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MEDIA WATCH: Getting Away From Pay TV Won't Be Easy

--Companies putting TV shows behind wall that reserves them for people with pay-TV subscription

--Gatekeepers sending message they're not going to be "dumb about giving away their content," analyst says

--Not everyone thinks cable model can be sustained, mostly because of changing viewing habits of younger consumers

By David B. Wilkerson

A DOW JONES COLUMN

If you've been planning to ditch your subscription to a pay-television service and stream your favorite programs to your television from the Internet, you're running out of time to make the plan work, and that's only if you don't watch that much.

The biggest producers of TV shows and movies, in association with pay-TV providers such as Comcast Corp. (CMCSA) and Time Warner Cable (TWC), are doing their best to make sure that online video remains an adjunct, not an alternative, to cable, satellite and fiber video services.

This is an industry that is always cognizant of what happened to the music and newspaper industries when people became accustomed to free or very cheap access to valuable content.

"These people that have been fantasizing about having a cable-like package for $7.99 are just delusional," said James Marsh, a managing director and senior research analyst at Piper Jaffray who covers the entertainment industry. "You're going to have to pay for the value of that content one way or another."

While many current and past TV shows are available online, media companies are moving to put more of them behind a wall that reserves them for people who have a pay-TV subscription. The initiative is usually referred to as "TV Everywhere." The premise is that existing subscribers can go online, click on the show they want to see, provide verification of their status as a pay-TV customer, and enjoy. Non-subscribers would be blocked.

The current entertainment ecosystem operates on the premise that more than 90% of consumers care enough about TV to subscribe to a pay-TV service. As long as this is the case, content providers are increasingly willing to let those people get shows and movies on whatever platform they like--as long as they pay for it.

"If you were paying for cable before, your perceived utility should be higher, because you're able to access that content you're already paying for on other devices," Marsh said. "But if you destroy the pay-TV system, there's nothing left there, and no one's going to be able to come along and take up the challenge. It's just not going to happen, and you won't have high-quality content."

Michael Nathanson of Nomura Research agrees. "The gatekeepers are sending the message that they're not going to be dumb about giving away their content," he said. "You're not going to just be able to get ESPN for a low price online. You're not going to be able to get Starz movies and shows on Netflix. The NFL isn't generally going to be available over the Web, even if NBC is streaming the Super Bowl this year. Hulu has changed their model. These guys aren't going to let their business be destroyed like the music industry did."

Who Needs 800 channels?

Not everyone wants or needs a package of 800 channels, or even a more basic bundle of them. If you don't care about live events, especially sports, using some combination of the online streaming services of Amazon.com Inc. (AMZN), Netflix Inc. (NFLX) and Hulu Plus (which is partly owned by News Corp., the publisher of Dow Jones)--supplemented here and there by a few DVD purchases of treasured favorites--you could be set. This is especially true with the advent of so-called smart TVs, which have the most popular online video players built into their DNA.

Of course, the phenomenon of the occasional TV viewer isn't new. "There have always been a lot of people who don't subscribe to cable because they don't watch a lot of TV, or they have DVDs, or whatever," Marsh said.

The industry just discounts that portion of the population, and moves ahead with its calculations.

Comcast and Walt Disney Co. (DIS) unveiled a 10-year deal earlier this month that will make Disney shows available on a wide variety of Comcast platforms, including traditional TV, video-on-demand, phones and tablets. Under the deal, Comcast customers can watch shows online that can't otherwise be viewed on the Web.

The agreement is expected to provide a template for similar pacts, adding to " TV Everywhere's" momentum.

"The power still resides with those guys," said Michael Finn, president of BrightLine, an interactive television advertising firm, and former ad sales executive at Dish Network.

"You saw what happened when Starz licensed its content to Netflix for a price that some of the [pay-TV] operators deemed much cheaper than they get it for. Ultimately they made Starz pay for that, and Starz will soon be off Netflix."

In September, Starz LLC, parent of the Starz and Encore premium cable channels, walked away from contract-extension negotiations with Netflix when they couldn't come to financial terms. Starz holds the pay-TV and streaming rights to the big movie libraries of Sony Corp. (SNE) and Disney. Starz (LINTA) content will be gone from Netflix's service next month.

Contrarian View

Not everyone thinks the cable model can be sustained, mostly because of the changing viewing habits of younger consumers.

The Comcast-Disney deal, for instance, "could be a disaster for Comcast," said Dixon. "Disney is doing its own thing online and meeting with a lot success there. The problem is that pay-TV operators are struggling to show what value they bring to the distribution of content online. Their value in cable is clear. Their value online is not. For example, none of the operator portals rank highly as video sites."

In December 2011, Hulu, Amazon.com, Time Warner's Turner Digital and Viacom Digital (VIA) all took their customary spots among the 10 most-viewed video websites, according to comScore MediaMetrix. There was no sign of Comcast, Time Warner Cable or Cablevision (CVC) in that elite group.

"In the short term, retreating behind the pay wall will help support existing revenue streams, but eventually these streams will start to decline as the Web begins to exert a larger influence," said Dixon.

"I think the young do not buy into the traditional pay-TV content structure. Other content providers will grow up online that they will gravitate toward. These will likely be more 'a la carte' than pay-TV because that's the way the Web works."

However, Nathanson surmises that there's a life-cycle component to TV viewing patterns. "I think what works for you when you're in your first apartment, living by yourself or with your buddies, tends to change as you go through life's stages," he said. "You get married, and have kids, and now...you want to put something on for the kids to watch, and so on. At that point a traditional pay-TV package probably suits your needs."

-David B. Wilkerson; 415-439-6400; AskNewswires@dowjones.com

  (END) Dow Jones Newswires
  01-26-121622ET
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