Free Net TV threatens telecoms and cable

Is spending billions on network upgrades worth it? ABC's free Net TV could undermine paid-TV models.

Walt Disney's bold move to let people download TV shows for free could spell trouble for cable and satellite providers, but it also throws into question the strategy of telephone companies spending billions to get into the paid TV business.

On Monday, Disney-owned ABC announced plans to put "Lost," "Desperate Housewives," "Alias" and "Commander-in-Chief" on the Internet for free as part of a two-month trial beginning in May. The Net-accessible episodes, which will be available the day after the shows air, will be archived so viewers can watch any shows they miss.

Viewers will access the shows on the ABC Web site where they'll be able fast-forward, pause and rewind entire episodes. Short commercials will be aired with the programs; viewers will not be able to fast-forward through them.

Disney's ABC has been at the forefront of experimenting with new ways to distribute content over the Internet. Last year, it struck a deal with Apple Computer to sell individual episodes of some of its popular shows via the iTunes Music Store for $1.99 per episode. The two other major networks, NBC and CBS, soon followed suit by offering programs of their own on iTunes.

While the iTunes deal may have been a harbinger of bigger things to come in the realm of fee-based content downloads, Disney's move to offer shows for free on the Internet could be viewed as a direct threat to the business model of cable companies, which have been the gatekeepers of television programming in America for the last few decades. The news is equally grim for phone companies, especially Verizon Communications, which is aggressively moving into the TV business.

Over the past two years, Verizon has spent billions of dollars to build a fiber network directly into people's homes that can deliver a triple-play package of services including ultra-fast broadband, phone service and TV. It has bet the farm, so to speak, that the best way to compete against the cable companies, which are now offering phone service, is to try and beat them at their own game. But building and upgrading telecom networks for video is a capital-intensive strategy fraught with risks.


Disney's plans "raise big questions for the phone companies' long-term strategy," said Joe Laszlo, an analyst with JupiterResearch. "To some extent, building a faster network is smart no matter how content delivery evolves. But if we reach a point in five to 10 years when video over the Internet becomes a bigger part of how we consume video, then the phone companies will have to find other ways to make their video services relevant."

No one is expecting Internet television to cannibalize traditional TV models overnight. Despite advancements in streaming technology, video delivered on the Web can still be choppy, with frequent interruptions as data packets buffer and reload on the screen. In fact many viewers who watched the NCAA tournament aired by CBS on the Internet last month complained about the network being overloaded.

No panic among telecoms
A Verizon spokeswoman said the company does not feel threatened by Disney's move to offer some of its shows on the Web. And executives at the National Cable and Telecommunications Association convention in Atlanta this week also said they aren't especially worried about Disney's plans.

"It's speculative to assume people will abandon one model in favor of another," said Sharon Cohen-Hagar, a spokeswoman for Verizon. "That's quite a leap into the future. Given the kind of network we are building, we believe we're well positioned to go wherever the market takes this."

Indeed, Verizon, as well as the entrenched cable operators, are already offering on-demand programming that lets viewers select movies or TV shows and watch them whenever they want. They are also offering consumers digital recording services that let them record programs and watch them at a later time.

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