Whenever I have an idea for a blog post, I add it to a running list. The idea for today’s post came to me during Web 2 Summit and I wish I had posted it then because it would look more prescient. Oh well – here it goes a bit late.
Yesterday reports surfaced that Microsoft is working on a new TV service that would be an alternative to the offerings from cable providers. That could be terrific for consumers by expanding choice and finally driving down price, assuming for a moment that bandwidth providers won’t get away with charging differentially – i.e. we get some limited form of net neutrality as a law so that the current spat between Comcast and Level 3 doesn’t become the norm. Microsoft certainly has the cash to pay upfront for acquiring the rights necessary to launch such a service.
Still, Microsoft may find the going tough (even if we get some net neutrality). The reason is that existing content providers have too much of their economics tied up with contracts that limit what they can do with third parties. Cable has long feared this day and so has created contracts that aim to prevent content providers from also offering their content “over the top” in any way. This is also the reason why content providers have either made relatively little of their content available on the web or have tried to prevent Google TV from accessing it – they are often literally contractually obligated to do so.
That’s why in my view the better way to spend money in creating a pure play TV over IP startup would be to produce original content. In other words: create the HBO of IP. Yes it would run the risk of having to come up with good content, which is hard, but it would avoid getting entangled in a rights mess. The economics for whoever pulls this off will be compelling. Even if you got to only 2 million monthly subscribers at say $5/month that would be $10 million per month, most of which could go towards content!
I am convinced that it is only a question of when not if this will happen. Amazon has taken a step in this direction by starting a film studio. Netflix is well positioned by virtue of having a large subscriber base that is already growing accustomed to the new delivery model. So someone will have the guts to spend the right amount of money (which could be over $100 million, hence the post title) to get this off the ground.
