One major obstacle seems to have been settled in Comcast's quest to buy NBC Universal from General Electric--how much to pay for it.
Both companies have reportedly agreed on a price of $30 billion for GE's movie and TV unit, according to sources cited Monday by Reuters and The Wall Street Journal (subscription required for full story).
The agreement on the worth of NBC Universal (NBCU) is a major step toward paving the way to create a new, privately held company that would combine NBC's TV stations and Universal Studios with Comcast's TV and cable stations. NBCU's Web properties include iVillage and the online video site Hulu, in which it is a co-owner along with News Corp. and Walt Disney Co.
Under the terms of the proposed deal, Comcast would own a majority 51 percent slice of the new entity, with GE owning the remaining 49 percent.
Further, the two companies have discussed an option whereby GE would sell off all or most of its ownership of the new company to Comcast over the next seven years, according to sources cited previously. Recent reports say that GE and Comcast have now decided how to price the new entity after the deal goes into effect so that GE faces no problems selling off its remaining stake.
The valuation of NBC Universal was seen as a major challenge in advancing the deal, according to sources. Comcast naturally was intent on maximizing the value of its own networks and minimizing the value of NBCU to limit the amount of up-front cash it would need to invest in the new firm. Latest reports say that Comcast would inject anywhere from $4 billion to $6 billion into the new entity.
However, both companies have reportedly agreed to base Comcast's final cash payment on NBCU's financial performance before any finalized deal closes. If its performance tanks, Comcast could end up paying less.
Other challenges remain, too. French media giant Vivendi owns 20 percent of NBCU. Vivendi has reportedly told GE that it wants to sell its stake but has yet to voice approval on any deal of its own. A valuation of the company's 20 percent ownership is currently being discussed, said the source cited by Reuters.
Of course, even if Vivendi agrees to a deal and all looks good, regulatory approval would be required, especially since Comcast would own a huge chunk of national and local media outlets. The Journal said that people close to the talks believe regulatory approval could take at least eight to 12 months.
Comcast's bid for a majority stake in NBC Universal was first revealed in early October.
Requests for confirmation to GE and Comcast were not immediately returned.
Helped by cost cuts and by growth in Internet and phone subscribers, Comcast on Wednesday reported a 22 percent jump in earnings for its third quarter.
The cable provider saw net income of $944 million, or 33 cents per share, for the quarter ended Sept. 30, compared with $771 million (26 cents per share) in the year-ago quarter. Sales also rose, hitting $8.8 billion, up from $8.5 billion in 2008's third quarter, though revenue was slightly below analysts' estimates.
For the quarter, the number of TV subscribers dropped 2.7 percent to 23.7 million from 24.4 million a year ago. But the loss was more than offset by gains in Internet and voice, two services that Comcast has marketed heavily, especially as part of its Triple-Play service.
The number of Internet subscribers rose 6.4 percent to 15.6 million, while Comcast phone customers jumped 20 percent to 7.3 million. Overall, the company saw a quarterly increase in customers of 3.4 percent to 46.8 million. Subscriber growth helped boost third-quarter sales for the cable segment by 2.8 percent to $8.4 billion.
With a focus on trimming costs, capital expenses declined 6.1 percent to $1.2 billion, due in large part to lower spending at the company's cable divison.
"The strength and resilience of our businesses combined with our continued emphasis on expenses and prudent capital management helped us achieve healthy operating and financial results in the third quarter," Brian Roberts, chairman and chief executive officer, said in a statement.
Comcast revealed no new details over its intent to acquire a leading stake in GE-owned NBC Universal. Early last month, reports surfaced that the company wanted to buy a 51 percent chunk of NBCU, with GE owning the rest, to create a new joint venture. If it goes through, the deal could transform Comcast into a major media powerhouse, with control of NBC as well as variety of TV networks and cable stations.
