I hope you are following the very vibrant debate that’s been taking place over the last week, involving  Boxee CEO Avner Ronen, Chairman of HDNet Mark Cuban and a host of other people about the relationship between free online video and the programming available from multichannel video distributers, such as cable, satellite and phone companies.

It all started with this Contentinople article, quoting Ronen: “Cable companies have been fighting cable à la carte for years in Washington, but I think consumers will prevail online.”  Then Cuban responded on his blog: Why Do Internet People Think Content People Are Stupid ? He argued that it doesn’t make sense to disrupt cable’s current business model.  He then followed up by noting the impact if the “a la carte” model was applied to Internet content.

Then the whole discussion took off. Here are just a few of the relevant links:

• Cable TV is Screwd [Post from Revision3 CEO Jim Louderback, formerly of the cable network TechTV]
• a lively debate with mark cuban [Avner Ronen responds on Boxee's blog]
• Some Questions & Thoughts re Internet Video vs the Incumbents [Cuban follows up with another post]
• Mark Cuban debates Boxee founder [Blog post from Michael Willner]
• Mark Cuban Declares War On Free TV Online… But Misses Out On The Economics [Mike Masnick at TechDirt argues that charging for online content is "a dead-end model"]
• The Cuban Files: Taking On Boxee & Business Models [To close the circle, Contentinople's  R. Scott Raynovich weighs in]

One notices some common themes of those arguing that cable programming ought to be available online either free or in an a la carte fashion.  There’s a general theme that all content must inevitable be available on the Internet in this fashion. Typically, what consumers want is held up as the Golden Rule. I’m no expert, but I don’t think that Masnick’s economic analysis makes too much sense.

Anyway, take a look for yourself.

Stories about “cord cutting” seem to be all the rage right now, but many of them are overlooking some pretty basic - and readily available facts - which suggest that consumers may enjoy online video but they certainly aren’t ditching their set-top boxes by the truckload (just the opposite).

But, before getting into some of the basic facts which show that cord cutting really isn’t happening - at least not how it is being described in many stories - it would be foolish not to acknowledge that more broadband users (including me) are looking at more and more video online, and that is one trend that will continue.  As a cycling enthusiast, I’m even considering a subscription to www.cycling.tv.  But will my desire to watch a few cycling races or other videos online replace the diverse cable package that my family enjoys?  Not a chance.

And that’s because most of the content online doesn’t match my viewing preferences (and the vast majority isn’t age appropriate for my kids) and the experience is marginal at best when compared to the HDTV in my family room.  And even though I work in the cable industry, I don’t think my personal experience is different than many others.

Our blog has touched on the cord cutting topic before (see here, here, and here) but recent data and the ongoing media coverage make it worth revisiting.

First, keep in mind that cable is the nation’s largest broadband provider so the more consumers that need a higher speed Internet connection to watch video online, cable is probably your best option.

But when examining if cord cutting is truly happening, I would recommend reading a recent Daisy Whitney column in TV Week with a headline that says it all, “Where Are Cord-Cutters? Signing Up for Cable, Satellite.”  The takeaway - in the 4^th Quarter of 2008, video subscribers increased by 441,000. And for all of 2008, Sanford Bernstein analyst Craig Moffett reports that video subscribers rose by 1.3 million subscriptions, and he says, “cord cutting remains the province of urban myth.”

When it comes to TV viewing, Nielsen’s Three Screen Report also demonstrates that consumers are watching more video than ever, now up to 151 hours per month on TV alone.  Viewing of online and mobile video is also growing, but it’s only up to 3 hours per month online and 4 hours per month on mobile phones and other devices:

Viewers appear to be choosing the ‘best screen available’ for their video consumption, weighing a variety of factors, including the quality of the screen experience, convenience, availability of the video, and the ability to watch according to the consumers’ schedule. In the majority of cases, consumers choose to view video through the traditional means - live viewing of television in the home.

So, the data looks pretty clear yet we keep seeing headlines about Internet TV becoming the new mass medium.  I guess the point here is to use caution (and facts) before coining the next trend.

Stories come and go in both the general media landscape and the blogosphere, but often the same issues remain on the radar, but driven by different players and events.

For example, recently we’ve seen coverage of the Hulu-Boxee affair, the possible launch of online video platforms by cable operators such as Comcast & Time Warner and the “trend” of cord-cutting (getting all your video online). In addition, we regularly see many bloggers complain that the cable industry won’t launch “a la carte” options, so that subscribers can buy channels one at a time.

All of the coverage can be summed up thusly: “I think cable programming costs too much.” It also seems to me that this is a reflection of the dominant attitude found online: All content should be free or priced very low. But what people really mean, whether they realize it or not, is that they don’t like cable’s current business model. Every suggested solution – let customers buy one channel at a time, cable programmers should give their shows away for free on the Internet – would disrupt the current business model.

