Battle brews over Web streaming

In the latest conflict, Walt Disney-owned ESPN has pulled the plug on negotiations with cable operator Charter Communications to run ESPNews on its cable TV network. The disagreement centered on Charter's proposed limits on how much ESPNews programming could be streamed via the Net, causing ESPN to balk at the terms and yank its programming from 1.2 million Charter-linked homes, effective June 30.

The imbroglio marks the latest example of the rising importance of Net distribution rights, which are being viewed as a source of revenue and a tool for building a brand. As a result, TV programmers are increasingly injecting complex and unique Net issues into contract negotiations.

At the same time, cable operators are attempting to rein in rights to that content, often out of fear that broad online distribution of content could cut into their business. The relationship between the cable operators and content owner is equally important, as programming can serve to promote high-speed Internet access via cable.

"We're in this transition period right now because we're shifting from a world where broadcast and Internet rights were bundled together to one where they're parsed out and sold as separate entities," said Mark Mooradian, senior analyst at research company Jupiter Media Metrix. "There's a lot of new ground people are treading on and a lot of uncertainty."

Charter's proposed boundaries on streaming video are part of an entrenched territorial culture among cable operators intent on protecting their businesses. They have long been fearful that as the Internet grows, consumers will visit the Web to watch their favorite programming.

For example, since Excite@Home went public in 1997, the company has limited the length of "broadcast quality" video people can download. The 10-minute limit applies only to streaming video delivered at a rate of 30 frames per second--the same quality used by TV stations and cable programmers.

Time Warner, whose cable TV network reaches 12.8 million households, has also included language in its contracts for the last three years that limits the amount of video that can be streamed online.

The principle of it
"There's a principle at work here: The cable operators think that if they open the door at all to streaming of content that consumers might end up being able to get all the cable they want without paying for it," said Josh Bernoff, principal analyst at Forrester Research. "That would be a serious problem."

This principle was apparently at work during negotiations between Charter and ESPN in the last year to deliver ESPNews, a news-focused sports channel, to the cable company's 6.4 million households. The terms Charter introduced would have limited the sports channel's ability to stream content online.

The maximum number of hours was "minimal at best," according to ESPN spokesman M.C. Antil. He said that "it was conceivable that we might have been forced to scale back what we're streaming now."

Antil said that although the sports channel has no plans to expand its video streaming on the Internet, it wants "the ability to explore possibilities on the Internet. We're in the content distribution business; our goal is to distribute our product into as many homes as possible."

As a result, as of midnight June 30, ESPN is "de-authorizing" Charter from carrying its ESPNews channel on its cable network. ESPN said it gave Charter notice of its intent by letter last month. The cable operator said the sports channel notified it two weeks ago.

In interviews, Charter and ESPN both expressed willingness to return to the negotiation table.

Andy Morgan, a Charter spokesman, said ESPN broke off negotiations because the sports channel was unwilling to consider any type of limitations on the amount of video streaming.

"It doesn't make any sense for Charter and our customers to pay higher and higher fees to ESPN for their programming if it's made available for free over the Internet," Morgan said, adding that this is the first time a programmer has balked at the language. "It devalues (our) service."

This argument is widely expressed by cable operators, which are increasingly trying to put locks on a market with unknown value.

"The real question is not what is the value of streaming in 2001--which is within a rounding zero--the problem is, what is it worth in 2004? Frankly, nobody really knows," Bernoff said. Charter "has no idea that what they're giving away is hugely valuable or not valuable at all. So the prudent thing is to just say no."

Sticking points
With all the uncertainty, several points of contention are recurrent. One is the simple definition of broadcasting over the Internet. Many people are concerned that Webcasting is the equivalent of international broadcast. As a result, matters get sticky when a broadcaster owns rights to domestic distribution and wants to put that material on the Internet.

For example, RealNetworks earlier this year paid $20 million for exclusive Internet audio broadcast rights for Major League Baseball (MLB) games, essentially stripping the right of local radio stations and others that have non-Internet broadcast rights to the same games.

One illustration of this conflict is ongoing in a dispute between the Voice Actors Union, advertising agencies and radio stations.

Members of the union charge that because their ads have been played over Internet airwaves, they should be paid nearly three times their usual offline broadcast rate, since the Internet offers international distribution.

The radio stations are balking, however.

"We think that's ridiculous, and we're pursuing ways to strip the ads," said Kevin Mayer, CEO for the Internet unit of radio conglomerate Clear Channel. He said his company, which yanked its stations from the Net partly because of this issue, will start to broadcast radio online again "in the not-so-distant future."

Another issue for radio broadcasters enters when syndicated content is streamed. The argument goes that if a station buys syndicated material from a network provider such as ABC News and broadcasts that content over the Internet, it cheapens the value of the material in other markets, making it difficult for the provider to resell it.

The dispute boils down to "what the definition of broadcast is in and of itself," said Jupiter Media Metrix's Mooradian. "Can Webcasting be defined technically as broadcasting?"

This competition is pushing content holders to secure more rights for themselves in the medium, exemplified by deals being brokered by RealNetworks with professional sports leagues.

"The rights holders are trying to get the maximum value for those rights," Antil said. For example, the National Basketball Association has sold the rights to the NBA playoffs to NBC for television but has sold the rights for radio to ESPN.

ESPN.com has deals with MLB and the NBA, among others, to stream game highlights via the Web. Although it pays for the rights to broadcast such sporting events on television, many of those rights preclude the Internet.

"Entities like the broadcast networks were used to control the online rights as well," Mooradian said. "But the content owners are starting to parse out those rights as well and (are) demanding additional value from those rights."

Analysts say the rights to distribute content go back long before the Net arrived, having cropped up repeatedly with the introduction of most new mediums. What's different about the Internet is its unprecedented reach and flexibility, which has made it the first genuine melting pot for all types of media--music, text, video and audio.

"In the past with new media, it's been easy to keep track of who had which rights. All of these various rights holders can now all pile into the same media," Forrester Research's Bernoff said. "Before the Internet, CNN and The New York Times weren't in competition. Now they are."

News.com's Corey Grice contributed to this report.