SAN FRANCISCO--Cable companies get a lot of criticism from the Silicon Valley set for being some of the ultimate 20th century corporate dinosaurs. Or, as Web 2.0 Summit conference organizer John Battelle put it, "a dead duck."
So the head of Comcast, a company that's taken loads of heat from tech experts--for imposing bandwidth caps, poor customer service, and an alleged failure to innovate on both broadband speeds and the convergence between television and the Web--was an interesting choice to kick off the summit event here on Tuesday. But Comcast CEO Brian Roberts spun his company to the audience as springing from the same kind of entrepreneurial spirit that the Bay Area prides itself on.
He spoke of how he took over the reins of the company from his father, who according to legend was able to make an early strategic acquisition thanks to the winnings from a Tupelo, Miss., poker game the night before. "Similar to probably almost everyone in this room, (he) wanted to work for himself, wanted to start his own business."
He previewed new features for the Comcast video hub Fancast, which it launched slightly under two years ago at the Consumer Electronics Show. The new beta of Fancast, which will launch by year's end, will make new on-demand content available online, much of it unavailable in outlets like iTunes--and integrated with DVR boxes--to Comcast cable subscribers who already pay for HBO. About two dozen content providers have signed on board, and as Roberts scrolled through the preview, he noted that there were about a thousand movies available.
Comcast CEO Brian Roberts
(Credit: Comcast)Battelle, interviewing Roberts onstage, called it "video-on-demand on steroids."
The Associated Press, referencing a briefing this week with executives at Comcast's Philadelphia headquarters, helped fill in some of the details about the service, noting that it would include such popular cable shows as HBO's "Entourage" and AMC's "Mad Men" and for now is being called "On Demand Online."
The AP said Comcast subscribers can initially watch shows and movies only on their home computers after being verified by the cable system. Online viewing, at least in the beginning, will be restricted to those who get Internet service through Comcast, not through competitors like phone companies, the AP said.
Back at Web 2.0 Summit, Roberts also said that Comcast investments in broadband technology are, in part, what has facilitated the explosion in Web innovation.
"We're going to keep investing, because we believe there are great ideas in this room and in this country and in the world," Roberts said. "In the same way, it's unthinkable that a Google or a Yahoo or a Facebook or a Twitter would be happening if we hadn't made those investments (in broadband infrastructure) 15 years ago."
Battelle asked Roberts why he believes the U.S. lags behind in broadband technology advancements. Roberts replied, "I think that that's just not true."
(The audience laughed uncomfortably.)
"We have the same equipment (as other countries), the same wires, the same infrastructure, why is the adoption different is a different question. It's not the availability and I don't think it's the lack of speed," he continued. "You get to digital literacy, you get to what language it's in, do you have the right PC or a PC at all...I don't believe the infrastructure providers haven't done enough."
As for Net neutrality, an issue where Comcast has been a frequent villain after imposing bandwidth caps and interfering with peer-to-peer file-sharing software, Roberts was vague.
"We welcome that discussion, that scrutiny, and we're going to be an active participant," he said. "The few limited examples, including our own, that have gotten notoriety usually get dealt with in ten seconds, and changes get made, because this is new technology."
More recently, it's bubbled into the press that Comcast is in talks with General Electric to obtain a controlling stake in its NBC Universal property. Conveniently, GE chief Jeffrey Immelt was slated to speak later in the afternoon at Web 2.0 Summit.
"You and Jeff Immelt must have finished the NBC deal back in the green room," Battelle joked.
Roberts replied facetiously, "It's all done."
Time Warner is not interested in a bidding war for NBC Universal, according to Jeff Bewkes, CEO of the media conglomerate.
Bewkes, who was being interviewed Friday for The Atlantic's First Draft of History conference at the Newseum in Washington, D.C., said big media mergers hardly ever work.
Jeff Bewkes, Time Warner chairman and CEO
(Credit: Time Warner)"Some deals work in media, but most have not," he added. "Over the past 10 to 15 years, there is a very low percentage of deals that have delivered what they would deliver, in terms of return on investment."
