Here are two very interesting video clips from this week's D8 conference, especially in how they relate to each other. 

First is Comcast's COO Steve Burke commenting on the competitive threats to cable. When pressed about the cord-cutting threat from over-the-top services like Boxee, Roku, and Apple TV, Burke points to the fact that pay-TV subscriptions (bundled channels) have been up every single quarter, across the entire market.  Distributors like Comcast must serve both customers: content programmers and consumers.  The current economic model works very well for content programmers and is evidently still working for consumers. Putting consumer costs in perspective, Burke notes that consumers pay an average of only $2 a day on their TV service (the price of a daily coffee).

Second is Steve Jobs commenting on the difficulty in competing against cable.  When asked why TV is "just a hobby" for Apple, Jobs points to the now classic TiVo case study.  Cable and satellite companies subsidize set-top boxes, such that they are almost free to consumers, preventing would-be competitors from entering the market.  There is no go-to-market opportunity for new comers, since most consumers won't pay for set-top box if they get it for free from their cable provider. The obvious opportunity, which Jobs did not speak to, would be for Apple to build their own TV and control the entire experience, from UI to content marketplace & subscriptions. This is what Apple does; they've done it on all other screens... so why not TV?

My post last week Silicon Valley Doesn't Understand TV spawned a great discussion between me and Tom Turnbull, my fomer partner at SplashCast who headed up biz dev. 

Does Google TV have a real chance of unseating the cable companies, given that they don't have many TV content deals put together yet?

The discussion below gets to the heart of whether there really is an opportunity for Over-The-Top (OTT) providers to unseat cable companies, by offering lower prices (they hope) and better user experiences (they hope) that integrate web and TV more tightly (they hope).

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Tom Turnbull (@tomturnbull & LinkedIn): Question for Mr. TV. If Google is partnering with Dish, does that mean they have access to content?

Me: Google is just lending tech to the existing DISH service. It is not the same thing as the newly announced consumer option, called "Google TV" via the Intel and Sony partnerships. This new service appears to be void of content at the moment, and will have a very tough time getting content without PAYING users (a foreign biz model for Google).

Tom: Got it.  I didn't look close enough to see these were separate deals.  I 100% agree: content is the necessary raw material to make any of this work.  I will say this.  Google is smart.  Just like Jobs needed to make deals with the record labels, Google/Intel/Sony must know that content is the ticket to play.  They must know that a great product devoid of content will fail miserably.  That troika will be able to get a few meetings....

Me: That's only half the battle (the easy half). The other, harder half is getting Google users to pay cable-like monthly bills for the content.  Therein lies the 800-pound gorilla that silicon valley isn't ready to face.
 
Tom: Google is charging for phones (in line with consumer expectation to pay).  Why not Google "cable"?  There is a consumer expectation to pay for premium content (although the Hulu experiment certainly cuts against that).  Doesn't seem THAT crazy to me...  

Me: People dislike cable primarily b/c it's perceived as being too expensive. That money isn't just going to Comcast... It's going mostly to the content providers. The content providers will not give Google full feeds of content if either of these 2 things occur:
 

1. It doesn't pay as well as MSO (Comcast, DirecTV, Verizon, etc) distributors, or

2. it undermines their relationships with the MSOs.

For these reasons, it's going to be extremely difficult to unseat the MSOs. If Google comes even close to charging as much as Comcast, there would be riots in downtown Palo Alto.  Google's best bet is to provide Android tech to the MSOs, as they did with Dish. But Comcast is building, not buying.

Tom:  Hmmm.  Wonder if Google could create structure whereby content providers are economically neutral while consumers pay less (i.e., Google makes a much lower margin).  Still have your point number 2 to deal with.  I just have to believe that Google understands all of this and has an interesting approach up its sleeve.

Me: I am not as sure as you are.  Apple didn’t get it with Apple TV, even after securing the entire music industry.  Again, I don’t think Silicon Valley gets TV.  It has nothing to do with tech.  Google is out of its element.

Another challenge with Google getting content: the TV content providers gain nothing from Google TV.  ESPN has nothing to gain if a Comcast subscriber switches to Google TV.  If anything, they have a lot to lose.  Content providers fear technology providers, especially after seeing what Apple has done with music (ie, light-speed consolidation of power).

http://techcrunch.com/2010/03/18/google-tv-apple-tv/

Ugh. We just don't get it in the valley.

