Cable Bundles Seen At Risk Amid More Digital Content Choices

As the amount of quality TV content grows along with the number of ways consumers can access it, the traditional cable model is at risk, panelists said at the Future of TV conference in New York Friday. Panelists debated whether there’s a “breaking point” for consumers determining how much they're willing to pay for bundled packaging that offers too many niche channels in a digital world where they can easily find the content they want to view.

"Consumers are demanding ubiquity and the ability to watch great programming wherever they are,” said Matt Hong, senior vice president-sports operations at Turner Sports. That presents opportunities for both startups and traditional networks, he said, because the advent of digital platforms has allowed a lower barrier to entry for content creators along with ubiquity for consumers to watch TV at the office, on a train or at home. Traditional networks are exploiting the opportunity through TV Everywhere, NBC’s mobile app for Sunday Night Football and Turner’s NCAA March Madness offering, he noted.

Turner transitioned from an all-free March Madness model in 2011 to last season’s $3.99 app available to cable and satellite subscribers over broadband. That model “wasn’t about revenue but about giving people who had not yet tried authentication a quick and easy way to get access,” Hong said. For 2013, the network is going to an authenticated-only model as Turner is “a year further along in TV Everywhere,” he said, and “it’s a good point in the life cycle” due to increased awareness of the TV Everywhere model through March Madness and the Olympics.

Panelists said a wealth of content leaves room for both linear and digital platforms. “There are still a lot of compelling reasons” to pay for linear TV and for associated bundles, said Kelly Day, CEO of Blip, a digital provider specializing in original content. But the “risk is for the long tail of cable networks,” she said. “There are hundreds of niche cable networks that are being subsidized through these mega-bundles of channels being paid for by the cable operators,” she noted. In the next few years, Day said, those bundles will shrink because the type of “very targeted” interest-based programming that is currently fulfilled by digital cable networks “is really well-suited to digital platforms.” As more audiences find the interest-based programs they're interested in in a more “interactive way,” they'll be “far less compelled to pay for that type of programming through cable package or linear TV,” she said, and cable bundles “are likely to get smaller.” The financial impact on the cable industry, where the revenue produced by the volumes of digital channels “do add up to a pretty significant amount of dollars,” she said, and could lead to a consolidation within the cable industry.

The cable model has already changed from its original charter to provide better reception to one focused on additional programming beyond the major networks, noted Hong. Now digital channels have changed the cable picture again, and consumers are demanding the content they want, where and on what devices they choose to view it on, panelists said.

Challenges looming for digital providers include reaching consumers with a platform they can easily grasp separate from the cable or satellite worlds they're accustomed to, said Andrew Kippen, marketing vice president for Boxee. When consumers buy a box from Boxee, Roku or Apple, “there isn’t a clear understanding of what shows you're getting,” he said. That extends to Netflix or Amazon Prime where “maybe something’s there, maybe it’s not,” he added. Kippen encouraged more collaboration between cable operators and content creators to create “the experience of the future” and cited talks between Boxee and Comcast that would enable customers with a Comcast subscription to use the Boxee cube as their cable box.

Debates over the definition of playback devices and concerns over litigation surrounding transmission rights are threatening the once symbiotic relationship between content providers and cable companies, said Day of Blip. While each side is debating “whether the iPad is a TV or a mobile device,” and who has rights to it and for how much, “there are tens of thousands of content creators” telling stories in “totally new ways” for interactive platforms and building “engaged, targeted audiences,” she said. That’s leading to advertisers wanting to reach those audiences “at scale,” creating a “huge opportunity,” she said. Day doesn’t see digital content replacing top linear TV programming such as “Mad Men,” “Homeland” or “Game of Thrones,” she said. Instead, she cited the wealth of “amazing programming” being created for both platforms.

As both TV platforms move forward, the line will blur between what’s considered professional content and that created by independents, Day said. As people want to watch shows on any device, any time, mobile is becoming a more critical element and over time “will undermine the television industry,” she said.

Future of TV Conference Notebook

Blip will release an app for Xbox in two weeks, CEO Day said at the conference. Blip, a digital content provider specializing in original content, began talks with Microsoft last summer about adding the Blip app to the Xbox platform, Day told us. Xbox is “an important platform for the living room and seemed like an obvious place to invest,” said Day, who joined Blip six months ago from Discovery Communications. Content will include Blip’s “top 250 shows,” Day said, saying “there’s more video consumption on the Xbox platform than there’s gaming.” Users will access content according to genre and features and will have access to social media plug-ins to share and connect through Facebook, she said. Regarding a possible PlayStation version, Day said, “Maybe next year."

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Boxee is seeing “lots of fluctuations” in its beta test of Boxee TV -- a $99 box combining live TV, a cloud-based DVR and Internet apps, Andrew Kippen, marketing vice president, told us at the Future of TV conference. The box launched in Walmart stores in eight markets this month (CED Nov 9 p1) as part of the beta test that’s slated to end in January, Kippen said. “When everything is in place, and you have good reception, the DVR is blowing people’s minds,” Kippen said. The company is “tweaking things,” and is “pretty close to a very responsive experience” where fast-forward and rewind work within a two-three second buffer, he said. Boxee is working on implementing adaptive bit rate technology so the stream can be optimized for the user’s connection speed, he said. Boxee chose New York, Los Angeles, Chicago, Dallas, Houston, Atlanta, Philadelphia and Washington as launch locations due to their population density, Kippen said. Also, New York is home base for Boxee, and Dallas and Houston offer a flat landscape conducive to over-the-air reception, he said. Texas also has a high concentration of Walmart stores, where Boxee chose to launch first, to be joined in the spring by Best Buy, Amazon and Fry’s, Kippen said. The DVR and live over-the-air TV features of Boxee TV are differentiators from other digital video boxes on the market, he said, noting that 95 of the top programs last year were on broadcast TV. Boxee is still finalizing details of the product after its hard launch, including the DVR fee, which is currently $9.99, Kippen said. A basic version of the DVR will be free, but will likely limit the time users have access to recorded programs or limit the amount of programming that can be viewed, he said. Programming is limited to the major networks currently, but the company is targeting about 16 channels in each market, he said. The product won’t roll out nationwide because Boxee needs to build out the infrastructure, which Kippen wouldn’t elaborate on, calling it the company’s “secret sauce.” Boxee is running a holiday promotion in which buyers receive three months free of DVR service, he said. Boxee’s greatest challenge with the new combo box is TV reception in homes, Kippen said. To help with reception, the company includes an entry-level antenna in the box and also offers upgrade antenna options for $40 and $80, he said.