Yesterday, former FCC Chairman Michael Powell led Marc Andreessen, Time Warner’s Jeffrey Bewkes, CBS’ Leslie Moonves, Comcast’s Brian Roberts, and Fox Filmed Entertainment’s Tom Rothman through a wide ranging, free flowing, and spirited discussion of the future of content at The Cable Show’s second general session.

To start the conversation, Powell asked Brian Roberts if cable should be worried about online video.  Roberts responded that every new medium presents a new opportunity, but said they all present avenues to deliver lawful content; the more opportunities for that, the better.

Andreessen (who shared details of his 36 port HDMI switch with 36 different inputs and a $4,000 per month commercial Internet connection) said that was the right way to look at the future – since every device is now expected to be Internet-enabled, and to allow content consumption.

Rothman chimed in to agree, but said that creates a requirement that content be compelling.  Without compelling content, you just have a bunch of devices to check baseball scores.  Rothman says the key to content online is two-fold.  First, the most important piece of content is good storytelling.  Second, that storytelling must be accompanied by a way to protect and monetize content.

The various models of monetization became a hot topic and Powell noted that customers may have different thoughts about the monetization process – so cable operators may end up fighting with consumers.

Moonves answered by noting that, for his company, there used to be one source of revenue – advertising – but now there are many more, such as syndication, retransmission fees, DVDs,  iTunes, Hulu, etc.  That presents more options to address the monetization question.

The introduction of the topic of advertising led Powell to ask what impact services like Facebook will have, since they present a new, and possibly competing, set of audience segmentation data.  Powell noted the industry no longer has the exclusive on audience data.

Bewkes suggested all the different entities must become partners in the sharing of audience data, and Moonves said one of the essentials is accurate eyeball measurement – and we don’t have that yet.

Andreessen suggest Facebook can be an enabler of content by providing data, and also by sharing content with friends.

Roberts said people may go to other providers  – not because the content is different, but because the experience is different or cooler.  As a result, it is incumbent upon cable to stay fresh and cool, and spend more time on the interface.

Asked what makes them nervous, the panelists suggested that the uncertainty of regulatory change was a great challenge.

Moonves joked, “Whenever they say it’s not about the money, it’s all about the money.”

Earlier this week, I examined the recent coverage of the “cord-cutting” phenomenon. What I wanted to do was look at two questions:

• Can you really replace your cable service with just online video?
• At the present time, is this really a widespread phenomenon?

On Tuesday, when I addressed that first question, I came to the conclusion that it would be difficult to replace all the programming accessible through multichannel video by just relying on online sources. Now it’s time to look at the second point. As I suggested previously, it’s helpful to read our previous posts on cord-cutting:

• The Roles of TV and the Internet
• More Cord-cutting Coverage
• Should All Content Be Online for Free?
• Are Stories of Cable “Cord Cutting” a Myth?

How Significant Is the Phenomenon?

In my last post, I noted that the perception is that tons of television content are available for free online, but the reality is that this is not completely true for cable programming. It’s also true that, in some circles, there is a perception of large numbers of consumers fleeing cable (e.g., “Cord cutters flocking to online TV at the expense of cable“), but the reality is quite different.

Yesterday, CTAM released a new study entitled Crossing Over: Understanding Viewer Multi-Screen Migration, based on research conducted by The Nielsen Company. The media release for the study says, “The study identified eight distinct broadband user segments, determined by their levels of engagement with video content across TV, online and mobile platforms, the devices they used to consume content and their motivations for and attitudes toward using multiple platforms. ” About 8% of broadband users are identified as belonged to the group “Extreme Techies;” these people are identified as technology innovators and are the most advanced group in their consumption of online video.

How much do the Extreme Techies watch online? As noted in this Hollywood Reporter article on the study, they watch “up to 91 minutes (1.5 hours) per week, compared to the mean of 44 minutes.” That’s it. Overall, 58% of TV viewing time is spent regularly scheduled programming on a television; 20% through use of a DVR; and 6% for online video.

