Digital Media

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.

Cable operators and media companies are cautiously dabbling in on-demand online video, but this is one case where caution could be as dangerous as recklessness.

Recently, the nation's two largest cable operators have been talking about offering their cable lineup to subscribers online so they can view their favorite shows on their computers. And now, YouTube, the site Viacom sued for more than a $1 billion in 2007 and threatened to have shut down, is signing deals with big studios like Sony Pictures and Lionsgate, as well as TV network CBS. (CNET News is published by CBS Interactive, a unit of CBS.)

All this recent activity seems to suggest that cable companies and big media companies finally understand that the Web is their future. People want to watch what they want when they want. And the Internet provides an ideal way to connect people to their favorite content.

While these efforts are a step forward, the cable operators and the media companies are still trying to maintain control and strike a balance between the old and the new. Their biggest fear (and a reasonable one) is disrupting an extremely lucrative business model that has served them well for the past 30 years. But experts caution that if they move too slowly, they could risk losing everything to digital piracy.

In short, do you give up some of your existing revenue and hope you can make that money back through advertising? Or do you stick with your current model and fight what could be a losing battle to protect your copyrights?

"There is no way to put the genie back in the bottle now," said Avner Ronen, CEO of Boxee, a company that acts as a sort of browser for the TV to help people find and play online video on their big screen TVs. "But if users can't easily get the content legally and reasonably priced in a reasonable amount of time, they will go out and get it some other place. That has been proven with music, and video is no different."

Appetite for online video grows
There is little doubt the online media age is upon us. Movie studios and network TV companies have been serving up popular shows online for at least the past couple of years. And now the nation's two largest cable operators, Comcast and Time Warner Cable, are testing services that allow their cable TV viewers to watch their regular cable lineup over the Net on their computers.

Time Warner Cable, the second-largest cable operator in the country, is already testing its online video-on-demand service in Milwaukee. The service allows Time Warner customers who subscribe to HBO, for example, to watch episodes of "Entourage" or "Flight of the Conchords" online through the Web site. Subscribers who don't pay for HBO, don't get access to those shows. Comcast isn't in tests yet, but the company plans to offer a similar service available through its Fancast Web site later this year.

Unlike video Web sites such as Hulu.com, which is owned by NBC and News Corp., and CBS' TV.com, the cable online video services are not free. And it doesn't sound like the cable operators have any intention of offering them for free.

"We believe we can add more value to the entertainment that people are already paying for," said Sam Swartz, executive vice president for Comcast Interactive Media. "We recognize that consumers have different ways to consume content. Some will want to view it on a PC. Others will want to see it on a TV. Our job is--for the same subscription fee--to offer it to consumers on whatever platform they want."

One thing has become very clear to be successful in offering online video: Content is king. And sites that don't have it die. Just look at Joost, which was founded in 2007 by Janus Friis and Niklas Zennstrom, the same pair who founded Skype and Kazaa. But the company had trouble landing top TV shows and films and two years later, it's on the auction block.

Meanwhile, NBC and News Corp.'s Hulu.com has flourished providing online access not only to NBC's and News Corp.'s own content, but also TV content from others, as well as some movies. CBS has also gotten into the game by offering some of its TV shows online through its Web site TV.com. And now movie studios are courting the once loathed and feared YouTube. The site owned by Google recently signed distribution deals with Sony Pictures, CBS, Metro-Goldwyn-Mayer, Lionsgate, Starz, Discovery Communications, and National Geographic.

Show me the money
Media companies plan to make money from these services through advertising, a model that has worked well in the broadcast world for more than 50 years. But making money in advertising on the Web has so far proven harder than in the broadcast market.

The problem is that media companies make more money from airing a show on broadcast than they do online, even though a lot of people who record their television shows with a DVR fast-forward through the broadcast commercials. And viewers of Hulu can't forward through the commercials offered during their shows. The other problem is that advertising firms get paid bigger budgets to develop advertising for TV spots than they do for Web spots, providing an incentive to push clients toward TV advertising rather than online advertising.

Another major problem with the current business model is that cable companies spend tens of billions of dollars each year to license content from media companies. They then turn around and sell subscriptions to their service to consumers, who view the content. Popular content, such as the sports channel ESPN or the all-news channel CNN, are very expensive. And if consumers can get the same content from those sites for free on the Web, why would they pay $100 or more a month to subscribe to cable?

Understandably, cable operators have pushed hard to keep media companies from offering too much of their content for free online.

"Media companies are getting pressure from the cable companies to not put as much content online," Ronen said. "Cable is saying, 'Why should we be helping people cut the cable cord when we're paying $20 billion a year for content.'"

