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Major Progress for Cord Cutting: HBO and CBS Announce Stand-Alone OTT Services

· October 17, 2014

TV is finally catching up with the digital age and catering to new generations of consumers — those who rely on services like Netflix, Amazon, and YouTube for most of their video entertainment.  This week may have been a tipping point for online television, with HBO and CBS announcing over-the-top (OTT) services that don’t require a traditional TV subscription.  HBO’s announcement came on Wednesday, with a product launch expected for 2015, and CBS’s CBS All Access was announced and launched yesterday to 14 cities, with more on the way.  These new offerings should help encourage cord cutting and more competition with established broadcasters and cable companies.

The New York Times has a great run-down of the business and competition issues at stake, even pointing out the classic innovator’s dilemma of whether to cannibalize an existing revenue stream when faced with disruptive innovation and competition:

Television executives are eager to woo those viewers, who often are younger and represent their future audiences. But at the same time, these traditional television networks must perform a careful balancing act to not cannibalize the billions of dollars in revenue they generate each year through existing business models.

The Times also mentioned that this week’s announcements mean that “viewers have more options to pay only for the networks or programs they want to watch — and to decide how, when and where to watch them,” and quoted CBS CEO Leslie Moonves saying that their “job is to do the best content we can and let people enjoy it in whatever way they want.”  But they did not point out that this is the classic formula for reducing piracy.  As DisCo has said over and over (often quoting Kevin Spacey or Netflix executives), making content lawfully conveniently available in the format consumers want reduces piracy.  A stand-alone HBO service is likely to increase the amount of subscribers.  As The Oatmeal explained so well, there isn’t currently a lawful way to watch Game of Thrones for cord cutters.  Giving people what they want — piracy demonstrates market demand — should help convert pirates into customers.  Research confirms this, including studies of Spotify and Netflix entering the market in Norway and Spotify’s introduction in the Netherlands.

This week’s news demonstrates great potential in the market for OTT video, evidenced by Netflix’s meteoric rise and Aereo’s ongoing legal battle.  A recent update from Aereo shows that it is “still standing up for innovation, progress, technology and our consumers,” now willing to even accept MVPD regulation in order to lawfully enter the market for online television.  And on the subject of Aereo, the Times also noted that CBS had been planning this service for more than a year — which means the planning started during the Aereo litigation.  As Moonves told the Times, “I am the old broadcasting guy here,” adding, “I continued to poke holes in it for the last year.”  That’s certainly one way of putting it.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.

Intellectual Property

The Internet enables the free exchange of ideas and content that, in turn, promote creativity, commerce, and innovation. However, a balanced approach to copyright, trademarks, and patents is critical to this creative and entrepreneurial spirit the Internet has fostered. Consequently, it is our belief that the intellectual property system should encourage innovation, while not impeding new business models and open-source developments.