×

Why Cable Operators Might Be Secretly Rooting for Over-the-Top TV Services

Charter CEO: online television deals would give incumbents leverage over programmers

Pay TV operators have been deeply skeptical that Intel, Sony, Google, Apple or anyone else can secure a critical mass of programming agreements for Internet TV services that challenge established cable, satellite and telco providers.

But there are some reasons incubments might actually benefit from such a development.

For one thing, broadband providers would have a new way to upsell customers to faster (read: more expensive) tiers of service. High-speed Internet is a significantly higher-margin business than video.

And here’s another wrinkle: With over-the-top linear TV competitors, cable companies would be in a position to negotiate better programming terms and fees — or simply go into business with the OTT guys instead, according to Charter Communications CEO Tom Rutledge (pictured above).

If programmers cut deals with an over-the-top player like Intel or Sony, “we could drop them and have a relationship with the over-the-top provider and put those signals on the TV for the customers,” Rutledge said this week at the Bank of America Merrill Lynch Media, Communications and Entertainment conference.

“In some ways, I would like (over-the-top TV) to happen, because I think it would change the leverage relationship between us and content (providers),” said Rutledge, a former top exec at Cablevision and Time Warner Cable.

SEE ALSO: Intel Has $2 Billion War Chest for TV Deals, But None Secured Yet

Still, Rutledge remained doubtful a “virtual MSO” will ever get off the ground. TV programmers are “not going to get any incremental customers out of it” by just shuffling subscribers from cable to Internet services, he said. “If it’s a replacement service, it’s not incremental.”

Intel has been working on a broadband TV service through its Intel Media division; while it is aiming to launch that later this year, the chipmaker has had trouble inking final distribution deals with media companies. Sony, meanwhile, has reportedly reached a preliminary Internet distribution deal with Viacom, whose networks include MTV, Nickelodeon and Comedy Central.

But despite years of talk about virtual MSOs, “we still haven’t seen anybody launch one of those,” said DirecTV chief financial officer Patrick Doyle, also speaking at the BofA/Merrill conference.

Doyle similarly expressed skepticism about the feasibility of over-the-top video services becoming a replacement for current pay TV services. “It’s very hard for somebody economically” to assemble a pay-TV service that could replace cable or satellite, he said.

Echoing Rutledge’s comments, Doyle said content owners have a desire to keep the current ecosystem intact. “It’s hard for them to think about somebody who hasn’t invested in their own pipe and then delivering that content that way,” he said. “Will we see something? We might. But I don’t think it will be a threat to the linear business.”

It might be an existing pay TV provider, like Dish Network or Verizon Communications, that eventually brings the virtual MSO idea to fruition. Both companies, which have established traditional subscription TV businesses, have been rumored to be exploring the concept.

In fact, Dish chairman Charlie Ergen told Wall Street analysts earlier this year that the satcaster is well positioned to introduce an over-the-top TV service . “(A)s OTT happens, we think that’s something we can participate in… if it becomes a reality,” he said in May on Dish’s first quarter earnings call.

SEE ALSO: Ergen Says Dish Could Launch Internet TV Subscription Service

DirecTV, meanwhile, was among the final bidders for Hulu, before the Internet TV venture’s owners took it off the block this summer.

That could have enabled DirecTV to itself become a virtual MSO of sorts — providing a platform for delivering first-run TV to customers online. Doyle said Hulu’s access to next-day TV was particularly attractive, along with its base of more than 4 million paying subscribers.

DirecTV will continue to evaluate options in the subscription VOD space, he said. As for Hulu, “we’re happy to see if nothing else it went back to the content owners,” Doyle said. “Because, again, they should have a goal of not marginalizing the linear business by making this product too attractive.”

Popular on Variety

More Biz

  • Beverly Hills Realtor Accused of Stealing

    Beverly Hills Realtor Accused of Stealing From Usher, Adam Lambert

    A Beverly Hills real estate agent has been arrested on charges of stealing from the homes of celebrities, including Usher, Adam Lambert and “Real Housewives” star Dorit Kemsley. Jason Emil Yaselli, 32, is accused of encouraging an accomplice, Benjamin Ackerman, to enter homes during open houses in order to steal from them. Ackerman allegedly sold [...]

  • Pod Save America Hosts on Trump

    'Pod Save America' Hosts on Trump, the Democratic Primary and What's Wrong With Cable News

    Like many Democrats, Tanya Somanader was blindsided by the 2016 presidential election. A veteran of the Obama White House and a former speechwriter and digital specialist for House Speaker Nancy Pelosi, Somanader was gearing up for a Hillary Clinton administration. Instead, she had to grapple with the reality of a Donald Trump presidency. “A lot [...]

  • Ann Sarnoff Warner Bros

    Ann Sarnoff Formally Takes Reins of Warner Bros. as CEO

    The Ann Sarnoff era at Warner Bros. has begun. Sarnoff formally took the reins as Warner Bros. chair-CEO on Thursday, two months after she was appointed to the post. Sarnoff told employees in a memo that she has been impressed by the company’s track record during the past year amid a period of upheaval for [...]

  • Former movie producer Harvey Weinstein (L)

    Harvey Weinstein to Be Arraigned on New Indictment

    Harvey Weinstein is set to appear in court on Monday for an arraignment on a new indictment, the Manhattan D.A.’s office said Thursday. Prosecutors announced last week that they would seek a fresh indictment, which would allow actress Annabella Sciorra to testify at Weinstein’s trial. The move came after Justice James Burke ruled on Aug. [...]

  • AI Technology David Beckham

    How AI Tech Is Changing Dubbing, Making Stars Like David Beckham Multilingual

    David Beckham does not speak Arabic, Hindi or Mandarin. But when the soccer legend starred in a PSA for malaria awareness this spring, he effortlessly switched among these and six other languages, thanks to cutting-edge technology that could soon change how Hollywood localizes its movies and TV shows. The PSA in question was produced with technology [...]

  • Eminem Publisher Sues Spotify, Claiming Copyright

    Eminem Publisher Sues Spotify, Claiming Massive Copyright Infringement

    Eight Mile Style, a publishing company that holds administration rights to Eminem’s early catalog, filed a major copyright infringement lawsuit against Spotify late Thursday, claiming that the streaming giant has no license to host about 250 of Eminem’s songs, while also taking aim at the Music Modernization Act, the federal law enacted last year to [...]

  • iQIYI headquarters building in Beijing

    China’s iQIYI in Talks for Indonesia Expansion

    Chinese streaming firm iQIYI is in negotiations to expand further into Southeast Asia through a venture with Indonesia’s Media Nusantara Citra. iQIYI announced its first step outside Chinese-majority territories in June, when it revealed a linkup in Malaysia with pay-TV leader Astro. It also operates in Taiwan. In April, the company said that it planned [...]

More From Our Brands

Access exclusive content