Broadband Cable Association of Pennsylvania


June 24, 2013

Netflix Inc.'s impasse with cable operators was sparked by its request to put its own servers directly inside their data centers. It was a proposition that makes big cable firms uncomfortable, executives and analysts say, because it could open the prospect of other content companies asking for the same thing. The streaming video service has reached deals to directly connect its specialized technology-which it is offering free of charge-with hundreds of providers around the world. These include smaller U.S. operators like Google Fiber, Cablevision Systems Corp. and Cox Communications Inc. But it hasn't come to any agreement with the biggest U.S. companies in the industry-Comcast Corp., Time Warner Cable Inc. AT&T Inc. or Verizon Communications Inc., which between them controlled 62% of the nation's broadband marketplace at the end of 2012, according to SNL Kagan data.

Netflix has tried to pressure operators by offering certain data-rich "Super HD" and 3-D video only to customers whose providers have signed onto Netflix's plan. It also has launched a sleek, consumer-friendly website in recent months that ranks Internet service providers based on their Netflix users' average streaming speeds. Not surprisingly, providers that let Netflix's servers inside their networks usually appear at the top of the list. Wall Street Journal

College is where kids go to study the classics, expand their minds and learn how to reason. It's also apparently where they learn to live without pay TV. In a new report, analyst Todd Juenger of Sanford C. Bernstein said going without pay TV is part of higher education. "The demands of college (both time and money) ultimately trump the need for the vast array of content choices a pay-TV package can provide," Juenger wrote. "This behavior is then carried forward beyond college, and the cord-cutter is born." This week, Juenger hosted two focus groups of cord-cutters, all of them relatively low-income, single New Yorkers, to understand how the cordless live. All of the panelists reported using Netflix, some without paying for it. Many of them said they share HBO Go and Netflix accounts, but eschew old-fashioned illegal downloading as a means of piracy. The attitude seems to be, what's the point when sharing an account is so easy? Interestingly, Juenger found that the groups were willing to pay more for Netflix, even as much as $20 a month. Still, no one wanted to pay for a $20-a-month cable package. What gives? Juenger posited that cord-cutter put a lot of value on Netflix's convenient on-demand content and look down on the bulk of TV programming.

There were a couple pieces of good news for pay TV companies. For all the concern over Aereo, a start-up service that lets people watch the broadcast networks online without cable, no one on the panel had ever heard of it. Also, most people don't plan to stay cordless forever. Panelists had fond memories of growing up in a TV household, and planned to pay for TV someday, perhaps when they start families. Unsurprisingly, no sports fans participated in the study. Los Angeles Times

This year Hulu reached a milestone: viewers streamed more than one billion videos on the site in a single three-month period. But the valedictory lap did not last long. Even as the number of views were adding up, so were concerns within the company about the site's future. That's because Hulu, the Web streaming service that is jointly owned by the Walt Disney Company, NBCUniversal, and News Corporation, is up for sale. And each of the potential buyers brings with it a different vision of what Hulu should become.

The interested parties include Time Warner Cable, DirecTV, the Chernin Group - an investment firm owned by the former News Corporation president Peter Chernin - and two private equity firms, Guggenheim Digital Media and Kohlberg Kravis Roberts. Yahoo, which completed its $1.1 billion acquisition of Tumblr on Thursday, had also expressed interest with an exploratory offer of $600 million to $800 million, according to several people briefed on the sale, who, like several others in this article, spoke on the condition of anonymity because negotiations for the sale were continuing.

The eventual value of Hulu (which would include the brand, its accessible interface and the rights to many of the television shows it offers) is expected to be roughly $1 billion. Binding bids are due by Friday, though one person familiar with the process said the deadline could be delayed until next month. Web sites change hands all the time, but Hulu's sale could signal something more fundamental: the end - at least in its current form - of one of the pioneers of online streaming, which in recent years has become an increasingly popular way to view content. Hulu has a free Web site, with streams of TV episodes supported by ads, and a subscriber-only section, called Hulu Plus,which offers additional episodes at a cost. In 2012, Hulu had $695 million in revenue and the Hulu Plus service had four million paying users, according to the company.

