Freedom’s Just Another Word For Grainy, Low Quality Content

Business Insider is smart to run two opposing views on paid content and the cable industry side-by-side. One article is written by Jim Louderback, CEO of Revision3–the leading television network for the internet generation–the other by Bill Gurley, a general partner at Benchmark Capital.

Louderback’s argument is the consumer will get what she wants thanks to the liberating power of the Internet.

The internet is all about unbundling. Newspapers and magazines have been unbundled – why pay for the whole thing, when you can just read the articles you want online for free? Music has been unbundled – why buy a CD with 11 crappy songs for 15 bucks when you can just buy the good one for 99 cents? Even TV shows are unbundling. Why suffer through the whole show when you can just catch Letterman’s top 10 list at CBS.com, or the funny bits of Saturday Night Live on Hulu or YouTube?
Cable TV is next. Why should I pay $75 or more for 500 live channels when I only watch around 15 regularly?

I enjoy a pro-consumer point-of-view as much as the next guy, but Gurley’s argument neatly takes into account how the entertainment industry sees things.

There are three key reasons why Hollywood is under less duress than Silicon Valley wants to believe. For starters, the leaders are wide-awake. Ever since Boxee offered Hulu (and were told to stop), the executive ranks at the major cable companies have been alert and engaged. Second, Hollywood has a solid track record of enforcement. They understand the stakes are high, and they are willing to invest in lobbying, regulation, litigation, and enforcement. They are also unafraid to throw around their weight (witness Viacom vs. Google). The final and most significant reason is that this is a massive, massive business, and it is critically important to understand where the money flows (most people don’t). You can spend plenty of time talking about other issues, but when it comes to understanding the key factor at play in nearly every major business decision in television, you will find affiliate fees – all $32 billion of them.
In addition to not appreciating these money flows, most of the digerati in Silicon Valley have huge misperceptions about the content owner’s preferences. They assume that content owners would like to distribute directly to consumers precisely because the Internet allows them to do so. They would no longer be in the “death grip” of the content packager (cable and satellite companies) who take an unreasonable fee for their services. This is simply not how these content owners view the world.

Gurley also points to “Revenge of the Cable Guys,” a cover story at Bloomberg BusinessWeek on the topic.

Part of the answer (to the digital upstarts) is TV Everywhere, a service in its infancy, conjured up in quiet strategy sessions by Jeff Bewkes and Brian Roberts, the CEOs of Time Warner and Comcast. They took a lesson from the music labels, which looked up one day to find that Steve Jobs and Apple had taken control of their inventory. The cable guys came up with a quick fix, one so technologically simple that you don’t have to be a geek to get it: Viewers can watch shows for free, but only if they’re cable subscribers first. In other words, as long as you tap a subscription code into your device–any device–you can watch anything you want, whenever you want.

Bewkes and Roberts can’t fight the proliferation of devices and the consumer’s desire for on-demand viewing. They don’t need to. They simply need to give the consumer what she wants, for a fair price. But not everyone is in agreement on what’s fair.
Josh Silver of Huffington Post, for one, sees TV Everywhere like this:

TV Everywhere is designed to protect the current cable TV subscription model and block competition from upstart online video ventures like Vuze, Roku and Hulu. Cleverly marketed as a consumer-friendly product, TV Everywhere is really a desperate bid by old media giants to crush the emerging market for online TV.
TV Everywhere not only threatens the Net’s potential to break open access and distribution of video content, it also appears to be an illegal collusion meant to block competition. Any way you slice it, it’s bad for consumers.

Of course, Hulu recently announced its free TV model is undergoing a major overhaul. According to Los Angeles Times, Hulu will continue to provide for free the five most recent episodes of shows like Fox’s “Glee,” “ABC’s “Lost” or NBC’s “Saturday Night Live.” But viewers who want to see additional episodes would pay $9.95 a month to access a more comprehensive selection, called Hulu Plus.
Let’s return to Gurley’s piece for a minute. He makes fun of Silicon Valley’s view of things with this thought bubble:

There is nothing Hollywood can do to stop this train. The problem, you see, is that technology is merciless, impersonal, and unforgiving…All content will be free, and you simply have to live with that fact. The sooner you get in touch with it the sooner you will learn to execute in the new reality.

I’m sorry, but there’s a smugness in the tech crowd’s certainty that I find highly unbecoming. Gurley and I are in agreement on that. I’m also inclined to believe Gurley’s assertion that the techies have no idea what they’re dealing with this time. While there are sharks in the music business and the news business, the TV business is where the Great Whites swim. And Great Whites aren’t going to let smaller fish eat their lunch.