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Is internet TV the key to la carte?

Ben Drawbaugh

There's been a lot of controversy over the years in regards to à la carte cable programming, and more recently, Hulu no longer playing nice with Boxee. The two are related to each other because in both cases, consumers think they'll lead to cheaper content. And let's be honest -- both seem appealing because we want to spend less money for the same content. The problem, of course, is that if we're spending less money, then someone is going to lose that revenue; and it goes without saying that any decent business model requires more revenue, not less. So those big corporations collecting all of those subscription fees are obviously going to have a problem with the idea. Now the conundrum comes in when you throw Netflix in the mix. Rather than nickel and diming you to death (much like your cable company), Netflix wants to give you an all-you-can-eat buffet for a monthly fee. The irony here is that while Hollywood loves subscriptions when it comes to cable TV, that's not so much the case when it comes to Netflix. The reason is simple -- we know you see this coming -- it's because the monthly fee is about three times that of a Netflix bill.

Our question is this: how is the internet, combined with our desire to spend less, going to change the way we receive TV in the future? For now, Netflix is able to offer more programming than anyone else, for less money. But because of the lack of instant gratification, there is still a need for cable. Unfortunately, spending over $60 a month to watch a few hours of TV a week is getting old, and on top of the price, there are still all of those commercials.

Providers like Netflix seem to be leading the way in internet delivery, but most quickly realize the selection of the new Watch Now is anything but stellar. We're sure this is a really complicated matter, but ultimately we believe it is because Hollywood sees more money in the pay-per-view internet delivery model and is refusing to sell any of its premium content short -- so in other words, if you want to watch a new movie, be prepared to pay for each viewing. But either way, with the recent success of the Watch Now service, many in the industry expect the contract renewals between Hollywood and Netflix to get really interesting moving forward.

There are plenty out there who believe this is just the beginning and that internet TV is the future. It will give people the choice to pay for what they want to watch by either watching commercials or paying per view. But even those who do believe this is the future think that current bandwidth constraints are what is holding it back, but we're not so sure that's the case. The reason is that most have no idea how much bandwidth they already have access to, and more importantly how much is wasted on broadcasting every channel known to mankind to every subscriber. Just using some simple math and a 900Mhz QAM256 cable system as an example, you get 900Mhz system / 6Mhz per channel = 150 channels * 38 Mbps per QAM channel which is 5700 Mbps -- yes you read that right, that coax can carry almost 6Gbps of data, and some systems are even higher than 900Mhz. No doubt, there is plenty of bandwidth going to your house; the problem is that there is way too much money being made in delivering 200 linear channels with it, and of course until the companies with all this bandwidth find a way to make more money with it -- or have no other choice -- it will continue to be dedicated to this vast waste of space. Can you believe that the analog version of CSPAN uses 38Mbps of throughput, which is faster than 90% of Americans' internet access?

One thing is for sure, the model is well on its way to being broken. The reason is that DVRs have enabled us to move towards non-linear programming and thus skip the commercials. So a good portion of the current revenue stream is going to go away as DVR adoption goes up. So either Hollywood has to find new -- and possibly more annoying ways -- of making ad revenue, or accept less revenue, which is also unlikely to happen.

The problem with most internet TV models is that the goal is to be the so-called middleman, and if there is anything we don't need anymore of, it's intermediaries taking a cut. What we need is a clear way to turn the companies who deliver bits to our houses to strictly bit providers -- something they desperately fear -- which would allow us to funnel all of our money to the people who actually create the content. Now, this money could be delivered in the form of advertising you can't skip or avoid, paying per view, or what Netflix loves, subscriptions. By forcing the telcos and cable companies of the world to be bit providers and giving the money for content directly to the creators, it might be possible to pay less overall, and best of all, funnel it directly to those who really deserve the money. That sounds simple and might happen thanks to true competition in the market or regulation, but of course the problem is that there are old and deep ties between cable TV providers and Hollywood. And just like you wouldn't leave your friends out in the cold, neither will Hollywood -- unless they have to, that is.

Scripted television is only part of the equation though, and for programming like sports and various other live events, the broadcast linear model will always make the most sense. So in at least some capacity, the traditional model will continue to exist. The most obvious application for this is a limited set of linear channels and perhaps the local affiliate model will live on. Thousands of local affiliates already broadcast just about every popular sporting event to the masses for fee (over-the-air), and since live programming is what many consider DVR proof, there is no reason to think that the older advertising model won't continue to function. Re-broadcasts of things like the Super Bowl and coverage of less popular Little League World Series can be delivered on-demand or pay per view, and there is also nothing stopping networks like ESPN going free OTA with affiliates if the existing cash cow of the cable model is no longer valid.

Ultimately it seems we're headed to a hybrid approach where people will search out the content they want and watch it when they want. They'll learn about new shows from friends and from places like social networking sites. They'll continue to scour the internet in search of new content, but when it comes time for consumption, they'll sit on their couch and just consume. There will not be a keyboard and mouse in every living room in America. Various set-top-box makers like TiVo, Roku and the like, seem best poised to aggregate the content, but who really knows how the revenue connections will be made between the customer and the creator, but one thing is for sure; things are going to change.

Read - Boxee CEO: Consumers Will Get à la Carte Online
Read - A shot across Netflix's bow
Read - Boxee vs Comcast: An authentic dispute
Read - Some Questions & Thoughts re Internet Video vs the Incumbents
Read - Internet TV vs Music vs Newspapers et al

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