Missed yesterday’s episode of Master Chef? Don’t worry, it’s already online. All you have to do is look up your latest TV bill, then go online and get a web account with your pay TV provider, leave that site, go to Fox.com and log in with your pay TV credentials. And then keep logging in again and again every month. Welcome to the new world of TV Everywhere, where TV watching is as complicated as online banking.
Fox (s NWS) is the first broadcaster to introduce this kind of authentication, by mid-August, but similar requirements are already in place for anyone who wants to watch anything on HBO Go as well as new episodes of some cable shows on Xfinity.tv (s CMCSK) and DishOnline.com.(s DISH) Expect other broadcasters to follow suit soon, and be prepared to show your cable customer ID at the door of the majority of TV-content catch-up sites.
It’s not about cord cutting
Fox executives have said that the fear of cord cutting motivated them to put up the pay-TV wall around their online assets. Content needs more protection to keep people from freeloading: Does that argument sound familiar? Right, it’s exactly what music companies said about Digital Rights Management (DRM) back in the day.
And just like back then, the argument seems to backfire: Protected music files certainly didn’t stop anyone from using KaZaA, LimeWire and BitTorrent. TV Everywhere could also drive a substantial number of customers back to piracy, simply because an unlicensed download is more convenient than a stream that’s only available behind a pay-TV wall, for a limited amount of time, with unskippable ads.
“People don’t like to be inconvenienced when they are playing by the rules,” said Eric Garland, from the media measurement company BigChampagne, when we recently talked about the impact the Fox restrictions will have on piracy. In other words: If you treat people like pirates, they might just take you by your word and walk the walk.
However, all of this is beside the point. TV Everywhere isn’t primarily about cord cutting, just like DRM was never primarily about piracy. Both schemes are simply means to lock down and control markets. The best example of this is Apple’s (s AAPL) iTunes music store, back in the day, when Steve Jobs hadn’t discovered his love for unprotected music yet.
Apple used to use its own Fairplay DRM scheme to protect its music and refused to license the technology to anyone else, in effect securing that anyone who bought music at Apple could only play it on an Apple device. Even more important than this direct effect on consumers was the lock-in for music companies dealing with Apple: If you were a content provider who believed in the necessity of DRM, the only way to get your content protected on an iPod was to sell it through Apple’s iTunes store and give Steve Jobs a 30 percent cut. That, coupled with really good hardware, is how Apple got to dominate the digital music market.
Broadcaster’s favorite new cash cow
The same is about to repeat itself in the realm of online video, with a twist: Much like piracy was a pawn to force the market to adopt DRM back in the day, the bogeyman of cord cutting is now used to force everyone behind the pay-TV wall. And once again, it’s not about what consumers do or don’t do but about dividing a market and cashing in on the results. Case in point: CBS (s CBS) announced on Tuesday that its earnings are up, in part due to the growing importance of retrans fees. Retrans fees are the money that cable and satellite operators have to pay to carry the family of CBS channels.
Carrying broadcast channels used to be free, but in recent years broadcasters have discovered retrans fees as a new revenue source, and they’ve been pretty successful at forcing providers to pay up. One powerful weapon in their arsenal has been blackouts: Fox blocked Cablevision’s (s CVC) access to its programming for 15 days last fall, until the cable operator finally gave in.
Of course, these blackouts aren’t really much of a threat if viewers can simply go online to watch all the things they missed on TV, which is why Fox also briefly forced Hulu to block Cablevision customers from accessing their shows. The move foreshadowed things to come with TV Everywhere: You’ll be able to access all of your shows online, as long as you are a pay-TV subscriber — and your pay-TV provider writes big-enough checks.
The losers of these chess games are obviously going to be consumers. Not only will watching TV online become much more complicated; prices are also likely to go up as operators hand down some of the carriage fees to their subscribers as well. The good news is that the reign of DRM, at least in music, didn’t last forever. Companies like Amazon (s AMZN) and record labels wary of Apple’s online-music-market dominance eventually embraced DRM-free audio files, and the price of much of the music offered online went down as a result.