In what seems like an annual rite of passage in the cable industry, the country’s top operators got together for their annual convention last week to figure out how to make money from their digital services.
At last week’s Cable Show in New Orleans, cable operators did not speak about digital sports tiers, and a panel on rising sports costs described the sports TV market as healthy.
But for the last several years, cable operators have complained that they have been unable to figure out how to profit from digital services, like video-on-demand and interactive television.
Taking part in a panel discussion at last week’s Cable Show, from
left to right, are: Panasonic’s Yoshi Yamada, Comcast’s Brian Roberts,
Intel’s Paul Otellini, Viacom’s Philippe Dauman, News Corp.’s Peter
Chernin and The Carlyle Group’s William Kennard.
This year, they say, they are serious about capturing real revenue from those areas.
Part of their optimism comes from a new $150 million interactive advertising initiative, dubbed Project Canoe. The joint venture is backed by the top six cable operators and is expected to launch later this year. Former Aegis Media Americas CEO David Verklin will run it. The system aims to be cable television’s version of targeted Internet advertising, which allows advertisers to direct their message to the most desirable demographics.
“Satellite can’t do it, and telcos don’t have enough scale,” said Comcast Chairman and CEO Brian Roberts. “It’s our next big opportunity.”
The industry even trotted out an ad buyer, Chrysler vice president and chief marketing officer Deborah Wahl Meyer, to say that the ad community is ready to support cable’s efforts to roll out an interactive ad service. “The customers are ready and waiting for you to develop the capability of addressable advertising,” she said.
Cox Communications President Pat Esser said cable operators are poised to begin making real money from the service within two years. “Shame on us if it’s not material by 2010,” he said.
But even though Project Canoe was one of the hottest topics last week, some sports programmers admitted that they still don’t know much about it. The disconnect illustrates some of the problems programmers and operators are facing as they move into the digital future.
“We’re really anxious to see how that all goes,” said Tony Vinciquerra, president and CEO of Fox Networks Group, during a panel session. “I’m confident we will come up with the right solutions.”
The problem is that operators and programmers disagree on which business model works best in the digital arena.
Take ESPN360, for example. It charges cable operators a per-broadband-subscriber fee for access to its content. Most cable operators have resisted paying the fee, and therefore their subscribers don’t have access to it. Other sports networks say they are closely monitoring how ESPN360 plays out.
“It’s more of a league issue right now,” one regional sports network executive said. “But if the leagues allow us to stream games, the ESPN360 model makes sense.”
The same push-and-pull is happening in cable’s other digital areas, where some sports networks are resisting giving their programming to video-on-demand or interactive television platforms.
Operators and programmers have long had an antagonistic relationship. Programmers have always pushed for higher license fees and better channel positioning, while cable operators have tried to keep their costs down. The same tension is occurring in the digital arena, where cable operators need content for their digital services, like video-on-demand.
Some executives from multisystem operators, like Time Warner Cable Chief Operating Officer Landell Hobbs and Cablevision Chief Operating Officer Tom Rutledge, conceded that programmers have not warmed to cable’s video-on-demand platform. But they predict it will grow big enough to convince all programmers to take part.
“We are seeing nothing short of the evolution of VOD,” Hobbs said. “We all wish it would go faster.”
Comcast Chief Operating Officer Steve Burke predicted that initiatives like Project Canoe will help.
“We have this wonderful engine that we’ve created in tens of millions of homes, but the creativity to drive it into different places doesn’t really seem to be there,” he said. “We’re using VOD in a very limited way.”
Still, programmers privately say that they will take a wait-and-see approach to see if cable’s VOD or interactive TV platforms become popular.