The above TechCrunch post is a typical Silicon Valley perspective that again exposes its misunderstanding about the TV screen. TechCrunch ends the above post with:

We, as consumers, need a living room arms race between Apple and Google (and Microsoft, TiVo, Roku, Boxee, and the rest) to kick the cable companies’ shitty television user experience to the curb.

Nicely chosen words. The thing that we tech folk in silicon valley don't seem to get is that TV is primarily not about whiz-bang technology, applications, or even user experience.... It is first and foremost about access to CONTENT, and then getting out of the way.

People spend a ton of money on gorgeous, huge-screen TVs... for what purpose? So they can read their twitter feeds on their living room wall? I don't think so.

TV is still primarily about ABC, CBS, FOX, NBC, PBS, ESPN, CNN, FOXNEWS, HBO, SHOW, MTV, DISCOVERY, SPROUT, BRAVO, etc...

No where in the TechCrunch post above is access to TV content even mentioned. Not once.

Google does not have the content relationships to make the cable companies lose sleep over Google TV. Nor do they have a meaningful business model to support TV content. If they did have 75% of the content relationships that Comcast has, and were successfully extracting monthly bills from its users, then I would bet Brian Roberts (Comcast CEO) would become very concerned. But right now they aren't even close.

Once you do have the content, THEN amazing, mind-blowing things can be done with 3rd party apps and social features, integrated into the content experience. But content is the first step.

It's interesting to note that the TV is the oldest of all the screens and the only one that pre-dates silicon valley.

Disney (ABC) and CBS are reportedly in negotations with Apple to provide their TV shows, without commercials, on a subscription basis via iTunes. 

I have a few questions about this. The first obvious question is: will consumers be willing to pay a monthly fee of $3 - $5 per show, for ad-free TV downloaded to their computer, iPod, and iPhone?  This is content that is already available for "free" (broadcast, cable, Hulu, network websites, etc).

But more importantly, the business strategy question: are ABC and CBS really ready to take sides in the emerging Apple vs. Cable TV battle of the decade?

It's no secret that Apple wants to disrupt the TV industry like it successfully did the music industry.  Their approach is to disintermediate the old guard content distributors.  In the case of TV, that means pushing out the cable companies from the supply chain; connecting consumers directly to the content, removing the "middleman". This, of course, terrifies the cable operators (Comcast / Time Warner / Cox / etc). 

The problem with that approach is that it forces the TV programmers (ABC, CBS, NBC, Fox, and the cable channels) to align themselves with one side or the other: Apple or the cable MSO's.  Remember that the programmers are still heavily reliant on "carriage fee" revenues from the MSO's.

Apple and Comcast both need ABC and CBS... however, ABC and CBS both need Comcast more they need Apple, at present time. So it's a big gamble for them to jump in bed with Apple.

I've written about this political gamble for the TV programmers here: Apple Creates Bad Political Situation for Content Providers

That all said, Steve Jobs is Disney's largest shareholder and has a lot of influence over strategic decisions.  That could partly explain ABC's motivation to deal with Apple, but why CBS? It seems like CBS decisions are based on "anything but Hulu" (where "anything" also means "everything").

More background from NewTeeVee: http://newteevee.com/2009/12/22/will-consumers-pay-for-what-abc-and-cbs-already-give-away-for-free

The question is, who will lock up content first: cable companies through brute force (acquisition) or Apple through attractive incentives. The content companies will likely have to choose one over the other.

http://www.unthinkable.biz/home/article/813/apple-itunes-tv

Rumors are flying high today about an iTune's $30 / month "TV Subscription" service. It would give users "all you can eat" downloads of current (and some past?) episodes of TV shows - playable your computer, iPhone, iPod, or even up on your TV. No need to pay Comcast anymore, right?

Sounds great for users, but it does force the TV networks and cable channels into an uncomfortable and unwanted political mess. The content providers remain quite reliant on fees paid to them by the cable / satellite companies; it represents a large percentage of their overall revenue, in fact. Further, iTunes downloads would potentially erode their primary revenue stream: broadcast advertising. Why would NBC, Fox, CBS, etc risk any of that?

While Apple would love to disrupt the TV industry as thoroughly as it did the music industry, by disintermediating the MSO's (cable co's), I just don't think it will be that easy. In the case of TV, unlike music, the content providers hold the cards and they have little interest in pissing off their existing distribution partners. That's ESPECIALLY true if the MSO's go on an expected content binge (a la Comcast gobbling up NBC). Story:

http://mediamemo.allthingsd.com/20091102/apples-itunes-pitch-tv-for-30-a-month/#content-main