You might think that really young people would skew differently, but a recent survey conducted by analyst Bruce Leichtman found otherwise:

In a nationwide survey of 1,250 broadband households and separate sample group of 250 teens aged 12 to 17, Leichtman found that only 8% of respondents watch repurposed TV shows online, compared to 24% that watch news clips, 20% who view user-generated clips on YouTube and 15% that watch sports news or highlights.

The title of Leichtman’s report? The Phenomenon That Isn’t.

You might have also read about a recent Nielsen Three Screen Report shows that people are still watching TV, on a television set. Or you can check out this SNL Kagan chart on video subscriptions and notice that there doesn’t seem to be a significant decline in people subscribing to cable service. There was a Craig Moffett report written in February that said, “The Fourth Quarter of 2008 may someday be remembered as the quarter when video cord cutting… didn’t happen.” Or you might use your common sense and notice that we live in a time when sales of big-screen hi-def TVs and HD content is on the rise. You might then ask why you’d want to watch all your video on a laptop or a 24″ computer monitor instead of on a high-definition television.

And yet there was also a WSJ story yesterday: More Households Cut the Cord on Cable.

Quote One:

In what’s shaping up as the home-entertainment equivalent of severing a landline phone service, more people are joining the ranks of “cord cutters” by forgoing cable subscriptions that can run $60 or more a month.

Quote Two:

The number of cable cutters remains too small to threaten the pay-television industry.

Quote Three:

Those who end up cutting the cord do pay a price in entertainment. Pay-TV services, like cable and satellite, still carry more live events, TV shows, movies and other content for viewers to watch than what’s available online. Web TV also doesn’t offer as much high-definition content as pay TV… Some would-be cable cutters have pulled back at the last minute, in part because live events like sports are hard to find online.

I think Will Richmond summed it up nicely in the title of a recent blog post: Video Behavior Changes Suggest “Evolution,” Not “Revolution” For Now.

As I mentioned last time, online video is a wonderful thing. If you only watch broadcast TV or if you only watch a few shows, then cord-cutting may be the perfect solution for you. Otherwise, it seems more like a complement to some kind of multichannel video subscription. For robust delivery of high-quality programming to a lot of simultaneous viewers, cable is hard to beat.

For more on this issue, see recent articles from Aaron Barnhart (”Cord-cutting is an urban legend … for now“) and Carol Wilson (”Cable cord cutting debate rages on“).

Online viewing of video is on the rise. This is a fact.

But if you take the news coverage and blog posts about the “cord-cutting” phenomenon at face value, you would have the impression that this is a widespread phenomenon involving millions of consumers canceling their multichannel video subscriptions in favor of online distribution. I certainly think the issue of online video is worthy of examination, but these articles on cord-cutting seem predicated on two arguments:

• You can easily replace your multichannel video subscription by going online.
• Significant numbers of people are choosing to “cut the cord.”

I thought it would be useful to address this issue again, but this time to split the topic in to two parts. Today, I’ll look at the content portion of cord-cutting.

I also think, before I go any further, I ought to link to our previous posts on this topic:

• The Roles of TV and the Internet
• More Cord-cutting Coverage
• Should All Content Be Online for Free?
• Are Stories of Cable “Cord Cutting” a Myth?

Is Everything Online?

In online circles, there is the impression that almost anything can be found through the Internet. The Library of Congress is “the largest library in the world, with millions of books, recordings, photographs, maps and manuscripts in its collections.” Only a fraction of that material can be found online. The same is true for TV content.

I love online video. I catch up on episodes I miss, do time-shifting while traveling, check out shows that friends recommend. But, there’s an important distinction to be made here: If you’re talking about TV shows streamed free online, that category largely consists of over-the-air broadcast programming from networks like ABC, CBS, NBC, and FOX. (For some reason, The Big Bang Theory is MIA. What up?) Some cable networks do offer some shows online. But not nearly as much as broadcasters do, as noted in this recent Washington Post article on cord-cutting:

Thanks to dozens of videocasting Web sites, such as Hulu, TV.com, Joost and Fancast, full-length episodes of more than 90 percent of the shows carried by the major broadcast networks are legally accessible within a day of being broadcast, according to Forrester Research (only about 20 percent of what’s on cable is similarly available). [emphasis added]

Let’s say I want to watch news. On my way to work, I’ll watch the previous evening’s Countdown and The Rachel Maddow Show on my iPod. But suppose there’s a breaking news story? You can’t watch live streaming cable news. I don’t care about sports, so it doesn’t matter to me that you can’t watch sports programming online. And while some cable programming can be found online, much cannot.