After the interview, which was streamed live online, Bewkes told a Reuters News service reporter why his company isn't interested in bidding for NBC Universal. Earlier this week, reports surfaced that Comcast, the largest cable operator in the United States, is in talks to buy a controlling stake in the media company, owned by General Electric and Vivendi.
"There's no real need or benefit for us to take on the various aspects of NBC," Bewkes told Reuters in an interview at the conference. "We have a lot of good things, and so we don't see that as particularly attractive."
Time Warner knows a thing or two about failed mergers. In 2000, it acquired AOL in a stock deal that was valued at the time at about $160 billion. When the merger was first announced, it was hailed as a major milestone, a historic marriage of online media and print and broadcast media. But only a few years into the merger, it became apparent that the deal was doomed. By 2008, Time Warner had confirmed that it was dumping AOL altogether.
Since taking the helm as CEO of Time Warner in 2008, Bewkes has tried to keep Time Warner focused on its core business of creating content. Instead of acquiring new properties and diversifying the business, Bewkes has made cuts. Besides spinning off AOL, he also shed the company of its cable division.
While Bewkes may not see a need to merge with another big media company, he does see the importance of partnering with other players, such as Comcast. Earlier this year, the companies announced that they were testing service that allows Comcast cable subscribers to view online TV shows and movies from several Time Warner cable channels, such as TNT and TBS.
Bewkes said expanding access to TV shows and movies online will actually grow the audience for its content.
"With HBO, we learned that putting shows on demand increased viewership," he said. "So viewership goes up, and viewers get to watch (what) they want, when they want. And they get to select their favorite shows from their favorite channels."
Other changes in the media business that Bewkes predicts includes the end of print magazines and newspapers. Instead, he envisions people using e-readers such as the Amazon.com Kindle to get access to periodicals. He said that soon, many manufacturers will have e-readers on the market and that these devices will be much more affordable for average consumers.
Separately, Bewkes told Bloomberg that the company was not interested in selling its Time Inc. magazine unit.
Cable giant Comcast is reportedly in talks to gain a controlling stake in General Electric's NBC Universal, in a deal that would help shape Comcast's online-content strategy and help NBC Universal keep pace amid the shifting market.
According to a Wall Street Journal report, Comcast is hoping to form a privately held joint venture that would include NBC's media content. Comcast would control the venture with a 51 percent stake, and GE would own 49 percent of the new company.
Combined, the new jointly owned media company would own more than two dozen TV networks, including NBC, along with several cable stations, such as USA Network. Comcast already operates some of its own cable networks, such as E!, the Style Network, and G4. The new joint venture would also own NBC Universal studios, plus 10 local NBC TV affiliates in cities such as New York and San Diego.
This isn't the first time Comcast has gone looking for a big media company. Five years ago, the company tried to acquire Walt Disney for about $66 billion. In the years since that failed attempt, the media and video distribution landscape has changed dramatically.
Television networks are struggling to keep advertising revenues up, and movie studios are under pressure to prevent digital piracy from eating into their profits. Meanwhile, Comcast, which is facing more competition from phone companies and satellite providers in its TV business, is also trying to figure out how best to use the Internet to deliver video content.
Individual TV channels have been putting their own TV content online for consumers to access for some time. This initially troubled cable operators such as Comcast; they saw the free delivery of video content for which they pay a hefty price as a threat to their business.
NBC and News Corp., the owner of Fox, have made a splash with online service Hulu, which offers TV shows and some movies on demand. Other media conglomerates, including CNET News publisher CBS, have made similar moves.
Comcast, too, is starting to embrace online video, teaming up with media conglomerate Time Warner earlier this year to test a new service offered by Comcast called On Demand Online. The service allows Comcast cable customers to access some of Time Warner's most popular TV shows from its TNT and TBS networks at no additional charge. Its plan is to provide TV networks and movie studios a secure way to distribute their movies and TV shows to a wider audience via the Internet.
