The battle lines already are forming over TV shows on the Internet. Cable companies, led by giant operator Comcast (CMCSA), are pressing to limit online watching of TV shows only to those who already pay subscriptions to them. TV networks Fox (NWS), NBC (GE), and ABC (DIS) have allied behind Hulu, their own online service that offers advertiser-supported content to all comers for free.
But according to media mogul Barry Diller, broadcasters eventually will be getting more money from cable operators to stream those shows online through cable-owned networks. "TV was free until sometime in the '70s and then cable started to need content and began to pay for it," said Diller, who famously started the era of fragmented TV watching when he launched Fox TV as the fourth broadcast network in 1987. This time around, he said in an interview with BusinessWeek.com, cable operators will want to secure network TV shows because they are getting increasingly antsy that they could soon see folks drop their cable service as they are able to get TV shows elsewhere.
"Cable operators are worried about losing their programming revenue," Diller says, referring to the amounts the cable companies charge subscribers to offset what they pay TNT and other cable channels for programming. "Cable might call it connectivity revenue, but it's really all about the programs." Diller helped create Movie of the Week in the '60s when he headed programming for ABC. Today, he is chairman and CEO of IAC/InteractiveCorp (IACI), a major online company that owns the Ask search engine and Match.com dating site and produces online content through sites such as CollegeHumor.com.
Comcast's "Authentication" Trial
A showdown between cable operators and broadcasters has been building for weeks over the operators' use of "authentication" technology. That technology would limit online viewing of shows only to those who already pay cable companies TV subscriptions. On July 14, Comcast enlisted more than a dozen TV networks—mostly cable channels but including CBS (CBS)—to join a test in which 5,000 of Comcast's subscribers would be required to verify their cable subscriptions in order to get online TV shows at no extra cost from Comcast's Fancast.com and Comcast.net Web sites. CBS continues to provide shows online for free, with advertising, on sites such as the company's TV.com.
Broadcasters clearly could use the added revenue they might get if cable operators ante up to stream their shows online. At the moment, most networks get money for "retransmission" of their broadcast signals through cable or satellite. But several broadcasters, including CBS, have pushed to hike fees as ad sales soften. Hispanic broadcaster Univision recently announced several new retransmission agreements.
Meanwhile, the networks have also built up a strong audience for online streaming of shows like The Office and The Simpsons through Hulu and other sites. More than 40 million unique users streamed a total of 397 million videos in April, according to figures from ComScore (SCOR). "But it is light years away from being profitable," says Diller, who says Hulu will have to find a way to generate revenues to supplement its ad sales in the future.