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Hybrid OTT/Pay TV Solutions on Opposite Sides of the Pond: TV Everywhere and Project Canvas

(Note: an updated version of this post with Project Canvas comparison can be found here: http://www.trenderresearch.com/profiles/blogs/comparing-hybrid-ottp...)

It is becoming increasingly clear that the flood gates for OTT video—that is TV and movie programming over a broadband Internet connection—have opened and are forcing traditional television service providers and movie studios to build profit tributaries off this rolling river or risk having many of their paying subscribers swept away. The industry is determined not to remake the mistakes of their brethren in the music business and is therefore trying to be proactive. The most promising of these efforts are hybrid solutions that would combine the best of traditional television services with content available over the Internet. Two of the more prominent hybrid initiatives in play are on opposite sides of the “pond”— the U.S. based TV Everywhere partnership and UK-based Project Canvas. Though similar in that they attempt to merge the best of both worlds, there are several key differences. Let’s first take a look at TV Everywhere.

TV Everywhere (well, everywhere inside the walled garden)

Originally proposed by Time Warner but now with expanded partners including fellow cable companies like Comcast and IPTV triple play providers such as Verizon FiOS, TV Everywhere is an ambitious attempt to meet the threat of Internet video head-on while limiting disruption to existing business models. TV Everywhere is primarily an authentication system whereby certain premium video content can be accessed online— assuming you are already subscribed to services from a Pay TV operator such as cable, satellite, or IPTV. The content available will include shows you could already get from your TV set, but now the operators will also have a channel to deliver “long-tail” niche content that cannot efficiently be delivered through traditional broadcast technology (since it would presumably take up scarce channel spectrum for only a small percentage of interested viewers). TV Everywhere will also build more advanced online tracking systems to allow partner operators to better measure program ratings and to charge more for targeted advertising.

While significant lip service is being given to the subscriber benefits of this system, the real beneficiaries are the Pay TV operators themselves. They are finding that more and more of the content they used to be able to uniquely deliver through their “walled gardens” is getting poached and made available online. The symbiotic trust relationship they have had for years with cable networks and programmers such as ABC, ESPN, MTV, and Fox is being frayed as these networks create their own online sites or form joint online video properties such as Hulu, stealing eyeballs and cannibalizing Pay TV advertising revenues. Their attempts to renegotiate the fees they pay for this content is just a finger in the dike as the OTT river flows around all business, legal, and regulatory attempts to constraint it. The only way to stem the tide is to build a business model boat that can flow with it— TV Everywhere is the answer.

Start the Meter

Perhaps the other unspoken aspect of the TV Everywhere strategy is that is sets the stage for a metered broadband future and premium subscriptions. Right now it is all about getting existing content through any broadband connection, and new forms of content, but once this authentication “switch” is built into the system it seems to me a reasonable next step for Pay TV operators to extend their tiered subscription model to the broadband spigot itself—one price for double play TV Everywhere customers (TV and broadband), a better deal for triple or quad play customers, and higher rates for broadband only customers who are presumably feasting on OTT content without proper remuneration to the operator. Of course this is all speculation at this point and “net neutrality” legislation could throw all this to the wind, but remember that service providers like Comcast already have bandwidth caps in place in their subscriber agreements (though I haven’t heard many cases of it being enforced beyond a few egregious P2P file sharing cases). If my math is correct, Comcast’s 250 GB cap is good for about 1 hour of HD content viewing per day. Most consumers would not even come close to that right now, but what about “cord-cutters” wanting to replace the 8+ hours of TV viewing common to U.S. households?

While TV Everywhere claims there will be no extra charge for existing subscribers, there are other ways to extract fees. TV Everywhere will likely follow a path we expect even free sites like Hulu to traverse at some point—adding subscriptions or VoD fees for premium content in addition to their free basic titles. Hulu backers including Disney CEO Bob Iger and NBC CEO Jeff Zucker have suggested as much.

Grass Is Always Greener Over the Wall

Besides some of the technical challenges for TV Everywhere, which are being worked out in several ongoing trials, the major risk factor I see is changing user behavior. TV Everywhere’s logic works something like this: people like to watch video content from multiple platforms (PC, mobile, TV), so we will give it to them any way they want it assuming they are a paying subscriber; in this way we can expand the “walled garden” with more content, keep customers happy, and keep them from cutting the cord. Another possible scenario would work like this: TV Everywhere helps to train average consumers how to watch online video, they look “over the wall” to see lots of great free or low-cost content on other sites (Hulu, Netflix, ESPN360), and they decide to cut the cord on their $100 cable bill or cut back to the basic $40 package and add Netflix streaming for $9 a month. Which scenario do you think is more likely? Is it the thrill of the experience of watching walled garden content online, or it the cornucopia of free or low-cost content sources online that will drive the market? Depending on the answer to that question, TV Everywhere could be a Pay TV panacea or a pandora’s box that further breaks down the walls of the walled garden (a bit ironic dontcha think?).

Next up we will compare and contrast the TV Everywhere hybrid approach to Project Canvas, a similar strategy but vastly different in implementation.

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