What Lessons Can Be Learned from the Newspaper Business?

Many industries have had their business models disrupted in recent years; one example is the newspaper industry. The Chicago Journalism Town Hall recently took place and some observers came away with the notion that the way for print journalism to survive is to adopt the cable business model.

This is an ironic reversal, because it appears that cable’s model was built on that of newspapers and magazines, which generally depend on a dual revenue stream of subscription fees and advertising. Print media are currently grappling with the best way to deal with the Internet and whether it pays to give away your content for free online.

Daniel Sinker on Huffington Post pointed out that an iTunes “a la carte” model might prove to be very bad for news organizations. (In fairness, he also suggests that saving journalism might mean tearing down the established order.)

The Chicago Tribune’s Eric Zorn expressed his own concerns:

… until a few months ago… I believed that large news organizations could thrive online by using the TV/radio broadcast model—by making it difficult to enjoy content without being confronted with advertising messages.

But for a variety of reasons, this model doesn’t seem to work for online news, particularly in this economy. Newspapers can and do make money with Web advertising, just not enough to make up for the declines in print advertising.

I’m now a believer in the cable TV model. News organizations that generate significant original content should band together for their own survival and sell group subscription packages for unlimited access to their stories, photos, videos, archives and other offerings.

Mark Cuban summed it up in the title of his blog post: How Cable & Satellite Can Save the Newspaper Business. Cuban argues that selling content “a la carte” is a difficult business venture and suggests that newspapers partner with cable and satellite providers to offer exclusive access to content.

Now, I don’t know if these solutions are the correct ones to save print media. And it’s highly likely that the cable model will change at some point. The correct answer doesn’t seem to be clear to anyone. Some print outlets give away their content for free. Some put parts of their content online, but require you to buy the print version to get the bulk of it. Some have suggested that non-profit journalism is the correct path. Some companies are experimenting with various models.

This is true of other businesses, since cable programmers are in the same position of experimenting with a variety of approaches.  Right now, they primarily rely on a mix of subscription fees from cable operators and advertising revenue. As I’ve noted previously, in an “a la carte” world, both of these revenue streams would be dramatically affected. It’s highly probable that this business model will change over time, but right now, mandatory “a la carte” would probably have a very bad effect on your viewing choices.

Cable’s Sinister Plot?

Just recently, Time Warner’s CEO Jeff Bewkes discussed a plan called “TV Everywhere,” that would put all cable programming on the Web, but only accessible to consumers who are already subscribed to a multichannel video service, whether from cable, DBS or a telco company.

And what were the headlines? “Time Warner CEO Plans ‘TV Everywhere’ — But Not For Everyone.” “Time Warner’s Bewkes Plots To Eradicate Free Content.” “Cable Tries To Stuff The Internet Video Genie Back In The Bottle.”

Yes, the cable cabal’s dark & sinister plan to not give its content away for free…

What I’m really trying to do is express my frustration at seeing coverage like this.  The headlines could have been just as easily written in reverse.  “Cable Expands Online Content for Subscribers” Or, “Cable Subs to See Expansion of Content Online Content.”  And then there’s, “The Bundle gets Bigger; Cable Adds Content Online.”

I hope I’ve made my point that the business of online content is a little more complex than it might first appear to be.  And new online content, available on demand for those who are already paying the freight, could be just the jumpstart that the online world needs.

For some time, I’ve been noting on my Twitter account the rising tide of people who have decided to cut the cord that ties them to servicing their television needs through cable, satellite or other wired means, instead turning to the Internet to be informed and entertained.  The topic is blowing up now, with Washington Post tech columnist Mike Musgrove now examining the issue in his column this past weekend (”TV Breaks Out of the Box“).

And I don’t even really need to respond, because Adam Thierer has given it the one-two punch at Tech Liberation Front.

• Cutting the (Video) Cord, Part 2
• We Don’t Need to Mandate “a la Carte”… It Already Exists

But if you want my take on the cost-savings of broadband video, refer to these earlier posts:

• The Roles of TV and the Internet
• Does A La Carte Always Make Sense?
• More Media Inaccuracies About A La Carte

On a related note, TV Week’s Daisy Whitney writes about using the Boxee service to watch Internet video on her television, as part of a cable-free experiment she’s conducting.

The Golden Swamp blog comments on Musgrove’s column by noting that more people watched Tina Fey’s portrayal of Sarah Palin online than on television, and suggests than one could then unbundle one chunk of content (such as a Palin skit) from an entire television episode (a 90-minute SNL). Judy Breck is using this approach to propose unbundling educational resources; others have applauded the ability of iTunes to allow you to buy just the songs you want instead of the whole album (David Lazarus called it the “iPod factor.”).

