Internet Woes: Cable-TV companies fear losing customers

By: By Tim Arango | NEW YORK TIMES
Published: June 27, 2009

Like newspaper owners, media moguls are looking for new ways to protect their investment from the ravages of the Internet. And, as with the newspaper industry, the answer remains elusive.

What is at stake is perhaps the last remaining pillar of the old media business that has not been severely affected by the Internet: cable television. Aware of how print, music and broadcast television have suffered severe business erosion, the chief executives of such major media conglomerates as Time Warner, Viacom and NBC Universal have made protecting cable TV from the ravages of the Internet perhaps their top priority.

"The majority of profits for the big entertainment companies is from cable programming," said Stephen B. Burke, the president of Comcast, the nation's biggest cable company.

The major worry is that if cable networks do not protect the fees from paying subscribers, and offer most programming online at no cost -- as newspapers have done -- then customers may eventually cancel their cable subscriptions.

One idea, advanced most vocally by Jeffrey L. Bewkes, the chairman of Time Warner, and embraced by many executives, would be to offer cable shows online for no extra charge, provided a viewer is first authenticated as a cable or satellite subscriber.

Bewkes has called the idea "TV Everywhere," but others in the industry refer to it by other names: "authentication," "entitlement" and, as Comcast has called its coming service, "OnDemand Online."

"If you look at TV viewing, it's up, even though the questions and stories are all about the role of video games and Internet usage and other uses of time," Bewkes said.

The first test of the new system, which will authenticate cable subscribers online and make programs available on the Web for no additional charge, will be announced Wednesday, between Comcast and Time Warner. The trial will involve about 5,000 Comcast subscribers, and television shows from the Time Warner networks TNT and TBS.

"We're talking about taking the TV industry to a new era," Bewkes said.

Because of antitrust concerns, the companies that create cable programming are reluctant to come together and agree on a solution. A few weeks ago, newspaper executives had a secretive meeting in Rosemont, Ill., to discuss ways to charge for news online -- a gathering that critics said flouted antitrust law.

The electronic media chiefs, including Bewkes, Jeff Zucker of NBC Universal and Philippe P. Dauman of Viacom, among others, have been more careful, so as to avoid being accused of collusion: much of the discussions have been on the telephone and in private, one-on-one chats during industry gatherings. Pricing is rarely, if ever, discussed, according to executives involved in the discussions.

"We can't get together and talk about business terms, but we can get together to work on setting open-technology standards," said Dauman, the chief executive at Viacom, which owns such cable networks as MTV, VH1, Comedy Central and BET.

But the problem is that if each goes in different directions -- some offering more shows free, others holding them back only for cable subscribers -- then the economics of the industry could crumble.

"It's the classic prisoner's dilemma," Burke said, referring to the famous problem in game theory. "If there's a vacuum, and some start to inch into the water hoping others will hold back, the whole industry could be affected."

Unlike broadcast television, which relies solely on advertising, cable networks have another revenue stream: fees paid by cable operators. Comcast, for example, pays Disney about $1 billion a year to carry ESPN. This is why Hulu.com, the popular site owned by News Corp. and NBC, is mainly a destination for such broadcast shows as The Office and The Simpsons and not cable programs.

In some ways, the plan of Bewkes could be perceived as a direct shot at Hulu, which does offer some cable shows on a delayed basis, after some time has passed since the show was seen on television.

"That stream is so important to every entertainment company that everybody is looking at that and saying, if we are not careful we could start to harm that model," Burke said.

There is no sign of that happening anytime soon, but a recent poll by the Sanford C. Bernstein research group found that about 35 percent of people who watch videos online might cut their cable subscription within five years.

"We don't think that it's a problem now, but we do feel a sense of urgency," Burke said.