Will the net become the next generation’s cable TV?

I read this release from the ACA and I think it brings up an interesting debate on how to truly monetize video content on the web. The question is whether it makes sense to force broadband cable providers to pay a fee (which would ultimately be passed along to consumers) for “premium” web content sites. Streaming video is a costly proposition, and sites like YouTube have shown us that banner ads just won’t cut it, no matter how much traffic you get.

Should content owners, which are essentially media conglomerates, have the right to force-feed content on everyone? On the flip-side, this model is not unlike the cable television model of today, where we pay for a block of programming, much of which we don’t watch. It’s a debate that must be had, in order to determine the future of the net and ultimately, media content, which has creative and business development at stake. Perhaps this will bring some middle-ground, that helps content providers AND the viewing public. Until then, it looks like the cable companies will be caught in the middle.

Here is the release in its entirety:

All broadband users should be extremely troubled that a noted Wall Street media analyst like Richard Greenfield of Pali Research is encouraging (report available by request) Internet content owners to seek aggressive monthly fees from broadband access providers for their content and services, like the Walt Disney Co.’s ESPN360, full well knowing that these costs would be passed along to all consumers. If the publicly traded media conglomerates and Web giants know they can curry Wall Street’s favor by pursuing these “closed Internet” business models, then you can guarantee that we’ll see other groups following Disney’s lead.

In fact, just one week ago, Paramount, Lionsgate and MGM launched a Web-based premium movie site called Epix, whose business model is similar to that of ESPN360 in that it requires bundling the service directly into basic broadband packages. Broadband access subscribers, who have no choice but to pay for the service, will never see a separate charge appear on their bill.

“Mr. Greenfield believes that charging all customers for Web content rather than just those who demand it is the wave of the future. But who benefits? Not the consumer,” said American Cable Association president and CEO Matthew M. Polka. “ACA and its small cable members believe Mr. Greenfield couldn’t be more irresponsibly anti-consumer in urging Web-based content and service providers to follow in the footsteps of ESPN360, which is demanding cash from broadband access providers in order to generate a reliable gusher of revenue from all Internet consumers. Following Greenfield’s advice would cause retail broadband prices to soar and force many consumers to pay for content they don’t want.”

Disney’s ESPN is coercing broadband providers who also provide video services into accepting ESPN360’s broadband subscription-fee business model by bundling it with its dominant ESPN cable networks in its programming deals. ESPN is leveraging its enormous market power in the pay-television programming market to push its ESPN360 onto all broadband consumers. Broadband providers, particularly those who are small and medium-sized, cannot afford to say no to ESPN360 when the consequence is that they would no longer be able to offer some or all of the ESPN family of cable channels to their customers.

“These concerns are real and can be substantiated. This issue is not about small cable operators receiving Web-based content or services for free. Rather, it’s about preventing media conglomerates and Web giants from driving up broadband rates and taking away consumer choices,” Polka said. “ESPN360’s position is that it won’t make its video services available to consumers whose broadband access providers have refused to pay fees to corporate parent Disney. Denying access to content desired by consumers simply because broadband access providers rejected commercial extortion conflicts with the Net Neutrality ideal, and the Federal Communications Commission needs to address this growing problem.”

The idea of blocking access to content has been threatened in the past. For instance, Viacom in December 2008 threatened to deny Time Warner Cable subscribers access to Viacom’s Web sites because Time Warner refused to sign a programming deal with the owner of BET, MTV, and Nickelodeon.

“Immediate attention should be given to this matter by the FCC and others that support open networks, like Public Knowledge, to prevent Web content providers from hijacking the Internet. The Obama Administration, Congress and the FCC must take notice now before these high-cost `closed Internet’ business models become the norm of the industry and damage the prospect of universal and affordable broadband access,” Polka said. “ESPN360’s intent is to take Disney’s cable industry business model and graft it onto the Internet.”

Access to ESPN360 requires the payment of fees based on an access provider’s total subscriber base, not on the precise number of sports fans that sign up for the service.

“That’s exactly what Disney demands of cable operators that want to distribute ESPN. In both cases, Disney wants to deny consumers the ability to control their media environment. In both cases, Disney wants to remain out of sight and use its muscle to force cable operators to play bill collector and absorb the political heat as rates rise and choices decline,” Polka said.

Polka urged regulators to examine whether Web content providers pose a risk to the competitive health of the internet by demanding fees from broadband access providers.

“As Greenfield knows from years of covering the industry, rising prices and the lack of choice are the cable industry’s Achilles’ heel, mainly because Disney and other media conglomerates exercise undue market power. Migration of those problems to the Internet would be great for Disney, bad for broadband access providers, and horrible for consumers. It’s time for regulators to put Disney on ice,” Polka said.

Based in Pittsburgh, the American Cable Association is a trade organization representing more than 900 smaller and medium-sized, independent cable companies who provide broadband services for more than 7 million cable subscribers primarily located in rural and smaller suburban markets across America. Through active participation in the regulatory and legislative process in Washington, D.C., ACA’s members work together to advance the interests of their customers and ensure the future competitiveness and viability of their business. For more information, visit www.americancable.org.