But as I have written on this blog in regards to “a la carte,” the economics may not pay off. If you unbundle one cable network from others, the economics change. Unbundle one show from a network, they change again. Unbundle a segment from the show, again.  That’s not to say that cable networks don’t or shouldn’t repurpose content. Comedy Central puts entire episodes of The Daily Show online for free. Some cable networks make content available to mobile subscribers or put clips on their websites. I’m simply offering a reminder that there are different approaches and different business models; not everything you want may be available on the platform you want and in the manner you want.

But things change and nothing is permenant. Stay tuned.

There was a column in the L.A. Times yesterday from David Lazarus entitled: “Let’s pay only for the TV we watch.” So, once again, back we go to the topic of “a la carte” cable service.

I get it. It feels like much of the content world is going to a pay-only-for-what-you-want model. Certainly, it feels right emotionally to only pay for the stuff you’re going to use. But this argument is almost always predicated on one premise: If I could pick and choose, my bill would go down.

Lazarus writes:

The average U.S. home now receives a record 118.6 TV channels, according to a recent report from Nielsen Co. But the dirty little secret of the cable industry is that the average subscriber watches only about 17 channels regularly.

That’s more than 100 channels that most cable subscribers are paying for but seldom if ever watching.

Because of the number of cable systems nationwide, it’s hard to get a fix on the average monthly bill. But many estimates place this figure at $60 to $70.

This means, if all channels cost the same, the typical cable subscriber is spending about $9 a month for the 17 channels he wants to watch and about $55 for the 101 channels he never sees.

There are big problems with the figures here, so let’s break it down.

If you’re getting 118.6 channels, that means you’re getting digital cable service, because analog can’t deliver that many. SNL Kagan estimates that the current average monthly price for digital service is $59.23 (expanded basic is $44.28), which not only provides a wide range of programming but also opens up the door to high-definition and Video on Demand.

The first important point that Lazarus overlooks is that the average cable subscriber has elected to switch from a cheaper level of service with fewer channels, in order to take a more expensive level of service with more options. Perhaps people like the greater choice that comes with digital?

For example, Cablevision recently reported that more than 90% of its video customers subscribe to digital service, which means that 9 out of 10 of its customers want more channels, not fewer. If you look at the largest cable operator, Comcast, you find that 69% of its video customers elect to subscribe to digital service. Industry-wide, approximately 62% of cable’s video customers have made the decision to receive more channels via digital service.

Lazarus continues:

But all channels don’t cost the same amount. By most accounts, the sports channel ESPN is one of the most expensive carried by cable systems, costing by some estimates more than $3 a month per subscriber. Many other channels are said to cost as little as 25 cents monthly.

I never watch ESPN. When I watch TV, it’s usually CNN, CNBC or a movie channel. On an a la carte basis, I could probably get the handful of channels I like for pocket change.

That, of course, is not what the cable industry wants.

Lazarus leaves out all of the relevant content here. Those figures he cites are carriage fees that cable operators pay programmers in order to carry those services and offer them to their customers (The real rates are found in private contracts; actual figures will vary by company and circumstances). It’s not what those networks “cost” and it’s not a reflection of what you would be charged in an a la carte world.

He also writes:

According to the FCC, average cable rates nationwide more than doubled over the last 10 years.

In fact, the FCC has not released any reports containing this information. There have been statements in the media to this effect, but the Commission has not released any reports to back up this assertion. It is irrelevant to compare today’s rates to the rates from more than ten years ago, since the nature and value of that service has changed over that same time-frame, but it is worth noting that over the last several years, the increases in cable rates have actually lagged behind inflation rates.

Read this post for the financial details, but the short version is that if each network lost the carriage they have now and then had to market and sell the channel to individual consumers, revenue goes down, operating costs go up and programming quality probably also goes down.  And the price you think you’ll pay for individual channels on an a la carte basis? You’re probably grossly underestimating it. The reason why you should pay for more than you watch is that it beats paying more to have fewer options.

Lazarus writes that cable needs to be brought “in line with the wholesale shift in how consumers now approach entertainment.” But different distribution outlets have different pricing models. If you saw Iron Man in the theaters, you probably paid ten bucks. The DVD is probably $20. Buy it on iTunes for $15 or watch it on VOD for $5. As I’ve written previously, different businesses operate on different models and it’s a mistake to assume they should all be the same.

Lazarus makes a comment early on about knowing “as a newspaperman” a little something about “outdated business model[s].” The print edition of his newspaper, the Los Angeles Times, is not sold on an a la carte basis, with the option of buying just the sports section or the business section. They did experiment a few years ago with putting their online entertainment section behind a wall and then charging a subscription fee for access. They later ended the experiment. The New York Times did something similar with its TimesSelect service. In these instances, the free market determined their actions, not regulation. Business models change over time and the models of the cable industry will undoubtedly do so as well.

If you look at the comments of this column, you’ll find some other reasons given why mandatory a la carte would probably be problematic. You could also check out some of Mike Masnick’s posts at Techdirt, such as here, here or here.