The Wall Street Journal said that talks between Comcast and GE could still fall apart. Comcast is looking to pay as little as it can up-front. And there is an issue about what to do with Vivendi, which has a 20 percent stake in NBC Universal.
Comcast continues to sign up media partners to a trial program of the cable operator's On Demand Online service.
The service, which will make TV shows available for users to watch online, has signed 17 cable stations and has its first major broadcast network: CBS, parent company of CNET News, the cable operator said Tuesday. Comcast had previously signed Time Warner and Liberty Media's Starz.
Peter Kafka over at All Things Digital first reported last month that Comcast was wooing CBS.
Comcast's service comes at a time when mainstream consumers are catching on to the amount of material available online and as more cable customers drop their subscriptions.
This from Kafka: "The idea is to protect cable subscription revenues by giving pay TV customers--but only pay TV customers--Web access to all the shows they get on TV, and hoping this keeps them from canceling their subscriptions."
Not only is Comcast fighting back against the likes of Hulu and YouTube, which also offers a smattering of full-length TV shows and films, but Netflix is also offered a popular way to watch films and TV shows online with its streaming service.
CBS is the first broadcast network to sign on to the On Demand trial.
(Credit:
Comcast)
Cable giant Comcast plans to add movies from the cable channel Starz to its test of "On Demand Online," a new service its testing that allows Comcast subscribers to watch cable TV online at no additional charge.
Comcast is set to begin testing the service in the next few weeks with about 5,000 customers. And in addition to video content from Time Warner's Turner networks TNT and TBS, participants will also be able to view about 300 movies from Starz's lineup in standard definition. Some of these movies include Wall-E, Pineapple Express, and High School Musical 3.
High-definition versions of movies and additional content will be added later in the trial. Starz also plans to offer original series like Crash, Head Case, and Party Down.
Comcast announced the On Demand Online trial last month as well as a new partnership with Time Warner to drive the development of the service. Some of the TV shows that Time Warner plans to offer include The Closer, Saving Grace, and My Boys.
Comcast plans to make its On Demand Online service available to all of its subscribers in the fourth quarter of this year.
Instead of a bloody price war between cable operators and phone companies in the TV market, battle lines are now being drawn over who has the most compelling new features.
Digital video recorders, on-demand services, and more recently Web sites such as Hulu.com have taught people that they don't have to be beholden to a TV schedule. But the TV industry is about to be shaken up even more as phone companies and cable operators, which are all vying for your viewing eyeballs, add new features to their services to lure customers.
So what's it mean for you, the consumer? Well, it's not likely to mean lower prices on the services you already buy. Verizon Communications has already started moderately increasing the price of its service bundle for new customers. But what it's likely to mean is that consumers will get a lot more bang for their buck. When it comes to TV, that means a lot more access to the shows and movies you like, when you want to watch them, and on any device you want to view them on. At least that's the promise.
Whether the dream lives up to the expectation is another story. While some of these new services are being rolled out as we speak, some are still being tested and aren't quite fully baked. But at the very least the revolution is quietly under way and TV viewing could be a whole lot different in just a few short years.
"I think what we (Verizon and AT&T) are doing is pressuring the rest of the market to respond," said Shawn Strickland, vice president of Fios product management for Verizon Communications. "So Comcast can't just respond to what we are doing in a single market, but they have to respond to AT&T too and it drives innovation in the entire market."
For years, not much had changed in terms of the TV viewing experience. Programmers would highlight their popular shows and vie for top ratings in Nielsen surveys. And viewers would sit back and enjoy their favorite shows. Aside for some competition from satellite providers, for the most part, the cable industry had enjoyed a near monopoly on the TV market. That is until the phone companies came along with their dreams of marrying Internet technology to the TV.
Who would have thought just a few years ago that it would take the old stodgy phone companies to stir things up in TV? But that is exactly what's happened as AT&T has entered the TV market with its U-verse service and Verizon Communications has taken on cable operators with its Fios service.
