A week after the launch of Google TV, the vanguard of TV-Internet convergence is delivering on the drama. As is being widely reported, ABC, CBS, and NBC (with some exceptions) are now blocking their web-based TV content from displaying on the Google TV browser (see WSJ coverage here, a more detailed account from search engine land here, and techmeme coverage here). This comes on the heals of Fox – the one major broadcast network not blocking Google TV – endeavoring, as part of its ongoing dispute with Cablevision, to block Cablevision subscribers from viewing its TV content on Hulu (assuming they use the provider for both cable TV and Internet service). Hulu is also being blocked from Google TV.
As many who have been watching these industries have long predicted, what we have here is not convergence so much as collision and conflict being played out with messages like
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As media giants enlist Internet engineers to implement browser sniffers in an effort to gain negotiating leverage, we are at last witnessing the inevitable confrontation between two incompatible models for broadcast content: cable TV and the Internet.
The situation is complex, but suggests the possibility of game theory analysis using the “prisoner’s dilemma” framework. In a simplified model, broadcasters and cable companies are cast as the “prisoners.” In principle, as long as they cooperate to keep unlicensed Internet-delivered TV programming off connected-TV sets (or at least inconvenient enough that it remains on the viewer fringe), they both win: broadcast gets its hefty retransmission fees and cable gets to sell differentiated premium service at a profit.
Enter Over-the-top TV (Google and Apple) to propose the dilemma. To broadcasters, OTT offers the opportunity to sell programming direct to consumers, at potentially higher margins than through the cable middleman. It also offers more direct control over advanced advertising and interactive capabilities, that cable companies are currently attempting to control themselves. To cable companies, OTT offers the opportunity to gain more leverage in retransmission negotiations by potentially offering content that’s free on the Internet for free to their cable customers as well.
In most well-formed prisoner’s dilemma scenarios, the situation results in the defection of both (or all) rational players (in game-theory terms, defection strictly dominates cooperation). The OTT situation today is not well-formed enough to make this prediction, however, because the benefits of defecting do not yet clearly exceed the benefits of cooperating. Broadcasters are unlikely to get more money from OTT providers than cable companies, and cable companies are unlikely to gain enough leverage to offset the potential loss of subscribers should they lose access to popular programming.
The game is also complicated by the fact that there’s a time factor involved: at some point technology will evolve to the point where the boundary will fall and broadcasters will have to choose between offering programming on the Internet knowing it will be viewable on TV as well, and losing a large share of the growing online audience. Distributors, for their part, will need to choose whether to continue to pay escalating carriage fees to hold-out broadcasters or take their chances with OTT. To head off this stage in the dilemma, distributors are working with broadcasters on the TV Everywhere concept, that would extend subscriber-based conditional access to video on any device. As often happens with large, distributed technology initiatives, progress has been uneven and technical issues abound.
The situation is clearly different for cable networks, especially premium ones like ESPN, which has made significant progress on TV Everywhere, than for over-the-air broadcast networks. It’s also clear that delayed action can be costly in this game. In any case, this game’s more complex than the idealized blackboard version.
To discern the winning strategy requires plugging in some numbers and making some forecasts. This will be occupying a good deal of our time in the coming season. You see, billions of dollars hang on the outcome.