Sony's "Assault on Cable TV" - Don't Hold Your Breath

The Wall Street Journal reported today that Sony was in discussions with major cable programmers about a service that it would distribute via the Internet to PlayStation 3 game consoles and other Internet-connected Sony devices. Last week the WSJ had a similar story about Dish Network.

Original PS3 on left, new slim PS3 and controller on right

Sony certainly brings a number of things to the over-the-top party, including one of the most used Netflix streaming devices in the PS3, a movie and television studio and a leading seller of televisions, computers and other electronics -- nearly every possible client device.

While many would like to see such a service, it does not look like anyone, including Sony, has found a way to address the three fundamental things that are standing in the way of such an offering:

1. Some channels do not have the right to transmit their programing (which is often acquired from a third party such as a movie studio) over the "open Internet". "Open" in this case is related to security -- studios are concerned about piracy -- rather than "open platform" the ability to have third party applications and providers running on the network. Something on the open Internet can be reached by anyone with Internet access; something on a close network requires a user to be physically connected to it. I defer the discussion of whether a VPN is closed or open to others.
2. Sometimes cable/DBS companies actually forbid cable networks from distributing their programming over the Internet, even if such delivery is only to paying subscribers.
3. One of the other problems is that advertising produced for television/MVPD compensates performers differently than advertising produced for the Internet. The advertisers, not unreasonably, don't want to pay more if a handful of people watch "TV" on the "Internet". One example of this is that MLB Extra Innings on cable contains the local TV commercials; MLB Extra Innings on the Roku box or on your computer does not. No advertising effectively makes the platform much less attractive to all the ad-supported basic cable networks (e.g., ESPN, CNN, USA, Lifetime).

Frequent readers will recognize this list from my post of 5 Nov.

How would we get past these issues? If the FCC declared that an over-the-top video distributor would be regulated as an MVPD, all of these issues would be effectively resolved. Short of that, it will take awhile.

NFL Sunday Ticket without DirecTV

DirecTV, which has exclusive rights to NFL Sunday Ticket, will be selling the subscription package to any non-DirecTV subscriber for the first time this fall.  In an interview with Multichannel News, Alex Kaplan, DirecTV's Senior Director of Product Management, said that "It's our attempt to open up the universe a bit to people that can't get DirecTV -- students, people who live in big apartment buildings and people who live in New York City -- and it's a new revenue stream for us."

NFL Sunday Ticket via the PlayStation 3 will be cost $339.95 for the season; the package sells for $334.95 on DirecTV.

Letting Others Get Your Crown Jewel - Is that Smart?

It is a widely held belief that the main purpose of Sunday Ticket exclusivity for DirecTV was to attract customers to its platform (instead of cable, Dish or telco video services.  It is well known that NFL Sunday Ticket is, if not a loss leader, does not generate a whole lot of margin for DirecTV.

Making Sunday Ticket available to non-subs, is, at least, a little odd.  It is hard to imagine Cablevision providing News 12 over-the-top to Verizon customers.

Cable operators have long coveted access to Sunday Ticket (no one likes to be the platform WITHOUT a top quality programming service). It seems that if the package is available to cable customers over-the-top, by definition it is no longer is as much of competitive differentiator for DirecTV.

DirecTV's Kaplan says the target is residents in cities like New York, where tall buildings prevent a clear signal for satellites, and video-game playing college students. “There are real revenue opportunities here from non-DirecTV customers, and while they won’t sign up for DirecTV right away, ultimately these people could move to the suburbs, and we’ll have a relationship with them that could lead to a conversion to DirecTV,” said Kaplan.

That sounds fine, if the PS3 is more penetrated in New York City or college campuses, but I think most of the PS3s are probably in the suburbs.

Why PS3?  What About Other Platforms?  We Are in an Experimenting Age

The NFL has argued that Sunday Ticket has a minimal cannibalizing effect on the viewership on the nationally telecast games because its availability is limited to DirecTV. That's important because the vast majority of NFL television revenue is from Fox, ABC/ESPN and NBC, not DirecTV.

However, if the goal was experimentation, the PS3 is an odd choice.  The PS3 accounts for more streaming hours for Netflix than any of its other platforms -- 30% of the total, according to an analysis by Sandvine; this choice was the not obvious toe-in-the-water play, that say, Roku, would have been.

Eagle-eyed observers will note that DirecTV has offered Sunday Ticket via broadband already with Sunday Ticket To Go, a $50 add-on for DirecTV Sunday Ticket subscribers that has been offered since 2008.  STTG is available on iOS, BlackBerry, Android, other consoles, etc.

DirecTV did make Sunday Ticket To Go available to DirecTV non-subscribers in 2009 (in Manhattan) and 2010 (everywhere), but this offer was only available to people who could not subscribe to DirecTV service.  In fact, a prospective customer would have to first sign up for DirecTV, then be rejected by a DirecTV installer.

DirecTV's Kaplan's other interesting comment in the interview is that "We're not going to let it [NFL Sunday Ticket subscriptions on PlayStation] go to an unlimited number.  We're trying to figure out what is the market for this at that price point."  Confusingly, in a later interview with Bloomberg, he added “If this test is successful, we have the opportunity to distribute ‘Sunday Ticket’ through various different devices, and we’re certainly open to relationships with other consoles and Internet-connected devices.”

Perhaps DirecTV thinks that they have already picked off all of the viable satellite television customers who really valued Sunday Ticket. It could be that the real test is less about the incremental revenue the broadband offering will bring, but whether the existing DirecTV Sunday Ticket subscribers will churn out at any greater rate if Sunday Ticket is available over-the-top.