Over the past year, cable companies such as Comcast (NASDAQ:CMCSA), Time Warner (NYSE:TWX), and Verizon (NYSE:VZ) have all announced what they call "TV Everywhere" trials. The premise behind these trials is based on the notion that one day, the cable companies will give subscribers the ability to view on their computers the same content they get to their TV set.
While many want to proclaim that such TV Everywhere offerings will be the future of the cable industry and that the cable companies will be forced to offer such a service, it's not at all clear that this will indeed become a reality. Such a service would be interesting and valuable to many consumers, but no cable company has yet to figure out how the service will be paid for, who will manage the content, what video platform will be used, what type of video quality viewers can expect, and how this content will be delivered with scale and performance. Too many questions still remain about the service and, to date, the trials that are taking place are extremely small-in some cases, as few as 5,000 cable subscribers.
There has been a lot of talk in our industry of consumers cutting their cable TV services in favor of online video content offerings, but that's more myth than fact. Yes, some consumers who don't watch a lot of TV or only watch shows that are available over-the-air [OTA] or with a Netflix (NASDAQ:NFLX) subscription may be canceling their cable. But for the vast majority of consumers, getting rid of cable TV is not an option, and the number of cable TV subscriptions is actually going up, not down. Some are predicting that as long as the cable companies can offer the service for free with the knowledge that consumers will use it, the value proposition for the cable companies is that it will allow them to retain their subscribers.
Who's Going to Pay for It?
No cable company can afford to offer a TV Everywhere product if they aren't recouping what it costs them to operate it. While Comcast and others have talked about using online video advertising as a way to pay for it, let's be real. Video advertising alone will not pay for the costs associated with a TV Everywhere offering. In the end, cable companies will either raise our bills each month to pay for the so-called "free" offering, or they will charge an additional fee per month on top of our cable bill. While there is nothing wrong with them offering a new service at an additional price, the majority of consumers won't pay for it.
If there is one thing that consumers have clearly told content owners, it is that they are not willing to pay for the same piece of content multiple times. We already pay for cable; now we have to pay more each month simply to watch that same content on a different device? Consumers won't stand for that. Sure, the cable companies would get some users to pay more each month for the service, but not in the numbers they would need to cover their costs. Just think how much it costs to deliver a 500Kbps video on the internet today and then multiply that cost by a factor of six for a TV Everywhere offering that would probably deliver video at around 3Mbps or more.
While much of the content could be delivered via the cable operators' closed networks, which would be cheaper than using a CDN for delivery, it would still cost on average a few cents per hour, per user for the cable companies to deliver high-quality video. And if they wanted to deliver it in HD, which is typically around at 3Mbps or more, the cost could potentially be even higher.
Disclosure: No positions