Cablevision is boasting today of becoming the first cable or satellite provider to offer CBS’s OTT channel, CBS All Access, to its broadband subscribers.
The multiyear deal between the network and the MSO includes retransmission consent for CBS-owned stations and continued carriage by Cablevision of Showtime, CBS Sports Network and the Smithsonian Channel, in addition to CBS All Access.
“This comprehensive new agreement builds on our strong relationship with CBS and ensures that every Optimum customer gets the highly popular CBS content they want across multiple platforms and screens,” Cablevision EVP of programming Tom Montemagno said in a statement. “As the first distributor to agree to provide 
CBS new Internet services, Cablevision continues to expand its portfolio of next-generation offerings, connecting customers to the programming they value when and where they want it.”
For those who have paid attention to Cablevision in recent months the CBS deal is no big surprise. The MSO has been drifting away from the traditional pay-TV model since it introduced its “Cord Cutter” package earlier this year that included broadband service and an over-the-air antenna for tuning in broadcast channels. It was also the first operator to offer Hulu to its broadband subscribers and was a launch partner for HBO Now. But the CBS deal represents the first time that Cablevision — or any other MVPD — has licensed an OTT service as part of a broadcast retransmission deal.
I’m not sure other cable ISPs would see that as something to boast about.
Selling broadband access has been a life raft for cable operators over the last five years. As cord-cutting whittles away at their top line, and ever-higher carriage and retransmission fees squeeze their margins from below, operators’ traditional pay-TV business has become far less attractive than a decade ago. Broadband service, however, is provided them a margin windfall, in large part because there are no content costs attached to selling internet access. It increases ARPU without a concomitant increase the operator’s cost base.
The last thing most cable ISPs want, therefore, is to replicate pay-TV economics in their broadband business. If over-the-top content is going to be paid for, ISPs would much prefer that it be between the end user and the content provider while leaving the middleman out of it.
Content providers have a very different idea, however. CBS, in particularly, has been pursuing a carefully plotted strategy since at least 2013, to target cable ISPs’ broadband revenue when negotiating pay-TV carriage. It was not for nothing, for instance, that CBS cut off access to CBS.com by Time Warner Cable broadband users two years ago as part of a retransmission consent dispute. It was a clear message that CBS expects to get a cut of the revenue cable operators earn from broadband.
HBO president Richard Plepler channeled Tony Soprano in announcing HBO Now, declaring “we’ll get our taste” of the “hundreds of millions” of dollars cable operators currently rake in from broadband that are not being shared with the network.
By folding CBS All Access into broadcast retransmission consent Cablevision has now made the connection between broadband revenue and retransmission fees explicit. While that may fit Cablevision’s near-term strategy as it tries to reach cord-cutters and cord-nevers, it could turn out to be the first boat across the Rubicon, beyond which the economics of broadband service move ever closer to legacy pay-TV economics — for better or worse.
It also raises the stakes this fall as the FCC begins its review of the current retransmission consent rules and considers whether to extend those rules to over-the-top video distributors.