So, the perception is that tons of television content is available for free online, but the reality is that this is not completely true for cable programming. The extra irony is that since the 2001/2002 TV season, the ratings for cable networks have topped those of all national broadcast networks collectively. For the ‘07/’08 season, U.S. homes spent an average of 38.6 hours per week – on a total day basis – tuned in to ad-supported cable networks compared to 26.7 hours per week for all commercial broadcast sources combined.

So, the programming available through broadcast television, with viewership that has been steadily declining over the last 15 years, is freely available online. The programming of cable television, whose viewership has been on the rise for that same period? Not so much.

Why Isn’t All TV Online?

Once you’ve addressed the question “Is all video online?,” you then have to ask, “Why isn’t it all online?” You might take a look at this Online Media Daily article or my recent post on the issue: A Lively Debate About Online Video. But the short answer is that there’s currently a specific business model for cable programming. Most cable networks have a dual revenue stream from advertising and from subscriptions. Right now, although companies are experimenting, moving all their video online for free doesn’t seem to make economic sense.

James Ledbetter accurately addressed the central problem in a recent column: Call It Free, But It Will Cost You:

The problem is that — outside of a handful of examples, almost all of which are Internet- or digital-based — giving things away does not work in any significant way. Here’s why: Just about any activity that merits the title “business” has a cost of producing its goods or services… Businesses need to recover labor and capital costs, and giving things away for free doesn’t meet that need.

Ledbetter talks about how this applies to the business of law or oil, but the television industry absolutely needs to recoup productions costs.

It seems to me that a key factor in cable’s success has long been our original programming. SpongeBob SquarePants, Iron Chef America, Hannah Montana, SportsCenter, The Closer, or Burn Notice – people love cable shows. Those shows cost money to produce; if the revenue for those shows decreases, then their existence may be threatened.

There’s a lot of original video available online and some it is quite good. But where are the online shows that have the quality of these cable shows? It’s not because of talent; it’s a question of how you pay for such programs. To quote again from the Post article:

…there are significant financial questions about whether “free” online video can ever become a viable business. One problem: TV shows that migrate online carry fewer commercials — often no more than two minutes of ads per half-hour program, compared with eight minutes on conventional TV. While the research company eMarketer.com predicts that online video sponsorship will grow 44 percent to $850 million this year, that’s still a tiny fraction of the $70 billion spent on cable and broadcast TV ads in 2008.

And a recent Daisy Whitney column discussed how digital studios that produce online video are struggling with the economic reality that “There’s just not enough money to go around on the Web.”

Some people seem to prefer to see cable operators as hostile to over-the-top online video. NCTA’s President & CEO Kyle McSlarrow recently addressed this point on this very blog:

…it is somewhat tiresome to have Free Press repeatedly assert that every effort by network providers to examine any new approach or idea in our or related industries is somehow designed to protect against the supposed “threat” of “Internet video.” This is so stale, and so at odds with the facts, that it really should not be necessary to point out the obvious:

• Over the last few years, the use of broadband connections to view Internet video has grown at a faster rate than any other application. According to one estimate, traffic generated by YouTube video in 2008 alone was more than the sum of traffic crossing the Internet backbone in 2000.
• Far from fearing online video, our industry is courting and exploring partnerships to bring Internet video to the television screen;
• Our industry has worked – and continues to work – cooperatively with consumer electronics manufacturers to ensure TVs can receive Internet video by building in the necessary ports;
• Our industry is the largest provider of broadband in America, and we view the health and growth of the Internet ecosystem as fundamental to our success, which means the applications and services on the Internet must thrive too;
• Our industry is aggressively deploying next generation broadband across America in order to enable, not restrict, new applications.

This analysis, of course, refers to current business models. Even now, the cable industry is experimenting with methods of offering cable programming online to subscribers, and things may change even further in the future. In my next post, I’ll examine whether people are really cutting the cord in significant numbers. [ed. note: the follow-up is here.]

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.