• by kyle , Daisy Whitney , May 1, 2009

Every cable operator wants to be Hulu now. Because if they're not, they could wind up a big old dump pipe instead. The fear of the dreaded dump-pipe possibility, coupled with the realization that there's gold in them there Internet-video hills, is driving cable operators to develop radically integrated methods of serving up their programming. But you can bet that the content and its platforms will remain in walled gardens -- with machine-gun snipers guarding access.

Comcast and Time Warner have been both vocal and bullish about their plans to deliver their lineup to their subscribers on Internet portals. They say they'll launch new services later this year to let their consumers access some of their programming online. Comcast will likely begin rollout this summer of its "On Demand Online," pitched as the Web extension of the company's video-on-demand service.

That will bring some cable programs to the Web for the first time, because many cable shows aren't currently streamed online. Some cable networks have been reluctant to bypass cable operators with direct-to-consumer Internet delivery. But they're playing ball with cable operators, and they're also putting pressure on alternative providers who threaten the cablers. The net result is that competition is heating up between new Internet TV providers and the old guard as they each stake out a claim for plugged-in consumers - who increasingly demand their content be everywhere from the TV to the mobile phone to the computer.

A Web replica of cable TV programming can blunt the threat of consumer defections to broadband-only programming, and cable operators need the help. The total number of multichannel video customers shot up by 441,000 in the fourth quarter across all service providers, but it's the telcos and satellite operators landing new subscribers. Meanwhile, the country's two biggest cable companies, Time Warner Cable and Comcast, both lost customers in the fourth quarter - 119,000 gone from Time Warner and 233,000 from Comcast. The loss to new entrants like AT&T and Verizon, both of which picked up gobs of new customers, comes from pricing and competition from the new players.

Time Warner first floated the idea of building a Web replica of its programming at the CTAM Summit in Boston, revealing that it had begun talks with programmers. "We think there is a solution that is sustainable - deliver all your Web content to paying customers online and just a small amount to non-paying customers," said Peter Stern, executive vice president and chief strategy officer for the operator. "Customers would like to pay for great brands and great content and should be able to get it on any platform. The question becomes, how do we ensure we can put in place a business model that funds the creation of great brands? And we do that by encouraging them to enjoy the subscription fee they pay across multiple platforms."

Cox is evaluating offering online access to its programming with an eye toward the user interface. "We want to satisfy our customers' video consumption needs wherever they are," said Steve Necessary, vice president of video product development at Cox. "We want to be our customers' first thought in getting that content. Our initial emphasis is on providing a good presentation environment for the best video content on the Web or that could be made available on the Web."

The "be everywhere" strategy is a necessity, because the consequences of standing still are dire. In March, research firm The Diffusion Group predicted that cable operators who don't evolve their content offerings in the digital age would be relegated to dumb pipe status by 2020.

Cablers know this and they're fighting it. Case in point: Earlier this year, Hulu shut down access to its service from Boxee, a Web to TV software provider that had let consumers watch Hulu on their TV sets, a direct threat to cablers' ability to offer Internet access themselves to top cable shows and networks. Hulu pulled its content from Boxee at the request of content owners, spurring speculation that content owners felt pressure from cable operators to get their shows the hell off Boxee.

"There is a battleground between cable companies saying you cannot deliver content to the TV like Hulu and Boxee and content providers feeling pressure because of where their revenues are coming from - from license fees from cable providers," says Andy Tarczon, founding partner and general manager of The Diffusion Group. "The result is cable companies now want to bring their shows to the Web. They want to be their own Hulus."

Service providers desperately need to protect their turf from online competitors, but they also have to innovate in order to maintain their businesses as both video and broadband providers. "If you have an integrated service now, you are better positioned to be a full-fledged video provider in 2020," Tarczon said.

There's also money to be made in new services. Diffusion Group's research found that about 29 percent of broadband users would spend at least $10 extra each month to get their cable TV programming delivered to their PCs. If 29 percent of Comcast's 15 million broadband Internet subscribers would spend an extra $10 per month to have their current TV programming delivered to their PCs, that would yield an additional $43.5 million in gross revenue each month, Tarczon said.

How this all plays out remains uncertain. "If only we could go to sleep like Rip Van Winkle and wake up in 10 years, and all our gadgets could talk to each other and your iPhone could tell your big screen where you left off and you could even pick up watching on your refrigerator door," says Arthur Greenwald, a TV producer.
Sounds nice. Let's all go take a long nap now.