Could cable operators find an ally in Google TV?

Over-The-Top Video Forget those business-school clichés about win-win deals. When it comes to cable operators and networks these days, it’s a zero-sum game. Just ask Cablevision.

On Friday, after a two-week blackout by Fox in the New York and Philadelphia markets over a retransmission-consent dispute, Cablevision agreed to the network’s demands for a steep price increase along with carriage of two new low-rated Fox cable channels, restoring the signals to Cablevision subscribers in time to catch the final few games of the World Series for which Fox held the rights.

Rather than the usual bromides about looking forward to continuing its partnership with Fox to bring subscribers the best that TV has to offer, blah, blah, Cablevision issued a statement basically calling Fox a bunch of greedy momzers:

In the absence of any meaningful action from the FCC, Cablevision has agreed to pay Fox an unfair price for multiple channels of its programming including many in which our customers have little or no interest…In the end, our customers will pay more than they should for Fox programming, but less than they would have if we had accepted the unprecedented rates News Corp. was demanding when they pulled their channels off Cablevision.

Relations between operators and the networks are only likely to get worse, however. Retransmission-consent fees are by now a fixture of the broadcast business model, which means further pricing disputes with distributors are inevitable. Absent some change in the rules regarding must-carry, moreover, operators are going into negotiations with the broadcasters without a lot of hand: the networks have the law on their side, while operators face a growing threat of disintermediation.

Operators aren’t likely to get much help from the government anytime soon, however. While the FCC may have sat on its hands in the Cablevision-Fox dispute — as Cablevision complained — it’s not clear the agency had authority to take “meaningful action” even had it wanted to. The essence of the dispute was the must-carry mandate, which was imposed by Congress and would take an act of Congress to repeal. While some Democrats on Capitol Hill made noises about changing the rules in the wake of the Fox-Cablevision spat, the current political climate is so volatile it would be hard to put much stock in a favorable outcome in Congress.

What operators need is a new playing field — one that isn’t so tilted in the networks’ favor.

Enter Google TV. While the networks are happy to leverage the operators’ fear of over-the-top disintermediation to squeeze them on retrans and carriage fees, the truth is the networks are themselves afraid of OTT’s potential to substitute online economics for broadcast economics, particularly if it’s allowed into the living room. Thus, some broadcasters (although ironically not Fox) have blocked Google TV from accessing their content either via Hulu or from the network’s own web portals.

Even without network content, however, the spread of Google TV — like other OTT options — has the potential to erode network ratings anyway, by siphoning off viewers with web-based content. Enabling the spread of Google TV — say by embedding it in their own set-top boxes — could provide just the sort of game-changer operators’ need to level the playing field with the networks.

Why would operators want to let a OTT provider like Google into the hen-house? Because OTT is going to happen anyway. And unlike with Apple TV, operators actually have something Google wants. Integrating Google TV with a cable operator’s existing subscription service could greatly enhance Google’s ability to target advertising to specific subscribers based on their Google TV search queries. It would also help Google refine its video search algorithm by providing it with a rich lode of additional metadata to work with.

That’s the basis for a potential deal: A cut of Google TV’s ad revenue in exchange for integrating Google’s platform into the operators’ STBs.

Easier said than done, of course. Integration might require a new generation of STB — representing a significant capital expense for operators. But the arrangement would benefit operators in a number of ways: It would provide them with a potentially significant new revenue stream; it would hedge against complete disintermediation; it would generate incremental revenue from the broadband side of their business to offset the loss of video subscribers. Most of all, however, it would lessen operators’ dependence on network programming, thus lowering their dependence on the networks themselves.

Not a perfect solution, perhaps, but in this case the enemy of the operators’ enemy could turn out to be their friend.

Further reading:

Dish, Fox Reach Deal To End TV Standoff

With Internet TV, Cable Wins Even if it Loses

Only Ala Carte Can Permanently Resolve Fox-Cablevision Dispute

Cablevision-Fox Spat May Raise Hurdles for Comcast in Deal for NBC

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