Internet Challenging Cable TV

Cable and satellite TV have cultivated a bitter rivalry for years, and watching Rupert Murdoch and EchoStar chief Charlie Ergen spar is certainly entertaining. But in their zeal to trounce one another, they may be overlooking a more stealthy threat: the Internet.

Consider for a moment the Web's recent encroachment upon television programming.

Time Warner subsidiary AOL recently broadcast basketball's NCAA tournament live to its broadband subscribers gratis. That kind of offer certainly may have prompted an AOL user who is also a DirecTV subscriber to think twice before signing up for the satellite provider's $59 Mega March Madness package.

Meanwhile, Microsoft's Internet service provider MSN has secured the rights to broadcast Major League Baseball to its premium subscribers. For its part, Yahoo! has agreed to broadcast DIC Entertainment cartoons such as Inspector Gadget, Where on Earth is Carmen Sandiego? and Madeline on its Yahooligans TV.

All this should give cable and satellite providers like Comcast and EchoStar something to think about. To be sure, no one will be replacing his or her cable service with EarthLink anytime soon. Web outlets won't release streaming-media viewership numbers, a clear sign they're awfully tiny. But even without much video available, the Internet is already giving television a run for its money. It just so happens that nearly 70 percent of active Internet users log on around 8 P.M.— prime time — according to Nielsen.

Will Broadband Dominate?

The trend does make us wonder just how long it will be before most folks skip using any kind of pay-TV set-top box altogether and just plug their broadband straight into their shiny new flat-panel TVs. Cable and satellite outfits may generally supply those broadband connections via cable modem or digital subscriber line, but high-speed Internet access is a commodity and will never deliver margins akin to pay TV.

The networks seem cognizant of this nascent threat. John McManus, who heads up sports at Viacom's CBS, the network that paid about $390 million for the NCAA broadcast rights, says CBS also owns the rights to NCAA Web broadcasts via its SportsLine subsidiary, which contracted them to AOL. "We wanted to hedge our bets with respect to the Internet," he says. CBS of course can show just one game at a time, while Internet users can pick one from as many as six or eight simultaneous games to watch.

But what happens when the NCAA decides it wants to skip the middleman altogether instead of sharing a substantial cut of its take with Sumner Redstone and Mel Karmazin?

Both the National Football and National Hockey leagues as well as the National Basketball Association already have their own networks that are now available on cable and satellite. Perhaps years from now the leagues may decide that they could make even more than the billions that the television networks pay them by selling games directly via a broadband network. What if more established networks follow suit?

Hollywood is famously anxious to establish a direct relationship with its viewers. Studios Sony, Vivendi Universal, Viacom and Metro-Goldwyn-Mayer have teamed to sell downloads via Movielink, and is doing the same with backing from Lion's Gate Films, Microsoft and Blockbuster. For $12 a month or $100 a year, couch potatoes can download classic films like Snow White and episodes of The Andy Griffith Show.

These endeavors may be long shots now, but what happens when the technology gets to the point where most televisions have high-speed Internet connections?

Consumers may start wondering why they should pay $100 a month to DirecTV or Comcast for a bunch of channels they never watch, when they can just maintain their broadband connection at $40 a pop and only watch exactly what they want to watch.

The cable and satellite systems are at the mercy of the programmers that create and distribute the content. You can bet that as soon as the folks with the keys to the content kingdom decide that there's more money online than on-air, online is where they'll be.

For more, go to