And the Oscar Goes...Wherever Digital Media Consumers Want

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by: Diane Mermigas

Three million east coast Cablevision (NYSE:CVC) subscribers lost their access to ABC (NYSE:DIS) Sunday only to have it abruptly restored during the network’s live Academy Awards telecast in the wake of a tentative retransmission fee pact between Walt Disney’s WABC-TV and the cable operator. The chaotic stand-off is just the latest stress crack in a strained television and film landscape.

Although the eleventh hour settlement terms were not disclosed, Cablevision reportedly will pay up to 65 cents per subscriber — not the $1 per subscriber it said Disney wanted. Disney was demanding that the cable operator pay $40 million in annual fees for the signal of its New York ABC affiliate — in addition to the $200 million Cablevision already pays for the ABC network each year.

The companies blamed each other for the blackout in a nasty exchange of words after the Saturday midnight expiration of their existing contract. Angry comments by frustrated viewers quickly gained traction on Twitter and Facebook, where both companies suffered public relations damage. “Disney thinks it is ransoming The Oscars. I will just watch it online for free!” one viewer tweeted.

Such heavy-handed moves are rampant among content producers and distributors, but they’re getting some unexpected blowback from empowered consumers determined to control their viewing destiny with new online options.

Viacom (NASDAQ:VIA) is yanking The Daily Show and The Colbert Report from Hulu this week in order to retain all of the related advertising revenues by hosting the popular programs on its own websites. Co-owned by rivals NBC Universal (NYSE:GE), Fox (NASDAQ:NWS) and ABC, Hulu is struggling to craft user subscription payments for select online programs even as it shares up to 70 percent of its core advertising revenues with content providers such as Viacom.

These intensifying clashes underscore just how strangely oblivious producers and distributors are to consumers’ routine use of connected digital gadgets to access precisely what they want, when they want.

Academy Awards-related streaming on LiveStream and other websites, including the Red Carpet Facebook webcast, competed with portions of ABC’s live Oscars telecast, which may eventually find its way to Hulu and ABC.com. The official Oscar Twitter and Facebook page competed with other social media and video exchanges hosted by third parties including AP Live, CNN’s iReport, MSNBC and CoveritLive.

In a digital media marketplace teeming with consumer options, the live Oscars telecast might just be most consequential to ABC, its advertisers and its local TV affiliates.

Cablevision and Disney were under pressure to settle their rift to spare themselves revenue losses from a partial national advertising and program ratings blackout and angry subscribers canceling their cable service. Cablevision’s New York area systems represent about 3 percent of ABC’s national coverage. Similar contract stalemates with other cable operators recently resulted in Fox, CBS and the Food Network securing hefty retransmission fee hikes.

All the more ironic that Cablevision soon will provide its broadband video customers with a dedicated channel on which to watch Web content they have saved to their personal computers and other devices. The move is designed to curb the cancellation of cable subscriptions in favor of video access on Internet-only services.

The Disney-Cablevision skirmish is just the most recent salvo in the high-stakes battle to shape new business models generating digital access, subscription and interactive advertising revenues from television programs and films.

In the television ecosystem alone, major entertainment companies have roughly $300 billion in market capitalization at risk as they seek new ways to produce and distribute programs across the digital divide, according to Needham analyst Laura Martin.

That content value will continue to be steadily diminished by streaming online video and cloud computing where revenues have been elusive. Although Apple’s (NASDAQ:AAPL) iTunes is the dominant paid download platform for television and film, it is now negotiating with producers for the right to store and distribute their content from the computing cloud where it could be accessed by rival devices to the iPod, iPhone and the new iPad. Disney also has unveiled the Keychest cloud system as part of a framework for generating new digital dollars from content to offset declining traditional revenues such as DVD sales.

For now, the walled gardens and gatekeepers are scrambling to claim turf. TiVo’s new Premiere promises broader seamless content aggregation. Wal-Mart (NYSE:WMT) is buying the Vudu streaming movie service to compete more effectively with Netflix (NASDAQ:NFLX). Sony (NYSE:SNE) finally is developing a new line of portable devices to more effectively complete with Apple’s ecosystem.

Comcast (NASDAQ:CMCSA) and Time Warner Cable (TWC) are seeking to retain subscribers by allowing them free transfer of cable programming and films to any portable devices to enjoy “TV Everywhere.” It is an attempt to protect the value of $25.4 billion in annual retransmission fees cable operators pay to programmers, according to Barclays Capital analyst Anthony DiClemente. Like other long-standing economic equations in media, the value of retransmission fees is being challenged by a consumer-driven digital marketplace — one direct download, streaming video, Facebook post and Tweet at a time.

Disclosure: None