In just a few short years, these phone companies have gone from playing catch up to their rival cable providers, to actually leading the industry in terms of innovation with new interactive services that leverage their Internet-based networks.
But the cable industry hasn't sat idly. The major players in the market, namely Comcast and Time Warner Cable, have been upgrading their networks to add more capacity both to their Internet services and to their video services. And they've been forging ahead with new digital video recording features and video on demand content. Now, they are about to take the biggest plunge yet into the uncharted territory of online on-demand access to TV shows and movies.
For consumers these new services will soon offer broader access to more content, on more screens and at times that are convenient for viewers and not TV programmers. And thanks to the wonders of the Internet, consumers will also be able to interact with what they're watching.
More interactivity for viewers
For the phone companies, the future of TV is also about deepening the experience and providing more interactivity for viewers. For Verizon's Fios customers this means being able to discover new shows by checking what is the most popular content being watched in their neighborhood. The company also offers sports and news widgets, and its working on social-networking applications that will integrate TV viewing with Twitter and Facebook.
For AT&T's U-verse customers it means taking a TV event and providing a deeper dive. During the PGA Masters golf and the March Madness NCAA basketball tournaments this spring, AT&T partnered with CBS Sports to provide Web-based applications to coincide with TV viewing (CNET News is owned by CBS.) During basketball games, statistics and scores were added to March Madness fans' online brackets so they could be viewed as the games were unfolding.
And Masters golf fans were able to view multiple video feeds on their TV screens to keep up with action at different points on the course. Viewers could also check the score board online to see how the leaders were shaping up. And this information wasn't just available online or on TV, but using an application for the iPhone, it was also available on mobile devices.
"With this kind of experience viewers start to have more control and a deeper engagement with the content," said Jeff Weber, vice president of video products for AT&T. "This is very clearly for customers who care about these types of events, but it gives them an opportunity to be engaged in a way they couldn't before."
But Weber also acknowledged that viewers were primarily interested in watching these sporting events. And he said there was a fine line between balancing the deeper richer experience with not interfering with the primary activity of TV viewing.
"At the end of the day, the killer application is still watching TV," he said. "So we needed to deliver ESPN with as good a quality or better than the cable companies into the living room. But now that we have done that, we are pushing ahead to make it a much richer experience for the consumer."
Verizon's Strickland said adding interactivity to the TV viewing experience also increases the opportunity for advertisers. And it offers a new way to monetize the TV viewing experience.
"The TV is the best entertainment storefront out there," he said. "People spend an average of six hours a day in front of the TV. And interactivity with that audience provides a lot of opportunity to advertisers."
This aspect of the new television age may or may not appeal to consumers. But the truth is that providing TV service and creating content is expensive. And as more people gravitate toward watching recorded TV shows and skipping advertising or even viewing video on demand content, TV providers and the programmers that create the content need to find ways to make money to augment losses in the traditional business model.
Because the phone companies have built their networks using IP technology, they've been able to push the envelope in terms of interactive features. And in the case of Verizon, its fiber architecture has also given it a considerable amount of bandwidth capacity to push the envelope in terms of on-demand services. As a result, today Verizon is offering more than 100 channels of high-definition content. And it's able to match cable competitors in terms of video on demand services.
Cable upgrades
But the cable companies haven't been sitting on their hands for the past few years. They've been upgrading their networks and innovating too. Comcast already has Docsis 3.0 technology, which greatly increases broadband speeds and network capacity, in at least a dozen markets. Time Warner Cable was one of the first companies to introduce its start-over solution that allows viewers to start a TV show from the beginning if they come into the show late and haven't recorded it.
But the boldest move by the cable companies is about to get off the ground. Leveraging existing relationships with TV programmers, cable is striking deals to put more video content online. The popularity of Web sites such as Hulu.com, which offers mostly broadcast TV shows for free online after they air, along with other free online video programming, has spurred the cable companies into action.
