Friday, April 8, 2011, 10:34 AM ET|Posted by Will RichmondFor all the ink that's been spilled over the past year about consumer-driven cord-cutting leading to the demise of the cable industry, could it instead end up that greed will cause the industry's own destruction? Maybe so. With the fracas over Time Warner's iPad app reaching ridiculous new levels each week, the industry is experiencing its own version of the old adage "We have met the enemy and he is us."
Yesterday's turn of events - Time Warner Cable seeking a declaratory judgment from the U.S. District Court that it has the contractual rights to stream cable programming to its iPad app inside subscribers' homes, and Viacom responding with its own suit against Time Warner Cable - represent a dangerous breakdown in key industry relationships at a time when competitive forces loom larger than ever.
What exactly transpired between the companies in the weeks and months leading up to TWC's iPad release, which initially included Viacom's networks that have since been pulled off, isn't known. Did TWC ask permission and genuinely seek to collaborate with Viacom, or did it forge forward, figuring it would ask forgiveness afterwards? Did Viacom insist that the only way TWC could stream its networks was if substantial new payments were made, or was it willing to explore some initial experimentation?
While we don't know any of that yet, what we do know is that cable networks enjoy the best business model of anyone in the media business, which has enabled their leaders to be fabulously well compensated (a few 2010 examples: Viacom CEO Philippe Dauman - $84.5 million, Discovery CEO David Zaslav - $42.6 million, Scripps Networks CEO Ken Lowe - $8.3 million, etc.). Do any of these CEOs honestly believe that their pay would be anything approaching these sums if they don't figure out ways to support their best customers in their competitive fight for survival?
Maybe not. Yesterday's Viacom suit said in part "With $5.2 billion in cash from operations last year, Time Warner Cable can certainly afford to provide our programming through this new broadband service without passing along any additional costs to its customers." In other words, Viacom expects to be paid incrementally for iPad distribution, but with the added cost fully absorbed by TWC. Talk about trying to gild the lily!
A couple of weeks ago in "Will Cable Networks Kill Their Golden Goose?" I suggested that cable networks need to figure out how to work with their best customers to adapt to the realities of the broadband era. Viacom's decision to instead sue one of its best customers shows how elusive that goal appears to be.