Weekly Update

From over-the-top to over-the-air

The TV business is going back to the future. After several years in which would-be disruptive new entrants to the pay-TV business have sought to leverage wired broadband to build over-the-top video services, aspiring OTT providers like Aereo, Boxee and even Google are starting to turn to the oldest delivery platform around: over-the-air broadcast.

In the process, they are shifting the focus of OTT video from catch-up TV and on-demand movie titles that make up much of the Hulu and Netflix libraries to live TV content. If their efforts are successful, they will pose a far greater threat to the current pay-TV business than any amount of cord cutting inspired thus far by Netflix or other streaming video providers.

Earlier this month, startup Aereo, backed by IAC/InterActiveCorp., launched a streaming service in New York City to deliver local broadcast stations to IP-enabled set-top boxes, smart TVs and mobile devices for $12 per month. The service relies on arrays of thousands of tiny individual antennas that receive broadcast signals on behalf of individual subscribers. Those signals are then transmitted to the subscriber via the Internet.

In announcing the launch, IAC chairman Barry Diller said he hoped to use Aereo in a way that “pries over-the-air broadcast television” out of what he called the “closed cable-broadcast-satellite circle.”

While cord cutters have always had the option of rigging up their own broadcast antenna to supplement their Netflix and Hulu subscriptions, Aereo aims to use integrated access to broadcast stations from within its IP-based delivery platform to establish its own subscription relationship with its users. Over time, that relationship could provide a foundation from which to up-sell users on additional IP video services and pay-TV channels for a more robust and competitive OTT service.

Boxee is also seeking to integrate live broadcast channels with its OTT platform. Last month it introduced a $50 USB dongle that connects the Boxee Box streaming device with an ATSC antenna, allowing users to access HD signals from their local over-the-air broadcast stations. While Boxee isn’t charging users to access broadcast channels beyond the price of the dongle, it hopes that integrating live TV with its OTT streaming platform will make its $189 Boxee Box a more attractive option for would-be cord cutters.

It is Google, however, that appears to have the most ambitious plans for leveraging over-the-air broadcast signals to create a competitor to incumbent pay-TV providers. In December, Google filed an application with the Federal Communications Commission to operate a satellite earth station for receiving TV signals on land it owns in Council Bluffs, Iowa. If approved, the earth station would be about 200 miles northwest of Kansas City, Kan., and Kansas City, Mo., where Google is currently laying fiber optic lines to deliver 1 GB Internet service throughout the city. Google said in its FCC application that the station would be used “to provide analog and digital audio, data, and video services.”

Last week, Google also filed an application with the Missouri Public Service Commission to provide video service to residents of Kansas City. Taken together, the two applications point to plans by Google to bundle at least some live TV channels in with its planned high-speed Internet service in the Kansas City market.

The Wall Street Journal reported last year that Google was in talks with major media companies, including Disney, Time Warner and Discovery Communications, about licensing their cable channels for a pay-TV service. But it is likely Google would begin assembling its lineup of live TV channels from local broadcasters. Unlike the major media companies, which are often suspicious of Google’s video ambitions, local broadcasters are likely to welcome another buyer in their market for their signals. Google would also then be able to avail itself of the same compulsory license cable operators enjoy, which provides copyright clearance for the programming contained in those signals, sparing Google the need to negotiate clearances from the content owners.

Integrating local broadcast channels with its fiber-optic broadband service and the OTT capabilities of Google TV would be a very compelling package with which to begin luring viewers away from their current pay-TV providers.

For all the fragmentation the TV viewing audience has undergone over the past decade, viewers still rely heavily on broadcast channels, whether they receive them over-the-air or by cable or satellite. Local news, major live events such as this weekend’s Oscars show and live sports such as last month’s record-breaking Super Bowl broadcast remain staples of the business.

Until recently, cable and satellite providers’ near-monopoly on access to those channels within their platforms has been a bulwark against the ravages of cord cutting. But as over-the-top video providers find new ways to integrate broadcast channels and live TV into their platforms, that bulwark could begin to break down.

Question of the week

Should broadcasters embrace efforts to integrate their channels into over-the-top video platforms?