VOD chief: Comcast will survive in face of TV.com, Hulu
I sat down with Doug Sylvester, President and COO of TVN Entertainment, to talk about how Comcast's entry into the broadband video on-demand market upends the business model and adjusts the playing field for the broadcast and cable TV industry.
TVN Entertainment is the world's largest television on-demand company, reaching over 40 million households in the U.S., Canada, Mexico and Caribbean. On the distribution side, TVN's customers include AT&T, Comcast, Cablevision, Cox, DirecTV, Verizon and other providers. On the programming side, the company serves the major networks, studios, basic and premium cable programmers, digitizing their content and managing distribution to partners.
Prior to joining TVN, Sylvester was President, COO and a board member of iFILM, an online media company. He was also the co-founder of E! Online, E!'s Internet business, and served as the company's senior executive.
ZD: How does the Comcast announcement affect the current business model for content distribution?
DS: The networks and the cable operators have a very efficient business model today. That economic relationship -- the fees exchanged -- is very strong. Both groups have an incentive to preserve this business model, if possible. However, consumers clearly want access to programming across multiple platforms and devices, and they're going to seek it out. So if you balance those two [motives], this announced [Comcast] partnership strikes a balance between them: the cable operators partnering with the networks to offer all that great programming, presumably as part of that bundled service to subscribers.
In my mind, the challenge for the networks and their sites -- or for aggregation sites like Hulu or TV.com (a property of CBS Corporation, the parent company of ZDNet) -- is that they have to take the time to build up an appropriate audience, which is difficult versus TV. As advertisements on those sites are watched, they have to be monetized, and if you were to trade off TV and broadband views one-to-one, that would be difficult for the networks to justify, financially. If done right, there are ways to grow the relationship further. With broadband, you could offer deeper programming -- older shows, specialty programming -- which may result in incremental revenue and fees.
ZD: Users want to know: why should I give up Hulu, TV.com or my Slingbox or Sling Mobile service?
DS: I'm not convinced that these are replacements. If you were to have a deep level of programming through Comcast, I don't think that necessarily means you're no longer interested in going to Hulu. Hulu may have short clips and other programming that Comcast has chosen not to include. It's still at an early stage. The embracement of short-form content, like snippets of Saturday Night Live and news broadcasts -- that hasn't cannibalized TV viewing. It has generated more interest. Sites like Hulu won't go away -- they'll supplement these other services.
ZD: Without technical restrictions on the Internet, how does online on-demand affect local programming? Will there be a way to take local programming outside of the market (say, for regular season sports games)? Can I watch American TV abroad?
DS: Local programming has always been one of the strengths that cable operators have had. That's been a big part of building the connection with the community. Technically, you could geo-filter or create protections around that to allow subscribers to have access based on business rules. The technology is available to support that. The bigger question is around rights -- broadcasters, sports leagues -- and how they're negotiated. How are they constructed? Do you give access to a region, or a region-based account?
The technology's not preventing it. It's more of a windowing strategy.
ZD: What about sports leagues that have their own full-season, all-access channels? How will they cope?
DS: The leagues have divided their content into packages well. They've been very good at thinking about access to the packages -- what device, what platform, what portion of league play goes into a package. As consumption patterns change over time, those deals will evolve as well.
ZD: How long can a provider like Comcast hold out against TV.com or Hulu before it goes free?
DS: The fees paid to distributors are a critical part of their financial stability. The cost of premium programming is very high. If you were to lose that and function solely as a free-to-consumer proposition with ad support, it puts pressure on distributors' ability to invest in the same kind of resources to create that programming. We've seen that phenomenon affect programming already -- the prevalence of reality programming that is low cost to produce. In the longer term, are we going to see everything move to free without support to distributors? In the long run, consumers don't want that. They want high-quality programming. It's not all that they want, but it's part of it.
That's why it's in the networks' interest to preserve part of that economic model. As a consumer, while I love access to free programming, I also appreciate what the cable operator does for me. Organized and bundled into one service, billing is in one place; a single service with a single bill that's managed. There's a company standing behind that service that can support it if there's an outage.
There is already a very substantial competitive environment right now between providers, distributors, telephone companies -- that pressure will only increase. But, I do think there's an opportunity for cable operators to say, "You've thought of my broadband in terms of speed, up time, access -- technical attributes -- but we provide all the great programming that you've come to expect. We can also provide that to you across your devices, and because we have a relationship with you, we can do interesting promotional and viewing offers that, over time, you can start watching something on one device and finish it on another."
ZD: What about restriction of content? Have cable distributors learned from the pitfalls of the music industry's fight for DRM and restricted content access?
DS: Viewing TV and movies -- versus listening to music -- the presentation varies device-to-device. There are movies, for example, that I prefer to watch on my TV, even if it's available on my mobile. I want that experience. There's other programming that I enjoy in shorter form clips or don't mind in lower quality. Mixing and matching the content to the device is the trick, as opposed to offering identical versions of everything across all platforms. All the companies are carefully considering their "windowing strategy" -- how content is incrementally released to markets -- and [as a result] we've seen content available sooner, global releases, a shrinking gap between theatrical and home entrainment releases. The gaps between the windows are shrinking, and the windows themselves are shrinking and rearranging. It's in part to combat piracy, and it's also driven by the marketing to build consumer attention to a title.
ZD: So how does this affect TVN?
DS: We're excited about this because we handle management of digital content, for TV and for broadband viewing. They're all thinking about making programming available to consumers, our business evolves because of those changes.
Interview has been edited for clarity.
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