Cisco grabbed some of the limelight at the Consumer Electronics Show by unveiling a cloud-based video platform for service providers like cable TV companies. A lot of hubbub was made over technology, which would deliver movies and TV shows on any device at any time. But in all the oohing and aahing over the new product, Cisco and partners left out one important detail: TV lovers will be paying a lot more for these services.
Cisco's Videoscape Unity is a content-delivery platform for the living room. Software embedded in a set-top box would enable subscribers to watch content from a TV, tablet and smartphone. Cable operators would be able to deliver, for example, a Major League Baseball game on the TV and provide simultaneously stats on the players on an iPad.
In addition, the technology would be able to recommend movies and programming based on a person's TV habits, and a cloud-based digital video recorder (DVR) would let subscribers record content for viewing later from any device. The platform would also have a social media element. Viewers will be able to chat with friends on Facebook and Twitter.
For the pay TV industry, Cisco's platform provides a much better business model for squeezing more money from subscribers. In general, cable operators today charge more by adding channels to packages. However, the cost of content is high and good programming is scarce. Just think of how many times you've searched dozens of channels and found nothing you really want to watch.
Changing Business Models
With technology like Cisco's, cable operators will have to worry less about the number of channels they offer and focus instead on charging more for the services they provide. For example, European cable operator Liberty Global rolled out last year its Horizon platform that provides similar services to Cisco's product. Horizon represents a "whole brand new revenue stream," Balan Nair, chief technology officer for Liberty, says.
"With our Horizon product when we launched it, we didn't have anymore-new channels, but we charged quite a bit more for that product," Nair said during a panel discussion following Cisco's announcement. "And it was just based on the fact that you got a whole bunch of new features and some ancillary services."
Using technology to sell more products to subscribers is behind much of the excitement over products like Videoscape Unity. But whatever money comes in won't go only to the cable operators. Deals will have to be made with movie studios and TV networks, and possibly Apple, which currently dominates the tablet market.
With Apple, Nair made it clear that Liberty Global prefers not to offer its service through an app sold in Apple's App Store. "There's a whole bunch of other ramifications associated with that, especially in the economics of delivering that content," he said. Liberty would rather use a browser plug-in to deliver programming via the web.
New Content Deals
Content providers have already put cable operators on notice that they will need to sign licensing deals to let people watch on multiple devices. New contracts will also be needed, if cable operators plan to let people view programming on a tablet outside of the home.
Another issue is whose customer is the viewer? Is it the cable company, the content provider or the TV network? Also, who gets access to valuable information, such as TV habits, and how is revenue from services and advertising shared?
"Part of the challenge is how does this stuff get glued together so that it's intuitive and seamless to the user, understanding the fact that there are business models that are very important that need to exist or change or evolve," panelist Joe Inzerillo, senior vice president for multimedia and distribution for MLB.com, said. "This content, this professional content, is not created for free and that's sort of the elephant in the room. How do you get there?"
Until new revenue sharing and licensing agreements are made, it's unlikely cable operators and content providers will sign up for Cisco's or any other new platform for TV. For example, Cox is committed to Videoscape Unity, but it hasn't said whether it would include a cloud-based DVR, according to CNET.
Indeed, the use of such a service has been challenged before. In 2007, the TV and movie industry sued Cablevision for launching what it called a "networked DVR." Instead of having the video recorder functionality within the set-top box, the cable operator stored recorded programming on a remote server, reducing Cablevision's hardware cost by taking the DVR out of the box.
Cablevision won the suit on appeal in 2008, but that has made movie studios and TV networks even more cautious in letting cable operators use the cloud to provide content to subscribers.
In time, deals will get made as the home entertainment center evolves from static viewing to a more interactive experience. But as business models are built around services, as well as programming, consumers will have to look at their current cable TV bill and decide how much more they are willing to pay.
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