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TV Everywhere and the end of free TV

Cablecos, telcos are looking towards online video to preserve their TV business, but can online video find a business model?

With speculation running high that Comcast (NASDAQ:CMCSA) may be mulling a takeover of popular content owner NBC Universal, the end of free TV is looking imminent. The pay TV providers are already laying the groundwork for their response to disintermediation from free online TV sites, but the best way to turn online eyeballs into profit is still a topic up for discussion.

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TV Everywhere was first introduced in March as a joint venture between leading cable company Comcast and Time Warner (NYSE:TWX) to give consumers access to Turner Broadcasting's entertainment networks free online and on demand. It has become an umbrella term for online initiatives that all the major cable and telcos are now launching. Comcast is in the midst of a national technical trial of its On Demand Online service, kicked off in July and second largest cablecos Time Warner Cable is trialing the TV Everywhere service with 10 networks, with an official launch planned under its own brand.

Telcos Verizon (NYSE:VZ) and AT&T (NYSE:T) have also stated their intentions to offer some level of online video service. In AT&T’s case, it is a revamped online portal to a number of TV shows from ABC and NBCU through an agreement with Hulu, CBS and others, free to all consumers. Verizon has committed to limited trials of TV Everywhere, but with only TNT and TBS and 500 subs at launch. It is using online user names and passwords to verify that its online viewers are also FiOS TV subscribers.

These initiative puts the pay TV providers in direct competition with free online video sites, most notably Hulu (although this could all change if Comcast were to acquire NBCU), an ad-supported joint venture between NBCU and Fox. Hulu has been wildly popular with consumers, but it too has struggled to find a business model. As TV Everywhere ramps up, the question becomes, is there even money to be made from online video?

TURNING TV EVERYWHERE INTO A MONEYMAKER

According to The Diffusion Group analyst Colin Dixon, the answer depends on the execution. TV Everywhere – as a concept – is very popular with consumers. TDG surveyed consumers on the notion of getting TV content on the PC and found that about 46% of broadband heads of households were very interested in the service, and 30% saw enough value to pay upwards of $10 for it. The problem is, Dixon said, that pay TV providers are not going to be able to deliver on this concept of program-rich TV Everywhere.

“They really can’t start charging for this until they can deliver on that promise,” Dixon said. “Consumers will be very disappointed when they get the service and they can’t get ESPN, ABC, Disney or other programs.”

Consumers will also expect more than just a TV service online, Dixon said. The PC is inherently different than the TV, and consumers will continue to want those Web qualities, including additional content and social media, when they are viewing TV. Dixon said that given the limited nature of the service as it is today, it is highly unlikely the operators will charge for it, but they will ultimately have to find a way to sustain the business. Online advertising alone won’t be able to foot the bill – Hulu is a perfect example of this fact. Raising the cable bill, too, seems counterintuitive to a service designed to stem video cord-cutting. Charging an extra fee for the online content is another option, but this model hasn’t worked in the mobile industry as services requiring consumers to pay twice for the same content have struggled to take off.

“I think [pay TV providers will] ultimately end up offering an online-only subscription package, which leverages the technology of TV Everywhere,” Dixon said. “I don’t think they will get there for a couple of years before they have the agreements with content providers. But, in the short term, I don’t see this providing a lot of additional revenue, if any, to pay TV or content providers.”

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© 2014 Penton Media Inc.

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