Still, online distribution represents a new opportunity for media companies providing them the chance to monetize older content that sits unused in their archives as well as bringing in additional revenue from new products associated with popular shows.

As media companies try to figure out how to make more money from the Web while not biting the hand that feeds them, i.e. the cable companies, they are experimenting with which content to distribute online and how much of that content they make available for free to online viewers. For example, NBC offers full episodes of all three seasons of the show "Friday Night Lights" on Hulu.com. But the super-popular comedy "30 Rock" only offers full episodes of some of the most recent episodes.

Content owners have also restricted the use of services, like Hulu, overseas, since there are special content license deals with foreign broadcasters for TV shows and movies produced for the U.S. market.

But there have also been occasions where media companies have actually taken content off the Web. Earlier this year, Hulu.com upset fans of the FX show "It's Always Sunny in Philadelphia" when it yanked almost the entire three seasons of the show. Distraught users sent angry messages on Twitter and Hulu was forced to post a response in a blog saying that it was FX's decision to pull the show and not Hulu's.

The situation demonstrated that it is the media companies, and not video-playing Web sites, such as Hulu, that have control of the content.

Media companies, likely nudged by the cable companies, have also tried to keep the online video viewing on the PC. For much of this year, Hulu has been blocking Boxee, a software application that provides an easy way to discover and view online video on the TV.

While the media and cable companies may be merely trying to protect their copyrighted content and existing business models, they may find their attempts to control the distribution of their content fruitless. Boxee CEO Ronen said that these companies are risking losing complete control of their content through piracy.

"Piracy will become an even bigger concern for them if they don't give viewers what they want," he said. "It's already happening, especially overseas where you can't get access to most of this content legally."

But Comcast's Swartz said that the online video market is still young. And experimentation is necessary at this stage.

"We are in the bottom of the second inning when it comes to putting content online," he said. "Content owners are realizing that they put some content out there and they aren't making money. Now they are at the point where they are trying to figure out which business models will work."

Of course, the big question is whether they will figure it out in time. The game may only be in the bottom of the second inning, but it could be over a lot quicker than Swartz or any of the other cable and big media execs realize.

As more entertainment content makes it way online, Comcast is looking for new ways to remain relevant to its subscribers.

Specifically, the cable giant is launching a bunch of new initiatives to bring more interactive content to its services and keep its subscribers hooked on cable. First on the list is the company's proposed free online video-on-demand service. The service, which will be offered as part of Comcast's Fancast video site, has been discussed publicly for the past couple of months. But the company has kept the details, such as when it will launch and what content will be offered, under wraps.

What is known is that Comcast expects to offer the service free of charge to its existing cable TV customers. In a recent interview with PC World, Karin Gilford, the Comcast Interactive executive in charge of the cable provider's Fancast video site, said with a user name and password, subscribers will be able to access any standard or premium cable content that their cable subscription entitles them to watch.

The service will let users watch TV on their laptops or computers, and eventually it might even be available on cell phones. What will make the service different from other online video sites, such as Hulu.com or TV.com (which is owned by CBS, publisher of CNET News), is that it will feature premium cable content from sources like HBO, ESPN, and CNN. This content has largely been off-limits to free online video aggregators.

But because Fancast online video-on-demand viewers must subscribe to cable TV, the new service won't act as cable replacement. In other words, it's simply an extension of Comcast's existing cable service. This is an important element of the service, because it ensures that Comcast doesn't cannibalize its own lucrative paid TV business.

Apps, to boot
In addition to online video, Comcast is also dipping its toe into online application waters. The company announced earlier this week that it is working with Adobe Systems to embed its Flash technology on set-top boxes used by its TV subscribers. Sree Kotay, senior vice president and chief software architect at Comcast, recently told the Web site Contentinople that the company plans to enable widgets and other Flash-based applications on its set-top box.

Kotay said he sees Flash as a software platform that could allow the company to quickly add new applications to the set-top box. And he said that these applications could be built by Comcast or they could also be built by third party developers. The company was showing off the new set-top box at the National Association of Broadcasters conference in Las Vegas this week.

Kotay hinted at potentially creating an application storefront akin to Apple's iPhone App Store. He said that the App Store was a good example of how companies can maintain control over applications to ensure quality and also easily distribute them to consumers.

But he stopped short of indicating whether Comcast would provide a monetization mechanism through its own customer relationship. This would be easy enough to do, considering that Comcast has a direct billing relationship with consumers and could easily provide one-click purchasing. But Kotay said it was still too early to discuss business models.

For now, Comcast is still in the exploratory phases of how it can keep pace with the online world. It will be interesting to see if subscribers use the Fancast video on demand site and what kinds of applications and widgets will be developed for the TV.