Depending on the buyer, Hulu could be used to foster the further growth of online streaming as an alternative to the cable TV bundle. Or the site could be kept under lock and key, exclusively for the use of cable subscribers. Time Warner Cable, for instance, would like to use Hulu to create an industrywide "TV Everywhere" hub in which subscribers could have access to network and cable shows on-demand. A distributor like DirecTV could use Hulu - both its brand name and its technology - to sell a new service that streams a bundle of television channels to subscribers over the Internet. Intel is trying to create a similar type of service; if it succeeds, then traditional distributors may feel the need to sell something similar.

For cable or satellite distributors, Hulu is also a prize for an existential reason: as an executive at one distributor put it, "It'll make us look like we're ready for the future." But that option concerns some Hulu employees who are fond of the company's quirky Silicon Valley-meets-Hollywood culture. They see the site as an innovative service that untethers shows from the television, not as another piece of a costly cable bill. "Can Hulu remain Hulu if a cable company buys it?" asked one person close to the company. Several Hulu executives have already left the company, amid worries about the future, and it is possible there could be an exodus of creative and engineering employees if a cable operator wins the auction and the site loses its start-up identity.

Jason Kilar, the founding chief executive of Hulu, left in March and was temporarily replaced by Andy Forssell, the senior vice president for content and now the acting chief executive. Richard Tom, the former chief technology officer at Hulu, left after Mr. Kilar, as did Johannes Larcher, the former senior vice president for international operations. Later this summer, Pete Distad, Hulu's senior vice president for marketing and distribution, also plans to depart. A spokeswoman for Hulu declined to comment. Mr. Chernin has the most personal connection to Hulu, as he championed the start-up from its inception when he was still at News Corporation. This year, Mr. Chernin reportedly bid about $500 million for the company. The Chernin Group receives financial backing from Providence Equity Partners, which until October owned a 10 percent stake in Hulu. (Providence is not directly involved in the bid.)

Now, AT&T is in talks to join the Chernin Group in a bid for Hulu, a pairing that would give Mr. Chernin's media, technology and entertainment investment group the financial heft to go up against major corporations. (The technology Web site AllThingsD first reported on the partnership. An AT&T spokesman declined to comment.) For AT&T, Hulu could present the opportunity to expand its "U-verse Screen Pack," a $5-a-month option that lets U-verse TV subscribers stream videos. A former Hulu executive who asked not to be identified discussing a former employer suggested that an independent owner like Mr. Chernin or Guggenheim, the private equity firm, might be preferable for Disney and News Corporation because "the owners want more places to sell their shows - a marketplace for content." If Hulu were controlled by a distributor, content owners might have less leverage.

Hulu, primarily a TV service, was founded in 2007 by NBC and News Corporation, and has played a large part in popularizing online television by creating a destination for video and making it easy for anyone to use. Now best known for carrying shows from Fox, ABC and NBC, Hulu has lately also become known for TV series it commissions for itself, the same way Netflix has with "House of Cards" and "Arrested Development." Hulu has been investing in original shows for more than two years, though to date, none have come close to the budgets of those Netflix shows. By the end of 2013, Hulu will have produced 20 original or exclusive series, and plans to do an additional 40 in the next couple of years, according to the company.

Disney and News Corporation both rely heavily on retransmission fees paid for by ABC and Fox, and may choose to sell Hulu to DirecTV or Time Warner Cable to protect its broader business partnerships, said one person familiar with the negotiations. (NBCUniversal is a nonvoting partner because regulations prohibit its corporate parent, Comcast, from being involved.)

Hulu's sale is complicated, since negotiations will include content rights for shows. In 2011, the owners explored a sale, drawing interest from Amazon, which is building up its Amazon Prime subscription streaming service, and Google, which offered nearly $4 billion - four times the current offers, according to a person briefed on the 2011 bid who is also involved in the current negotiations. But as part of the deal, Google wanted the media companies to agree to exclusive rights deals for shows, an arrangement that would have chipped away at traditional profits. The owners took Hulu off the block. Some analysts say the most logical move for Hulu is to stay where it is, or be bought outright by one of its current owners. "We firmly believe News Corp. or Disney should acquire all of Hulu (buying out the other two partners) and use it to build a robust online video business," Richard Greenfield, a media analyst at BTIG, wrote in a report last week. New York Times