Spoutin' Off: More funds can help TV battle cable

By Michael Rau

December 12 2005

Man - It's really getting hard to nail down a definition for the term "television." Three recent developments illustrate why.

FCC chairman Kevin Martin recently announced his support for the idea of "cable a la carte," or the enabling of cable TV consumers to order the particular channels they actually watch, rather than forcing us to pay for a bunch of programming we wouldn't watch on a bet.

Here's an example: Let's say that you're not a huge sports fan, nor an aficionado of pithy but self-absorbed sports commentators. According to industry representatives, the cost of providing ESPN to its customers represents four to five dollars out of your monthly bill. (I think this is the highest in the industry.) Now why in the world should you have to pay for something you never watch? Doesn't it seem as though you're being forced to subsidize the cost for those who do?

Cable-industry reps say that to accomplish this would require a major technical overhaul of their infrastructure, but I don't buy it. The ongoing transition to digital TV makes this the perfect time to contemplate such evolution.

Digital cable and satellite reception already requires a tuner, either within the TV or through a set-top box, which accepts a decoder card supplied by the programming provider. Someone will have to convince me that these decoder cards can't be configured and programmed to decode only those channels to which the customer chose to subscribe.

The second development was a news release from Verizon Communications that was basically a progress report on construction of its massive fiber-optic network and associated services, called "FiOS." (Daily Press staff writer Chris Flores wrote a story on the issue.) This network, once operational, will enable Verizon to deliver the same types and level of services as cable systems such as Cox, Charter, and Comcast.

Most significantly, it will create a completely new cable-TV delivery system, which can and will compete directly with those offered by the aforementioned providers.

The biggest obstacle to this is statutes that currently treat cable-TV services like a non-competitive utility, granting specific companies exclusive rights to provide such services in any given municipality. These franchise agreements are complex and generally take a great deal of negotiation to reach agreement.

Verizon is in the midst of a major lobbying campaign to have these laws changed to allow competition. The cable companies are universally opposed to such legislation, and honestly, who can blame them? Who wants to face competition when you can have the customer base all to yourself?

What I'm less clear about is whether Verizon is lobbying to have the law changed on behalf of ALL cable providers, or just to enable their own territorial encroachment. If Verizon wants to compete on a level playing field by dumping all franchise agreements, I'm all for it. But if they're trying to acquire an unfair advantage, I say "No way, José!"

The third was the announced agreement between NBC Universal and Apple to provide NBC and other programming on an on-demand basis through the iTunes Store. Along with ABC/Disney's programming (CBS has a deal with Verizon Wireless), this represents a significant portion of over-the-air broadcasts and could well be a harbinger of the future of video delivery.

I'm still not sold on buying video through iTunes. For a buck ninety-nine, you get a chunk of digital video that is so compressed, it's barely viewable on an actual television. And it's pricey: If you watch two one-hour programs per night, you'd end up paying $120 per month for your 60 programs.

Sooner or later, those working on this technology will be able to provide such downloads in a manner that makes them affordable, and viewable on your choice of devices, but the technology is not there yet.

Video-on-demand services are evolving at an exponential rate, but not necessarily on an optimal timeline. The technical capability to deliver video-on-demand is outpacing the ability of traditional broadcast companies to adapt.

Consider: If consumers started getting all their video via download or on-demand delivery, how does this affect revenue at local network affiliates? Let's say that 30 percent of viewers of "Desperate Housewives" start watching this program "on demand," not on their local affiliate. That means the affiliate has 30 percent fewer viewers, along with a corresponding loss of local advertising revenue.

Can local affiliates survive with such an impact on their bottom line? It seems problematic. Even local TV operations are valued at many millions of dollars, and most have significant debt to service on top of operating costs.

If TV networks don't want to drive their affiliate base out of business, they'll need to find some kind of revenue model which helps offset any loss of viewership by local affiliates to video-on-demand services.

I believe video-on-demand is the wave of the future, but the players all need to get on the same page before consumers will really be able to take advantage of the choices which are, or soon will be, available.

Michael Rau is a mass-communications consultant in Virginia Beach. To send feedback or view past columns, visit http://dailypress.asoundidea.com.

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