NEW YORK (Reuters) - Cable and satellite TV providers are working on a free online video service to deliver up-to-date cable shows to computers and mobile phones, but the industry is worried the project could cannibalize pay-TV’s long-standing revenue model.
Millions of U.S. consumers are already watching broadcast TV shows on free websites such as Hulu.com, but cable network programing is available primarily on cable and satellite TV services, such as Comcast Corp (CMCSA.O) and DirecTV Group Inc DTV.O, or nascent video services from phone companies.
“This is about bringing new amounts of content to the Internet in a business model that continues to support the creation of that content,” said Sam Schwartz, executive vice president of Comcast Interactive Media.
Comcast is leading talks with programmers like Viacom Inc VIAb.N and Discovery Communications Inc (DISCA.O), with Time Warner Cable TWC.N, DirecTV and others involved. Their plans are at different stages, and cable operators will likely discuss putting cable programing online at an industry meeting this week according to people familiar with the plans.
The project would let cable and satellite TV subscribers watch up-to-date cable shows on the Web, and possibly on mobile phones, for free possibly as soon as this summer, the sources said.
The idea is to give customers added flexibility to view their favorite shows. It is also seen as a preemptive strike against possible ‘cord-cutting’ of video services, particularly by younger subscribers used to watching other programs online.
But the project presents a number of business and technology challenges to both operators and programmers.
Cable programmers like Viacom’s MTV Networks make money from advertising sales, as well as affiliate fees that cable and satellite TV service providers pay.
One stumbling block in agreeing to an online business model is the low level of revenues generated by Internet advertising. Online video advertising is a poor relative to TV on a dollar for dollar basis.
Final decisions on business models for cable programing online are in flux, said Comcast’s Schwartz. “You’re going to see a lot of different models out there,” he said.
Whatever business models are agreed upon will depend to some extent on overcoming technological challenges.
One involves identifying which customers have the right to view a show, and managing digital rights to avoid over-wide distribution. There is also the need to accurately ‘time’ the content so it is available to users for a restricted period — so as not to jeopardize other media content distribution systems such as video on demand and DVD releases.
Yet executives also acknowledge the risk of ignoring the Web, as seen by the music and newspaper industries that have suffered as consumers change their media consumption habits.
Comcast sees the project, which it calls On Demand Online, as a natural progression from digital video recorders and video-on-demand channels.
It is working on technology to authenticate subscribers who go to Comcast’s Fancast and Comcast.net websites for video. This would effectively create a “wall” behind which programmers might feel comfortable keeping some of their premium shows.
“For us, this would be a step to put even more content online,” said Denise Denson, executive vice president of content distribution and marketing at MTV Networks.
“Operators and programmers have shared interests in that we’d like people to keep watching linear TV while growing new platforms and products, and this further aligns those interests in many ways,” she said.
Comcast’s web video delivery unit theplatform is working the project and CEO Ian Blaine believes many of the initial problems will get ironed out.
It would be easiest for operators to develop their own website, such as Fancast, for online video offerings. But this could cause discomfort for programmers, who may want their own advertising-supported site, such as broadcast TV’s Hulu.com. Hulu, owned by NBC and News Corp (NWSA.O), is one of the most popular U.S. video sites with 24.5 million users in December, according to comScore.