MILWAUKEE — In the last couple of years, the television industry has made a big push onto the Web, giving viewers hope that they might one day reach nirvana: every show ever made, available online for immediate free viewing.
But many in the industry are now questioning whether free is a sustainable model. And some are trying to make sure people have a reason to keep paying hefty cable bills.
Time Warner Cable, the second-largest cable operator in the country, is working with customers here to test a subscriber model for online TV viewing. Residents who pay for HBO can watch “Big Love,” “Entourage” and other programs on their computers, using special software and a personal log-in. People who are not HBO subscribers are barred from the service.
One night this month, while their two children slept upstairs, Steve Glynn, 35, used headphones to watch the HBO series “In Treatment” on his laptop through the service, while in the same room his wife, Kerri, watched “Dancing With the Stars” on the family television.
Although he says he watches TV infrequently, Mr. Glynn is a convert to HBO, now that the shows and movies are accessible in his lap. And he wants more. “We need this to be across all of Time Warner’s channels, not just HBO,” Mr. Glynn said.
The Time Warner test is one of several signs that the recession-weakened television industry is re-evaluating its plan for bringing TV to the Web. By all measures, full-length television shows on the Web have tremendous appeal, as millions of Americans log on to catch up on episodes they miss on TV and to discover new shows.
The free video Web site Hulu, a joint venture of NBC Universal and the News Corporation, counted 35 million unique viewers in February — only a fraction of the hundreds of millions who watch TV every month, but a 42 percent jump from January, according to comScore. The ratings for some programs, like “Lost” on ABC, would rise as much as 25 percent if online views were included, according to the ratings service Nielsen.
Nevertheless, television executives are developing a different model in which only subscribers to traditional cable and satellite services would be able to access the full breadth of shows online.
Leading the charge are the cable and satellite companies, who worry that the proliferation of free video on the Web — and downloadable shows on Apple’s iTunes — may be harming the $60-billion-a-year subscription video business by allowing people to unplug their cable services.
AT&T, Comcast, DirecTV, Time Warner Cable and Verizon are among the companies exploring a subscribers-only approach to online TV, according to television executives with knowledge of the talks. The distributors have approached cable channel companies like Viacom, owner of MTV, VH1 and Comedy Central; Scripps Networks, owner of HGTV and the Food Network; the BBC; and Discovery to talk about giving subscribers online access to their shows. The Wall Street Journal first reported on some of those talks last month.
Time Warner has also approached YouTube about distributing episodes from channels it controls, including TNT and TBS, people with knowledge of the preliminary discussions said. That could make YouTube, which is owned by Google, a major player in the market for longer videos — something it has not managed to accomplish on its own.
Cable executives expect broader tests by this summer of the new systems, which require them to develop technology to identify their subscribers when they go online. The approach is expected to be a hot topic at the cable industry’s annual trade show in Washington this week.
There are also signs that broadcasters and cable networks are worried that their initial, highly publicized push to put some of their programs online may be threatening the higher revenue they bring in when the same material runs on regular television. Cable networks are loath to put programs online unless they can maintain the per-subscriber fee that they receive from distributors.
Almost every show from the broadcast networks is now free online, at the networks’ sites or at hubs like Hulu, while almost every cable show is not. But in recent months, there have been signs of retrenchment by the broadcasters; CBS no longer streams its hit show “The Mentalist,” for instance.
“Every single network is having a hard time trying to figure out how to make money on their Internet delivery,” said Brian Baker, the chief executive of Widevine Technologies, which helps owners of content distribute their programming securely online. “Advertisers are not willing to pay top dollar for content delivered over the Internet to PCs, and it’s beginning to jeopardize the multibillion-dollar relationship the networks have with their cable and satellite providers.”
The revenues and stock prices of the major media companies have fallen significantly in the last six months, giving ammunition to the critics who think an online approach solely supported by advertising is flawed.
Broadcasters “went out and did deals to put content on broadband without a whole lot of thought about the long-term financial model,” said Jeffrey L. Bewkes, chief executive of Time Warner and a principal supporter of the new subscriber-only Web video plan. “If people aren’t subscribing to the programming, you probably shouldn’t put it online, because then half of the financial support goes away. That isn’t good. It hasn’t been good for the newspaper industry.”
Some content owners, harboring their own new doubts about the profitability of online video, seem open to the subscription idea. Jeff Gaspin, the president of the Universal Television Group, which oversees NBC Universal’s cable channels like USA and CNBC, said the company wanted to figure out a model that “gets our content out there when and where people want it, but that also preserves that dual revenue stream and that relationship we have with our distributors.”
He said NBC Universal was testing technology to identify Time Warner Cable subscribers online, and is also talking to Comcast, Cox and other providers about similar moves.
But an executive at another cable network, who did not want to be named because the discussions are at a preliminary stage, said that the cable operators were not guaranteeing the networks any additional revenue for the right to distribute their content online. He said his network was hesitant to sign on for that reason.
Another trend that terrifies television networks and distributors is the prospect that Web video will move from the PC to the television itself. Products intended to bridge that gap, like the Apple TV set-top box and the Roku digital video player, are now used by only a small percentage of people but could become more popular.
One company getting squeezed by these pressures is Boxee, a New York start-up whose software for PCs can be used to bring shows from Web sites like Hulu to the television set. Last month, Hulu’s backers, Fox and NBC, pressured Hulu to remove its content from the Boxee service because it threatened their efforts to get the cable operators to pay them what the industry calls retransmission fees.
Boxee has been trying to restore Hulu to its service, with both technical workarounds and through negotiations with the networks.
“Transitioning online opens up great opportunities for networks, but it also runs the risk of cannibalizing their existing business,” said Avner Ronen, Boxee’s founder. “Right now I think they want to tread the online waters carefully, to experiment online while it’s still a small business, and to innovate there, but not to rock the boat too hard at the risk of tipping it over. That’s the conflict they have.”
