Is Google planning to go over-the-top and compete with pay-TV operators for subscribers? That's the tantalizing possibility the WSJ is reporting this morning, though its article is long on speculation and short on hard facts and on-the-record sources (as best I could tell, the only concrete thing reported is that Google has hired Jeremy Stern - a former colleague of mine at Continental Cablevision - who's "spearheading talks with media companies"). Regardless, the possibility that Google could be looking to disrupt the pay-TV business, using its own high-speed fiber network in Kansas City and maybe elsewhere, deserves attention if for no other reason than the fact that its deep-pockets and robust ad model would potentially allow it to cause trouble for incumbents.
"Potentially" is the operative word however, because any subscription TV service Google would offer would only be as good as the channels it could deliver (see Sezmi's recent retreat for proof of that). As such, the critical question here is whether the most important cable network owners - Disney, NBCU, Viacom, Time Warner, Fox, Discovery, Scripps, A&E Networks, AMC Networks, numerous regional sports networks (RSNs) and others - would agree to deals with Google. Though they would no doubt be enticed by Google as another well-funded buyer, barring some huge unknown, I'd bet that most would say "Thanks, but no thanks," effectively stymieing the search giant's ambitions.
The primary reason for networks to rebuff Google is that they'd see little upside, but lots of risk. Pay-TV in the U.S. is a saturated market, with newer-entrants like AT&T and Verizon gaining subscribers largely at the expense of incumbents. In fact, as a whole the category is losing subscribers (albeit at a lower rate as Q3 results are showing), due mainly to affordability issues and lack of housing growth. As such, the only way Google could gain subscribers would be by offering dramatically lower prices, a fresh approach to bundling (a-la-carte?), new technology-driven features, or some combination of all of these.
The prospect of lower prices and unbundling are antithetical to cable networks' interests, since they are basically content with today's environment. They largely weathered the recession fully intact, often raising the rates they receive from pay-TV operators while also recently growing their ad revenues. New technologies like iPads, social media, connected TVs, etc. are enabling them to build ever-stronger relationships with audiences. Even the emergence of Netflix, Amazon and others has been beneficial, creating new buyers for catalogs of older programming.
Net, net, cable networks have zero incentive to assist Google in disrupting their primary distributors, contributing to the wrecking the current model. Google will no doubt argue that its ad capabilities would open up new riches for the networks, and its technology (maybe including Google TV?) would be more viewer-friendly, all of which may be true. But, as the recent example of Starz rejecting a lucrative renewal offer from Netflix amply demonstrates, long-term industry cohesion means a lot more to cable networks than short-term gains. Plus, it's not as if pay-TV operators are sitting on their hands when it comes to embracing new technologies. As just one example, they are dangling multi-device TV Everywhere distribution to cable networks, though it faces its own challenges to succeed.
Google's vast resources allow it do many innovative, high-impact things, with perhaps the best, most recent example being its Android OS, which it has given away to mobile carriers, thereby revolutionizing the smartphone industry and preventing Apple's hegemony of this critical market. But when it comes to succeeding in the pay-TV business, as Apple itself has found out, factors beyond pure technical innovation rule. It is intriguing to speculate on Google moving into the pay-TV business, but I wouldn't bet on it actually succeeding.
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