Cable and Broadcast Innovation: A Closer Look at Netflix and Aereo


The possibility of Netflix as a U.S. cable operator set-top app, as it already is with Virgin Media, combined with broadcasters continuing to battle disruptive upstart Aereo spotlight the consequences of failing to innovate business and technology models.

“Netflux”? - A published report claiming a few cablecos and the OTT service company have talked about adding the streaming offering to their challenged pay-TV services fueled much discussion. As an established disruptor that continues to evolve, talks with potential business partners make solid sense.

The company that enabled OTT TV binging and is racing ahead with original series (deal this week with Sony) would seem to have little in common with pay-TV providers. The latter are supposed to be first focused on their TV Everywhere strategies with content partners like HBO to stem big and continued subscriber losses. And Netflix’s OpenConnect distribution approach needs to be reconciled with those of interested ISPs.

So do opposites really attract?

What if? How?

The bigger question is hypothetical but perhaps the most important. If the two teamed up, how would cablecos offer Netflix to their customers? It doesn’t make much sense for non-pay-TV customers to sign up because a cableco has Netflix.

Content distributors have fought the a la carte approach forever and offer subscriptions in packages and tiers which include lots of channels you don’t watch along with a few hot ones. If they added it to any of the base packages, odds are, cable prices go up as free is a four-letter word uncles attached to a marketing promo.

Another option would be to offer it as a pay extra separate offering as cablecos do with groups of sports channels. They also require you to be at a certain tier to be able to pay extra for the sports offering. There may be other approaches, (which would be a nice shock as cablecos aren’t known for alluring packaging), but the bottom line is Netflix would be offered as some form of an addition to cable TV.

App Me!

What would be interesting here is if the partnerships actually happen and the cablecos decide to offer/price Netflix as an App and not a service with a monthly subscription fee. That could potentially open the door to creativity and flexibility that the OTT service company is better known for than cablecos.

This could also potentially grow the market for Netflix, substantially, and would be in keeping with their age-old innovation and disruption strategy that has yet to gather dust as have the game plans of many pay-TV providers.

Broadcast TV, Still

Broadcasters are wrestling with what to do with young demographics. One report says they are “working to win back” people in these groups.

My biggest question is how do you win back viewers you never really have? Live sports matches aside, these age groups, (Millennial and younger) typically only watch broadcast TV if they have it in their house and their parents are footing the bill. Once faced with a cable bill when they are on their own, I doubt demographics that were raised with the Internet, OTT services and sites like YouTube, Facebook, iTunes, Redbox and more, will pay for it.

Call this sizable group “cord never evers” though they will pay for Internet access first and foremost. Pay-TV providers are obsessed with keeping subscribers in place but are showing little in the way of targeting those that don’t have or pay for it. If they are the lost generation it’s because broadcasters did nothing appreciable to date to attract them while so many other others did and have.

Aereo – The Latest

The rise of Aereo underscores and puts an exclamation mark on my point. The upstart takes over-the-air signals from broadcasters in metro markets (Boston, N.Y., Chicago, Atlanta, Dallas-Ft. Worth, Miami, Houston, etc.) and streams the content to consumer’s laptops, smartphones and tablets that pay $8-$12 a month for roughly two dozen channels and a cloud-based DVR. Just last week, Aereo survived a legal challenge by Hearst which owns a local broadcast channel.

Broadcasters have launched an all out legal battle against upstart Aereo in the courts and are still scrambling for ways to protect their assets, which the company does not compensate them for. This is a direct and powerful salvo at the way broadcasters do business and get paid. Aereo is already up in Boston, N.Y. and more with a lengthy rollout plan for the U.S.

Cablevision put its network DVR (RS-DVR) efforts, which were blocked in courts for a long time, in the same category with the Aereo situation, claiming efforts to thwart them are anti-innovation. Part of its statement after the ruling against Hearst in Boston last week:

 "We are dismayed by the broadcasters' brazen attempt, in a case about Aereo, to go after the legal underpinning of all cloud-based services, everything from digital lockers to Cablevision's own RS-DVR service. Given that there are much narrower -- and more persuasive -- legal grounds for invalidating Aereo that do not threaten such underpinnings, the broadcasters' approach can only be seen as a willful attempt to stifle innovation. If Aereo ends up prevailing, it will serve the broadcasters right."

That feeling is building as many wonder why such an established and deep-resourced industry – broadcasters – hadn’t come up with/and/or deployed something along the lines of what Aereo is rocking across the U.S. to rave consumer reviews.

Broadcasters and ‘Youngins’

Perhaps the best defense is a strong offense in the case of broadcasters. Maybe rolling out the same or similar technology before Aereo would have been more effective and even helped appeal to the younger demographics problem.

One third of Millennials already claim that they are watching TV online and don’t watch any linear TV. Then there are those as I mentioned who watch some, but don’t and won’t ever throw in for pay-TV services from operators. And don’t forget those Millennials who are already paying for Internet and services like Netflix who have already passed on linear TV. Scary.

The Bottom Line

First, consider the devastation to broadcasters and cablecos if Netflix, Google and/or other new distributors won some games from the NFL after its deal with DirecTV ends at the end of 2014? Other major leagues would likely follow suit and share the pie where possible.

Much would need to be reconciled for cablecos and Netflix to effectively team. But if it actually came to pass, it would be a landmark case of the disrupted and the disruptor coming together for business gain. And it would be the same in terms of operators embracing innovation.

On the flip side, the same holds true for broadcasters and Aereo. In this case however, the chances of the disrupted (broadcasters) and the disruptor (Aereo) finding any common ground short of the building housing the Supreme Court is beyond unlikely.

The only thing worse than failing to innovate business and technology models in a broadband economy is the failure to embrace it at a later date, before too much is lost. Stay tuned, and here’s to playing offense instead of sticking exclusively with defense.

Edited by Stefania Viscusi

VP of Content

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