Time Warner Cable has been trialing a service with HBO that allows people in Milwaukee to watch on-demand HBO TV shows and movies on their laptops. And now Comcast and Time Warner, the media conglomerate and former parent company of Time Warner Cable, are working together to test a new authentication system for accessing Turner Broadcasting content from TNT and TBS.
On Wednesday Comcast and Time Warner announced their new plan to provide authentication to securely distribute video online to cable subscribers. The companies highlighted the importance of allowing their viewers to access content, which they've already paid for via a cable subscription, from anywhere, anytime and on any device.
"This a very logical next step in the evolution of TV," said Brian Roberts, CEO of Comcast during a press conference Wednesday in New York. "Comcast alone has had 12 billion on-demand streams. iTunes has had about 6 billion downloads. This is how consumers want to get their content."
Jeff Bewkes, CEO of Time Warner agreed. "Consumers have spoken," he said. Bewkes added that putting video online for viewers to watch anytime they want on any device will greatly expand the audience and actually provide more revenue opportunity for advertisers. He used HBO as a perfect example. He said that when the company decided to add HBO content on demand for free that viewership went up and people were able to follow more shows. He said he is willing to work with any TV provider to make the Time Warner content available elsewhere.
While it's important to give people a choice in where and when they watch something, Bewkes also noted that the most important thing is simply providing access to the content.
"There has been so much focus on broadband," he said. "But don't miss the importance of the video on demand aspect. Whether its over a set top box or broadband, it will have a dramatic increase in audience."
Cable giant Comcast announced that it's working with media conglomerate Time Warner to deliver cable TV shows via the Internet for cable TV subscribers.
The companies announced on Wednesday that they will be testing a new service this summer offered by Comcast called On Demand Online. About 5,000 Comcast customers will be involved in the test. And they will get access to some of Time Warner's most popular TV shows from its TNT and TBS networks at no additional charge.
The companies plan to continue to work together to get more of Time Warner's Turner Broadcasting content on the Web for on-demand viewing, Jeff Bewkes, CEO of Time Warner, said during a press conference in New York on Wednesday.
The On Demand Online trial will test a new authentication technology that will allow secured access to the content.
Comcast's CEO Brian Roberts said he expects other networks to participate as the trial expands. Bewkes also said that Time Warner will work with other TV distributors, such as telephone companies and satellite companies, to distribute its video content in similar trials.
Comcast's plan is designed to provide TV networks and movie studios a secure way to distribute their movies and TV shows to a wider audience via the Internet. The way the service works is that people will only be able to access content if they have a cable TV subscription. But the service will work over any Internet provider, so that a Comcast TV subscriber could access video-on-demand services available through his paid TV package using Verizon's DSL service, for example.
Subscribers will only have access to content that is included in their cable package. For example, this means that viewers who pay for HBO could be allowed to get HBO shows and movies on demand via a broadband connection. But if a subscriber doesn't pay for HBO, that content won't be accessible via the service.
Comcast has already been experimenting with putting cable TV shows that haven't been available online on its Fancast Web site. And Time Warner Cable has also offered some HBO shows over the Internet in certain markets for a trial it's been testing.
Bewkes and Roberts emphasized during the press conference that the new service was about giving consumers free access to content via the Web. But journalists at the event and on the conference call pointed out that the service isn't really free since users must already subscribe to a paid TV service to get access to the content.
This is different from services such as Hulu.com, which is owned by NBC Universal and News Corp, and CBS' TV.com. (CNET News is published by CBS Interactive, a unit of CBS.) These Web sites offer broadcast TV shows via the Web for free after the shows have aired. Hulu even offers some cable TV shows.
But what Comcast and Time Warner are talking about is putting premium cable programming on the Web. Networks and movie studios have been reluctant to offer their content online because they fear piracy. They also have been uncertain about how to monetize their most valuable content.
