, with regulators and with their cable network content partners. The latter being a group they also want to whack on the head for dancing around with Hulu. The trial is made to further chill cable content from going online anyplace but within an operators walled garden (even a virtual one).
    It’s not about the business model so much as being protectionist.

  • http://www.videonuze.com Will Richmond

    Dan – I don’t think Comcast is distinguishing between what they own vs. what they don’t own. It’s all going to be free. Doing otherwise would be disingenuous hair-splitting given Brian Roberts said at least half a dozen times during the press conference that Comcast isn’t planning any charges. Re the programmers’ aspirations, if Comcast isn’t charging extra, they also have no right to expect to be paid extra. On the contrary, they should be jubilant about Comcast’s plan. They get an on-ramp to online distribution (at last), preserve their fabulous dual revenue stream business models, expand their reach/ad potential and enhance their fans’ loyalty (e.g. think of how much more HBO’s fans will love it when they can access True Blood, Hung, etc from anywhere?). And Comcast is absorbing all the delivery charges as you point out.

  • IntheKnow

    Will and Dan –
    They might not charge now, but it is a trial. If OnDemand Online works and for example, cuts into the number of DVR licenses Comcast earns each month, then look for them to see if OnDemandOnline supports a fee instead. But for now, it is too early to matter and this is about chilling over the top content.

  • http://www.hdcloud.com Nicholas Butterworth

    My guess is that Comcast will not charge the consumer more, but will sell advertising against the content and split it with the content owner. Just like Hulu.
    How much revenue will the content owner actually see? Not much, is my guess.
    Agree with the points above about this being primarily defensive vs. Hulu, Netflix, Boxee, et al (let’s not forget YouTube, which still matters).

  • http://www.littlebiggift.com/DVD/ buy movies dvd

    The Cable companies in our city charges extra money to be able to watch the Cable TV on second PC while our Local Cable guy charges only a buck extra to let us watch Cable TV on our second TV.

  • http://dcwebtv.com/ Web TV

    Hi Dan
    I totally understand what you mean that traditional cable companies add a ‘little fee for some extra services. I upgraded my digital TV system for also a ‘little fee’ and the advanges are almost nothing compared to the elder system. I don’t have much experience with Web tv, but its starting to get a hot item, and it’s quite fascinating to hear about it. So keep the discussion on, I am learning new things here. Thanks

  • http://www.angewayne.net/angewayne-videos AngeWayne

    Is it true that cable company charge extra money to costumers only to be able to watch their cable TV? I think it is unfair, that is too much. The government should take an action. Thanks for a great topic.