Cable's threats to online video include co-opting audience

Josh Wein, FierceOnlineVideoAt The Cable Show this week, device makers and service providers seemed increasingly open to integrating online video and over-the-top TV services with their own video products.  That's a big change of pace for an industry notorious for seeking control over the user experience associated with TV viewing. The thinking has typically gone something like this: If cable operators make it easier for their customers to watch online video, they won't be able to sell as much of their own pay-per-view and other premium products.

While the prospect that online video companies may get greater access to the cable set-top box is enticing, the online video industry should be wary of integrating too closely with pay-TV providers. The traditional cable operator concerns cut both ways: If a Netflix (Nasdaq: NFLX) or Hulu Plus subscriber sees that the same programming is available through his or her pay-TV subscriber, through the same device, that subscriber may decide to drop the online video provider's service.

The cable industry offers a number of threats to online video, and co-opting their audiences is just one.

BTIG's Richard Greenfield identified another this week. He raised concerns that carriage agreements between cable operators and programming networks limit the networks from licensing content to over-the-top video providers such as Intel (Nasdaq: INTC)

Affiliation agreements between programming providers and distributors are increasingly complex and often include restrictions related to online distribution.

Time Warner Cable (NYSE: TWC) CEO Glenn Britt acknowledged those sorts of restrictions aren't limited to broadcast programming. He told analysts that some of the company's contracts "may well have that prohibition," when asked about it at The Cable Show.

The nature of the clauses may vary from agreement to agreement, according to conversations I had with cable attorneys in Washington this week. Some may grant the cable operator exclusive rights to distribute programming online, others may contain a most-favored nation clause that allows the cable operator the same rights any new affiliate gets. Others still may call for a reduction in the rates a programmer gets if it signs up with new online affiliates. Lawyers said these clauses are nothing new.

The contracts are all confidential, so it's impossible to say exactly how they're structured.

Another threat, discussed in last week's Editor's Corner, is that of usage-based billing. If cable broadband subscribers begin to feel they must budget their bit consumption, video consumption--a notorious bandwidth hog-- may be the first behavior to change.--Josh