And the Real OTT Service Threat Is…

Intel OnCueAs you all know, I love to talk about the “race to save the cable ecosystem.” To put it simply, the cable industry and its content providers rely on a system in which content can be packaged with other content, and then that package of content can be coupled with distribution. In that system, content providers make boatloads of money on the backs of other (and often bigger) content creators. And distributors make even more money by being one of a few means for individuals to gain access to the aforementioned bundles of content in their local municipalities.

And for the people making tons of money off that system, there’s no reason to want change. Because change means embracing all of the internet, and the internet lives by the rule of democratization: “what is good, will get money…what is not good, will die.” That’s a credo the cable industry does not want to abide by…that’s why the “Live Well Network” and “Cloo TV” are still up and running and generating millions of dollars in cash every month.

Thus, the cable companies, and some of their providers, are on a mission to make sure the ecosystem continues to run as it does. Whether that’s good for you and me as consumers is something we can talk about another day. However, this is not good for the number of entities trying to create a new market for viewing video content.

You know about these entities…they’re everywhere: technology companies trying to profit off the very same content that cable has been profiting off of for years. From Sony and Intel, to Google and Apple, every tech company has shown a desire to bring video to the internet and supplant cable’s dominance over willing content-purchasing customers.

How are all of these companies trying to do it?

Over-the-Top platforms.

Netflix already has a model. Roku has an actual box you can buy. My employer (in full disclosure), Google, just recently launched Chromecast. And of course, Amazon, Apple and even Aereo have their own models for monetizing video content over the internet. But who is really in contention to take over the video market and be the strongest threat to ruining the cable video ecosystem?

Well, in my estimation, there are only 3 players that are currently in a position to do that. Netflix is not one of them, as their service has, if nothing else, proven that it can actually help boost TV ratings. I’ll refrain from including Google in the conversation for the time being–that time being possibly the length of my employment there. And then there’s Apple, whom everyone thinks is going to build this grandiose product, and yet, we still continue to wait.

The three major contenders I have right now are Intel, Sony and 1 more surprise entrant I will mention last.

Intel was the company that really spearheaded this movement. Obviously, many people were talking OTT way before we knew about Intel’s “OnCue” box, which is supposed to be a box that provides users with cable channels without having to sign up for cable. Essentially, if you have access to the internet and pay Intel a fee, in an ideal world, OnCue would give you all the same channels you get from a traditional PayTV provider along with thousands of channels from the internet. And of course there are bonuses that come with OnCue. From facial recognition technology that can identify the viewer and serve up appropriate TV recommendations to the ability to record every new show without even asking OnCue to do it, Intel has put a lot of work into this device’s capabilities.

Unfortunately, not enough (successful) work has gone into this device’s content. Right now, with a fall-slated launch (although, reports have Intel pushing the date back—again), the OnCue box and service has nothing I would want to pay for. Yes, it could revolutionize the way we watch TV, but if that involves not being able to watch TV shows, the consumers are going to say, “No thanks.” Now, many entities, from the government to cable companies, have made this contractually hard for Intel to do. But as the leader out of the gate, along with the cash to pony up some money to somebody, Intel has failed to get any content of significance. Just think about this: Fox Sports 1, a cable channel, not an entire multivideo channel distributor, bough $9 billion worth of content just to launch a channel, and Intel is nowhere close to having put up that kind of investment. And while I’d love to see the device survive, if they haven’t signed up any major channels yet, there’s a reason, and it’s probably not one that can be overcome by a company not use to dealing in the ways of Hollywood.

As for Sony, despite getting in the race “late,” they have a leg up on Intel. Sony, and their Playstation 4 unit, has already gotten Viacom to agree to allow them to distribute Viacom-owned channels on Sony’s devices. So now, Sony has both content and technology. That’s right, one of the world’s leading tech manufacturers, has a stable of content to go along with its existing ownership of a studio in Hollywood and all those TVs and game consoles it has been making forever. To put it simply, “Sony got content.” And with content comes power. With Viacom and Sony Pictures in their back pocket, along with the Playstation 4, Sony can really put together a service that people are interested in.
But people won’t be that interested. Not for a while anyway. Viacom is a great start, but it’s not enough content to get people to switch, and without sports, they stand little chance to survive.

However, my third potential entrant into the OTT space does bring in the trifecta of technology, content and sports content. Comcast, the nation’s leading cable provider, is said to be working on an OTT service that would rival the likes of Netflix and anybody else that tries to get in their way.
And did I say Sony has content? Because if they have content, then Comcast has content’s father. With NBC Universal at its back, and existing carriage agreements with all of the nation’s major content creators, Comcast has more ability to create an OTT service than anyone else. Thus, in my humble opinion, Comcast will win the war, and in the process, save their slice of the cable industry pie.

Just look at it like this: almost everyone that’s trying to make an OTT video service (Apple, Roku, Intel) doesn’t have content that they are allowed to stream on the internet. Apple comes the closest, but they have never been about “leasing” the content…they just want to own the technology and make one-time sales of content.

Comcast is trying to do both. They are in the process of creating a device and an OTT package that makes it very attractive for cable subscribers to go elsewhere–that is, right back to them. With Comcast’s ability to package their OTT service with phone and internet service, they would easily be able to price out competitors for the first couple of years of their venture.

The only problem with my hypothesis of Comcast leading the OTT charge is that doing so would not necessarily be so great for the entire cable industry. The margins for an OTT service will probably not be as good as those of the cable industry. Yes, an OTT service would allow them to eliminate overhead, but OTT lacks the local monopoly pricing power that cable operators have. Thus, it’s possible that in offering an OTT service, Comcast might risks cannibalizing its traditionally competitive advantageous profits for smaller profits from OTT.

Now, I’m sure Comcast ran the numbers on all of this, and if they are forging ahead with what will one-day become a complete OTT video service offering, then the damn service should be profitable. Then again, they haven’t released it yet, and who knows why that is. What I do know is that if anyone is going to dethrone the cable giants and make cable television a thing of the past, then it is going to be the cable companies themselves. For better or for worst, they have the upper-hand with the content rights they possess that no up-and-coming video entrant (other than maybe Sony) can get.

Gosh darn it, I think it’s the first time ever, but in 2013, content may actually be king–for a little while.

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