I don’t see how the broadband providers don’t kill this deal in it’s sleep. They will start putting caps and added cost to heavy internet users. Unless the FCC gets involved (maybe legal, who knows) the cable providers can’t let their competition clog their networks with more OTT programing.

This could get ugly…real quick.
G

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Sony’s PlayStation, which is in tens of millions of homes, is the backbone of a TV plan.

By BRIAN STELTER

Published: August 15, 2013

The agreement is believed to be the first of its kind between a major programmer and any of the technology giants that are trying to disrupt traditional modes of TV delivery. If other programmers follow suit, Sony’s as-yet-unnamed service would let paying subscribers receive live cable channels the same way they use on-demand libraries like Netflix or Hulu. Intel and Google are working on similar services, but try to make it more user-friendly, perhaps the way Netflix does with personalization features and a fancy interface.

Most households today have only a few choices for television service: whatever cable company serves their local area, be it Comcast, Time Warner Cable or others, and two satellite providers, DirecTV and Dish Network. In some parts of the country, television through Verizon or AT&T is also available. Analysts say cable delivered through the Internet could give households many more choices — if the new services give customers more for their money and if cable incumbents don’t smother the services.

To even have a chance, companies like Sony and Intel need the permission of programmers, and that’s why the Viacom deal is considered a breakthrough. Although Viacom and Sony declined to comment on Thursday, a person directly involved in the negotiations confirmed a Wall Street Journal report about the agreement. The person insisted on anonymity because the companies were not prepared to comment on the record.

Having the news spread was advantageous for Sony, though, because having Viacom on board — even just on a preliminary basis — will most likely help the company complete other carriage deals. The company has also contacted other top programmers, like the Walt Disney Company and Time Warner.

That Viacom — which has more than 20 channels, including big ones like Comedy Central and small ones like Centric — was the first to agree to support Sony’s fledgling service is not necessarily surprising, since the company has a reputation for contentious relationships with cable and satellite companies. Last year, Viacom channels were blacked out in DirecTV households for nine days. Sumner Redstone controls both Viacom and the CBS Corporation, which is blacked out in three million Time Warner Cable households because of a contract dispute.

Time Warner Cable, and to a lesser extent other TV providers, has thrown up roadblocks for new entrants by inserting language into some carriage contracts that discourages programmers from selling its channels to Internet TV services. The existing providers say they just want to ensure that the upstarts don’t get better terms, like broader video-on-demand rights or cheaper rates for channels.

Most likely, Sony will pay higher rates — one of the downsides of being new and untested. Any deals between programmers and the Sonys of the world will keep the TV bundle intact, despite occasional public agitation for an “a la carte” option.

“I don’t think the classic pay TV subscription bundle model of television is going away anytime soon — it’s a pretty compelling and cost-efficient smorgasbord,” particularly for older Americans, said Tim Hanlon, a former media agency executive who now runs the Vertere Group. “But all bets are off with the under-40 set — the growing group of folks who just want their video content when and where they want it, preferably without the messy commitment part,” he added.

Sony is well-positioned to reach younger Americans because its PlayStation video game console is already hooked up to TV sets in tens of millions of homes. The company has said almost nothing about its intentions, but it has been interested in selling a bundle of channels at least since 2011. Its TV service could also be made available in the future via smartphones, tablet computers and other devices.

Sony hopes to start selling the service in the fourth quarter of 2013 or the first quarter of 2014, said a media company executive briefed on the plans for it.

If Sony’s service (or another one like it) gets off the ground, incumbents like Comcast, Time Warner Cable and Verizon are also likely to sell their own versions, furthering this new type of competition. What no one knows — but everyone in the industry wonders — is whether these Internet cable services will steal market share; entice people who do not currently pay for any channel bundle to sign up; or fail to sign up customers at all.

The overall number of American households paying for television has remained remarkably steady in recent years, though there are some slight signs of fraying around the edges. Mr. Hanlon said he sensed that as younger viewers were getting better at “cobbling together their own workarounds to all-or-nothing content packages,” the “smart programmers are starting to carefully position themselves to take advantage, just in case the classic carriage model starts to break.”

Of course, all of the alternatives being dreamed up in Silicon Valley and elsewhere are B.Y.O.B. — Bring Your Own Broadband. Video is data-intensive, and data caps or stiffer monthly charges for broadband imposed by companies like Comcast could inhibit the establishment of virtual cable services. In a recent interview, the departing Time Warner Cable chief Glenn Britt acknowledged as much when he was asked about Intel’s interest in TV.

“The reality is, if everybody watched TV over the Internet, and we were out of the TV business, then we would have to recover more money from the Internet service,” Mr. Britt said.