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The Other Reason the TV Guys Are Moving to the Web

Hint: It's old, and it rhymes with "cable TV."

Peter Kafka covers media and technology, and their intersection, at Vox. Many of his stories can be found in his Kafka on Media newsletter, and he also hosts the Recode Media podcast.

It’s a pivotal time for TV: One by one, big networks are stepping out of the cable bundle and giving viewers a chance to watch their stuff on the Web.

But those networks also assume they’re going to make most of their money from the cable bundle for many years to come.

Which, it turns out, is one of the reasons they’re going to the Web.

Sounds confusing, but it’s pretty straightforward: Adding an “over the top” service — one that uses a Web connection instead of a cable box — gives TV networks more buyers, which gives them more leverage. And they’ll try to use that leverage to get concessions from pay TV distributors, so the networks can improve their existing businesses, even as they build out new ones.

Some of the TV networks that are heading to the Web will even say this out loud. “Just the threat of going [over the top] gives us added leverage” HBO CEO Richard Plepler said on Wednesday, at the investors conference where he announced his plans to sell HBO on the Web.

Plepler was specifically talking about HBO’s deals with international pay TV networks, who license HBO programming. But he will certainly use the same leverage when he deals with pay TV distributors in the U.S.

For instance, Plepler can now try to convince cable giants like Comcast* to package HBO with its smallest bundles of TV networks, which increases the pool of potential subscribers. He might also ask for better revenue splits on the HBO subscriptions Comcast does sell.

His threat, implied or otherwise: Every subscription you don’t help us sell is a subscription we can sell with someone else, on the Web.

You can look at ESPN’s plan to sell its programming on a low-cost Web service from Dish Network in the same light. Like HBO, ESPN believes it can use the Web to acquire customers — mostly millennials — who don’t have pay TV.

But like HBO, ESPN can also use the digital service to strengthen its traditional one. As pay TV distributors begin to offer lower-cost “skinny bundles” of networks, ESPN can point to the Dish service as a reason to include ESPN in the TV guys’ low-cost bundles.

If they don’t, the network can argue, those would-be cable TV subscribers will become Web TV subscribers, and they might never come back.

CBS’ move to sell its stuff on the Web isn’t exactly analogous, as the company is positioning its service as a complementary service for super-fans, instead of a replacement for the company’s traditional distribution outlets.

Still, if CEO Les Moonves can find a market for his service at $6 a month, he will find it easier to convince TV guys to pay him fees of $2 a month for access to his shows, as he has been demanding.

And if his next set of distribution deals get heated, like they did last year with Time Warner Cable, his new service would weaken a TV distributor’s most powerful weapon — the threat of a blackout. If you can’t get CBS from your local cable company, come find us on the Web.

The flip side, of course, is that all of this only works if it works — there’s no leverage if it turns out that there’s no consumer appetite for these new packages.

But if it does, the networks will have pulled off a neat trick: They’ll get to build the business of the future while strengthening the one they have.

*Comcast owns NBCUniversal, which is a minority investor in Revere Digital, Re/code’s parent company.

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