Boxee vs. Comcast: An authentic dispute

Marketing VP Marty Roberts of thePlatform, which is owned by Comcast, spoke proudly during the final session of the McGraw Hill Media Summit Thursday of the work his company is doing to find ways to let cable subscribers access the same premium content they get on their TV from the Internet.

“We’re investing a lot of time and money studying things like Open Social, which lets you bring your online identity with you as you go to different Web sites or different networks, to see if there’s a way we could do that for your cable identity, so your cable rights would go with you as you access different Web sites,” he said. “So, you might have HBO rights and could access that content online, someone else might have Showtime rights, or sports.”

The effort is part of a plan by cable operators and networks to protect their core subscription business by restricting online access to premium pay-TV content to paying cable or satellite subscribers using some form of online authentication.

Boxee co-founder and CEO Avner Ronen wasn’t impressed.

“The problem with that is you’re trying to force a model from the cable industry to the Internet,” he said. “The Internet is an on-demand platform. The cable companies have been fighting ala carte in Washington for years but I think consumers will win in the end and you’ll be able to get ESPN online without buying the rest of the package. Because that’s what consumers want.”

Roberts countered that the success of Netflix’s streaming service proved that consumers will pay for bundled content online, although the analogy is not exact. Netflix’s streaming service is essentially a movie channel, of the sort cable TV customers might want to subscribe to ala carte, without paying for the rest of the channels in that “tier” if they were given that option.

It also has a significant on-demand component to it and access to it adds no a incremental cost to your existing Netflix subscription.

Up to that point, the debate was a classic clash between incumbent interests seeking to preserve a profitable business model and a disruptive new technology provider.

But Ronen went on to make another point that, in Media Wonk’s view, goes to heart of what really terrifies the cable industry, from programmers, to network owners, to MSOs, about applications like Boxee.

“If you’re making great content you shouldn’t’t be worried,” he said. “You’ll be able to monetize it because people will want it. The people who should be worried are people who are not making great content but with bundling can have a channel [on cable] where 80% of it is syndicated content, a little bit a reality TV and a little bit of your own content. That’s a $100 million business right now, but it’s a false model because its not based on making great content. It’s based on the model. That goes away in an on-demand world.”

In an on-demand world, in other words, distribution leverage will not bring you cheap profits. Content will have to stand (or not) on its own.

The major media companies, however, have spent much of the last several decades accruing distribution leverage and milking it for easy profits. It’s what makes them “major” media companies, in fact.

They have the leverage  to get their channels onto crowded cable systems, and then expand their franchises once there, such as by adding an ESPN 2, an ESPN Classic, and ESPN Deportes and so forth, each of which becomes valuable simply because bundling puts it into enough households to generate advertising revenue as well as additional affiliate fees from cable operators.

Distribution leverage, in fact, is at least as valuable an asset to a media company as many of the networks they program, and in some ways more fundamental, since the value of a second or third-tier cable network rests entirely on the leverage to get it distributed. But for that, no network.

Undermine the value of distribution leverage and a lot of other assets begin to teeter as well.