But Roberts said that the authentication technology Comcast will use in its trial helps alleviate these fears because it not only authenticates using a username and password, but it goes one step further to ensure that the user accessing the content is really permitted to access that piece of content. And Bewkes said that new advertising models will be developed to help ensure that content owners get top dollar for their movies and TV shows.
Some critics view this move as a defensive one as cable operators and cable networks fear that as more content makes its way online--legally and otherwise--that many viewers will cut the cable cord and watch TV via the Internet. But Bewkes downplayed this concern saying that paid TV subscribership has increased every year for the last 30 years and that he doesn't see this trend slowing anytime soon.
Instead he said that this new initiative is really a way to give consumers more choice to watch what they want, when they want it and where they want regardless of device. While he concedes that most TV viewing is done today on an actual TV, he also said that viewers may want to watch TV shows on mobile phones. And this new model will allow for that as well.
For an industry that's supposedly struggling to keep up with customer demand for more bandwidth, the nation's two largest cable operators seem to be doing pretty well.
This week Comcast and Time Warner Cable each reported strong earnings, in spite of the fact that Time Warner has said recently that it needs a new business model to handle growing broadband demand.
Comcast beat analysts' expectations and increased profits 5.4 percent to $778 million. Time Warner Cable's profits fell 32 percent, but this was mostly due to costs associated with the split from its former parent company, Time Warner. The company's revenue was actually up 5 percent to $4.4 billion when compared to the same quarter a year ago.
Comcast also increased revenue by about 5.3 percent to $8.4 billion.
Meanwhile, both companies reduced capital spending. Comcast cut capital expenditures by 19 percent to $1.16 billion. And Time Warner Cable cut its spending by 18 percent to $33 million. For broadband specifically, Time Warner increased revenues 11 percent to $1.1 billion.
The companies also increased subscribers. Time Warner added 225,000 new broadband users and 166,000 new voice-over-IP customers during the quarter. Comcast added 328,613 high-speed Internet customers, down 33 percent from the previous year, and it added 298,433 digital phone customers, also down about 53 percent.
Even though Comcast isn't adding new customers as quickly as it did a year ago and Time Warner's profits aren't as high as they were a year ago, the companies are still adding new subscribers and making money. And yet they are also cutting capital spending.
This financial reality is very different from the one Time Warner Cable has been touting recently, as it tries to explain why it wants to start billing customers based on how much bandwidth they use. Outraged consumers mounted loud protests when the company said it would expand trials of the new billing system. Time Warner backed off the plan for now. But the company still argues that it must do something because the current business model is "not viable."
Time Warner's views are shared throughout the industry. Kyle McSlarrow, president and CEO of the National Cable & Telecommunications Association, supported Time Warner Cable's trials in a blog post stating that they "may serve the vast majority of their customers better by reflecting the growing reality that some consumers utilize far more high speed bandwidth than others."
Smaller cable operators are already starting to meter bandwidth, according to a recent article by the Web site Broadcasting & Cable. Sunflower Broadband in Northern Kansas has been using metered pricing for the past four years. And Wave Broadband, which provides service in Oregon and Washington, is about to launch metered billing on its network.
The chief operating officer of Sunflower Broadband, Patrick Knorr, says bandwidth-based billing is the only way to manage infrastructure, the B&C article said. He believes that with all the high-definition content being downloaded that there is no way a cable company could keep up with demand at current flat rate prices. And like Time Warner's CFO, Landel Hobbs, Knorr says that consumption-based billing is "unsustainable."
But when cable operators add customers and cut capital spending on infrastructure, it doesn't seem as though they are even attempting to keep up with customer demand for more bandwidth. And the fact that they are still making profits also shows that they have the money to spend. So for consumers--who already feel they pay too much for broadband services compared to people living in other countries--Time Warner's argument that it has no choice but to meter traffic is a hard to pill to swallow, especially in this economy when so many people are financially strapped.
