Online Video Upstart Smacked Down

Online video provider ivi raised more than a few eyebrows last year when it launched an internet based service that streamed the linear feeds of local broadcasters to subscribers. Auguring that they fit the definition of a “cable system”, ivi claimed that simply by paying a compulsory copyright license fee they were able to receive and retransmit broadcast signals without the permission of the station owners and that because they were an internet service they were able to do so without the permission of the broadcasters or paying additional fees for retransmission consent.

U.S. District Judge Naomi Reice Buchwald begged to differ, ruling that ivi is not a cable system as defined by law. Furthermore the judge found that ivi could not selectively determine which regulations applied to them and which did not. In short, they could not be a “cable system” only when it was convenient. She further commented that taken to its extreme, ivi’s argument is absurd and would make anyone with a computer, TV antenna and internet connection a “cable system”

In a statement, ivi CEO Todd Weaver insists that Buchwald’s ruling is incorrect and vowed to appeal the decision. For now, ivi subscribers have seen their service taken down pending the next steps in the process. While an appeal is certainly likely, it is almost certain that this marks the beginning of the end of the road for ivi. While they may be able to proceed with a modified business model that provides for payments to the broadcasters they carry, they will certainly not continue operation as a “pseudo cable system”. With the courts placing control back in the hands of the content owners, chances are that ivi will be lucky to be remembered as a footnote in the history of over the top video.

Sweeney: ABC – Google TV Deal “Not Close”

In an interview with Reuters, Disney TV chief Anne Sweeney said that although they are in discussions with Google and have seen several demonstrations, ABC is "not close" to doing a deal to provide its content to the Google TV platform. This comes on the heels of both CBS and NBC blocking their content from Google TV.

Sweeney mentioned that piracy is one of the primary concerns, going so far as to say that it was unacceptable to ABC that the Google search platform present pirate sites when consumers search for ABC content on the web. Further, Sweeney indicated that ABC's web strategy is to provide limited programming from current seasons with wider access to prior season programming in order to drive value to the programming that is being shown on the broadcast network - moving the content through windows in a similar fashion as feature films.

In an age of instant Internet gratification and with the lesson of Napster fresh in their memories, it is little wonder that piracy is an issue for the broadcasters. They are being pressured by affiliates and cable operators who are telling them that putting content on the Internet lessens its value. Meanwhile, Gen X, Y and Millennial consumers are accustomed to having content served up at their convenience at a time and place and on the device of their choosing. They are less concerned with how it gets to them and not even remotely concerned with the content owners' business model.

Network executive like Sweeney are paid to follow the money. They are not going to jeopardize broadcast and cable dollars for digital pennies. Meanwhile, a significant portion of the Internet generation believes that content wants to be free; an attitude that undermines the business model of the content owners.

For now it looks like Google TV is on the market with only a limited amount of content. Absent providing "one stop shopping" with a line-up of content that more closely mirrors that of cable and satellite providers, Google TV is destined to be a niche curiosity product. Major content owners will not give away their product cheaply and will continue to demand assurances of security. Until Google can address the "fear of Napsterization", the big players will take meeting but won't be signing any deals soon.

Programmers Seek Increases, Higher Cable Rates to Follow

An adage in investigative journalism was made popular during the heyday of the Watergate investigation; “Follow the Money”. Nowadays it seems you can follow the money spent for your cable or satellite service right back to the big media companies. Bob Iger at Disney is pointing to ABC Network taking a higher share of its broadcast affiliates retransmission consent fees, while Chase Carey over at Fox is telling his investors that National Geographic Channel and FX network should be receiving higher license fees from cable operators. Meanwhile, independent programmers like Hallmark Channel are seeing themselves dropped from line-up as providers like AT&T seek ways to reduce programming costs.

Guess what going to happen to your cable bill as ABC, FOX and others continue to demand increases in their license fees? That’s right; those increases are going to be passed directly on to the consumer. Anyone who thinks different or is of the belief that cable operators should absorb the increases should refer back to their Business 101 textbook. After all, Comcast, Time Warner Cable and all the rest have investors to answer to as well. With programming costs being one of the biggest line-items that cable operators have to deal with, what else would you expect?

