Analog dollars, plus digital pennies

The industry has spent the better part of this week pouring over vague statements made by cable TV executives about their online video plans. It seems cable networks are finally poised to move some of their content online, but the way that will happen is unclear and the potential access issues are myriad.

MSOs don't want to pay production companies tons of money to air content that people can get free and legally online, and the content owners don't want to see subscription and physical copy revenue disappear because they've diluted their content's value with a free offering. They don't want Jeff Zucker's dilemma of trading analog dollars for digital pennies.

But what should give both sides hope, however, and maybe even provide consumers a little win here, are reports that show the relationship online video viewing is having on traditional TV viewing habits. Because contrary to what so many thought, currently online video is an additive viewing medium, not a replacement one. TV consumption has actually increased on average the past four quarters, despite the boom in online video viewing.

So while hasty critics flail about consumers "cutting the cord" to view content online, more level-headed ones are looking at cable subscription data and are simply not seeing that trend prevail yet. While the online video viewing experience has improved dramatically in the past few years, the average consumer still wants to watch their favorite programming on the 42-inch HDTV they bought for a grand. If they are waiting for a plane, or are in a hotel room, sure, they'll use an online video destination to kill time or to stay caught up with their favorite series. But at home, the numbers show that most simply prefer the higher quality and passivity of the TV experience.

That's not to say that online video won't one day dramatically change the TV experience or the amount of TV people watch. It's a disruptive technology with clear cost and convenience benefits for the consumer. But viewing quality will have to improve, transmission speed and broadband capacity will have to increase significantly, and content owners will have to have clear economic incentive to place their content online before online video starts to steal share from the television.

Which brings me back to the cable question. The cable operators like Comcast and Time Warner see the success NBC and News Corp. have had with Hulu, and they would like to replicate it without giving the content away for free and weakening the value proposition of their cable offering.

Enter the cable operator "walled garden" approach, where the content will be available to stream to subscribers only. This shows their commitment to meeting the online video challenge, while maintaining the value of their subscription offerings, right?

This is where the statements get really vague and questions abound. First, could there be online-only subscription services, or pay-per-view options on individual pieces of content?  Both of those ideas could prove to be additive, rather than substitutive in a revenue sense. Would the main online video offering be advertising based as well? I would assume so; how else would the cable operators make any money off of their investment in getting the cable networks' content online? I don't think many cable subscribers would be willing to pay much more for online access.

And finally, what do the actual cable programming companies stand to gain from this? Increased affiliate fees or a share in ad revenue are the only two ways I see revenue increases for them, and any gains in either of those areas have to be compared with any losses in analog and physical distribution revenue.

But for the time being, I don't think they'd lose that much money, if any, from putting the content online. I think they'd see a slight revenue increase from the additional exposure, and potentially a solid increase if they toyed with a pay-per-view model.

I think cable operators and networks collaborating to put content online could lead to analog dollars, plus some digital pennies. Let me know what you think.

- Pete