Cable TV's new frontier

Ayear or two ago, seemingly every major television network was racing to make its shows available online for free. Now, the conglomerates that own some of the most popular cable networks are exploring ways to replace "free" with "fees." Attendees at the cable TV industry's annual convention last week in Washington buzzed about initiatives by Time Warner (which owns HBO, CNN and the Cartoon Network, among other cable networks) and Comcast (the country's largest cable operator) to make more cable programming available through the Internet -- but only to cable subscribers. The point is to give the nearly 64 million peoplewho pay for cable more incentive to stay in the fold, rather than switching to free sources of TV online.

On the plus side, these initiatives would give cable customers more value for their subscription fees, which have risen at a much faster pace than inflation over the last few decades. Time Warner's "TV Everywhere" venture, for example, would make shows available on demand to computers, mobile phones and other Internet-connected devices as soon as they're broadcast. But some media executives also want to pull shows off of free TV sites such as Hulu and, on the theory that those sites are undermining subscription TV revenue. Look at the newspaper industry, they say -- in Nero-like fashion, it has watched subscriptions plummet as it has made entire newspapers available online for free.

There are parallels between the cable industry and print media -- both have substantial advertising businesses, yet neither one generates enough from online ads to replace what they make from subscriptions. But a more telling warning signal for cable comes from the music industry. For years, the major record companies prospered by persuading people to buy bundles of content (albums) instead of the items they really wanted (singles). The advent of MP3s, downloadable music stores and file-sharing networks gave consumers a way to circumvent the packaging imposed by the record companies. They're listening more but paying less.

Similarly, the cable industry forces customers to buy dozens, or even hundreds, of channels instead of letting them subscribe just to the networks or programs they like. With broadband service in so many homes and so much video available on demand online, it seems inevitable that viewers will rebel against video bundles the same way they did against albums. Nor can advertiser-supported TV networks afford to erect barriers between their shows and the audience online when viewers are spending more time on the Net and less in front of their sets. The longer cable operators try to fight these trends, the more likely they'll be outplayed by new services that find a way to give viewers exactly what they want -- no more and no less.

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