Meanwhile cable operators seem to be whistling past the graveyard while they are losing subscribers and insisting that cord-cutting has nothing to do with it. All the while they are rolling out their own “TV Everywhere” services, providing a collection of video to their customers in a “walled garden” fashion.

Where does that leave the multichannel industry? Is cable dying a slow death, choking on ever increasing fees and programmer demands to carry a plethora of new channels that seem to come about with every contract renewal while customers are warming to the idea of program-by-program a la carte on line? Recent reports suggest that the industry is at the precipice of a long, slow decline. This isn’t the first time that the cable industry has seemingly stood at the edge of the abyss. No doubt the cable industry will find a way to survive this too.

STARZ Original Programming: Billion Dollar Baby

Reports are that STARZ CEO Chris Albrecht has been tasked with raising $1 Billion of off balance sheet financing for original programming. This is yet another confirmation that original programming will continue to be the tentpole of the premium service business.

In 1975, when HBO launched as the first national premium service, the idea of showing Hollywood titles on a round robin basis made sense. TV viewers had little alternatives other than local broadcast stations and a handful of nascent cable nets. Early VCRs were just starting to come on the market. Fast forward to today and between online viewing, retail and rental; not to mention cable VOD, the consumer has a variety of methods to receive Hollywood titles.

So it is no surprise that premium services continue to stress the importance of original programming, whether it is True Blood on HBO, Dexter and Nurse Jackie on Showtime or the slate of programming that STARZ is looking to produce with the new financing. A large part of the reason STARZ brought Albrecht on broad is as a result of his experience with original programming while he was at HBO.

This latest foray by STARZ is a natural and necessary step in their evolution. Although they have aired some original programming along the way, it was never to the same extent as HBO and Showtime. This is a great opportunity for STARZ to really shine.

Comcast/GE Head to the Hill

Tomorrow is a big day for Brian Roberts and Jeff Zucker as they head back to Washington to appear at two back-to-back hearings. In the morning they are slated for the House Communications and Internet Subcommittee, while the afternoon is the Senate Judiciary Antitrust Subcommittee. Also slated to testify at both hearings is Colleen Abdoulah President and CEO of WOW (Wide Open West) and Mark Cooper of the Consumer Federation of America. It will be interesting to see if those opposed to the merger get beyond the standard “big is bad” rhetoric that is the standard backbone of their opposition to explain exactly what their issues are.

In a world where the big keep getting bigger in order to “gain scale”, there is no question that it has become increasingly difficult for the small guys to compete. Comcast has been quite public in stating that the reason they are doing the merger is to gain scale in the programming realm. Content is still king, and those who own the content and access to it are in a position to reap the greatest profits.

Perhaps of greatest concern to WOW and other competitors like RCN and Knology, not to mention Dish Network and DirecTV, is how Comcast sets the rates for its own content in terms of the rates that their programming arm charges their cable arm. It is no secret that MFNs for the largest players in the distribution game often dictate higher rates for smaller operators, including competitors. This often leaves smaller companies feeling like they are subsidizing the larger players. A scenario where a programming entity setting their rates based on what their affiliated distribution company (which, by the way, is the largest in the market) agrees pays for that content justifiably raises concerns about the unfairness of an “out of one pocket in into another” arrangement. There is sure to be even more concern now that retransmission consent is involved.

Curiously absent from list of witnesses at tomorrow’s hearings is anyone from the satellite or telephone company community. The NBC broadcast affiliate group has already suggested strings, and there is no doubt that other parties will be joining in as the regulatory approval process proceeds. There may be little doubt that the merger will ultimately be approved. However, the larger question may well be what strings will be attached and, if one is to look at the merged Comcast/GE as Jonathon Swift’s Gulliver, whether the strings will be strong enough to hold the new media giant down for long.