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TV Analysts Downplay Broadband

Feb 13, 2006  •  Post A Comment

Despite all the furor over the potential for online video to supplant cable and satellite as a major distributor of television content, several analysts predict such a scenario is unlikely-in part because the content owners won’t let it happen.

During the past few months a number of announcements have led some technologists to predict that Web-based delivery of video content could one day become so popular that cable and satellite companies are rendered obsolete. The technologists base their opinions on the increased ubiquity of broadband services, consumers’ increasing acceptance of on-demand content and advertisers’ desire to craft highly tailored messages that reach consumers more effectively.

It also doesn’t hurt that a significant number of media companies have made high-profile announcements about their online video plans, including The Walt Disney Co.’s deal with Apple Computer to offer episodes of “Desperate Housewives” and “Lost” on iTunes and Warner Bros. and AOL’s announcement that old Warner Bros. TV shows will be available on a broadband channel called In2TV.

Plus, other online titans-including Google-are getting in on the act, offering episodes of TV series such as “Everybody Hates Chris” and “CSI.” And CBS News found a way to create a 24-hour online news channel.

Taken in total, and against the backdrop of frenzy in the industry to get on as many digital platforms as possible, some experts are predicting that cable and satellite’s roles as major distributors of video could be threatened as more consumers opt to rely on broadband networks to deliver their video content.

However, a growing number of analysts say that threat is overblown, arguing that such a move would be disruptive to content owners and to consumers.

“Broadband is no substitute for putting a lot of eyeballs in front of content,” said James Penhune, director of consulting firm Strategy Analytics. “The cable guys still have a role to play.”

According to a research report compiled by Banc of America Securities media analyst Douglas Shapiro, there are many reasons why such a scenario is not likely to happen. Chief among them is that content owners remain firmly in charge of how their content gets to consumers, and they are not likely to tweak a model that has been-and remains-an effective way to make money.

“There is a lot of focus on what technology companies are doing to make it easer to watch online video on a TV,” Mr. Shapiro said in his report. “But it will only become a replacement if a) content companies are confident they can make more money this way, and b) it offers consumers a sufficiently better price-value equation. We think both are unlikely.”

Indeed, according to an analysis by Banc of America Securities, content owners currently get around 20 cents per hour from cable and satellite customers for the video content available on a cable or satellite system. The bank estimates that to keep revenue levels unchanged, an online video model would require consumers to pay between 40 cents and $1.30 an hour.

And even if consumers didn’t balk at seeing the price they pay for television soar as much as sixfold, there are structural challenges that the networks themselves might find tough to overcome, Mr. Shapiro said. Among them: the likelihood that viewership would be concentrated on just a handful of shows, leaving only the popular and niche shows with an audience; the difficulty programmers would have at marketing new programs; and perhaps most important, the impact on advertising revenue, which he predicts could be disproportionate should even a large minority of viewers favor online video.

Another factor that could weigh on online video’s becoming a real threat is the increasing consumer interest in high definition programming. Joseph Laszlo, research director for JupiterResearch, noted that current broadband speeds won’t efficiently download hi-def files, which

are considerably larger than standard-definition video files.