Burke’s Surprise At HBO, CBS Is Surprising

Steve Burke made some remarks Thursday that warrant some scrutiny and comment.

They came during a conference call with securities analysts following release of Comcast’s third-quarter results when executives were asked about last week’s news that CBS has begun offering its programming online directly to consumers for a monthly fee and that HBO would soon be following suit.

“I was surprised by both of them for different reasons,” said Burke, who is executive VP of the company and CEO of its NBCUniversal division. “CBS, I was surprised because they have been such a defender of retransmission consent in the traditional ecosystem and been so successful in the broadcast business, and HBO because I think it’s going to be such a challenge for them to not cannibalize what is already a really, really good business.”

Recognizing that the HBO and CBS services were widely seen as a threat to lucrative cable TV business of Comcast and others and certainly aware of whom he was talking to, Burke also felt compelled to downplay the services.

First, he said that that they were not “over-the-top” services in the sense that they are not aimed at getting consumers to dump their cable subscriptions. They are aimed merely at pursuing elusive young folk who need a way to get TV on their smartphones and tablets, he said. “Both are trying to add to their existing ecosystem.”

Burke also suggested that HBO and CBS may not fully understand what they are getting into. “I don’t think distributing directly to consumers via the Internet is an easy thing to do.”

First of all, I was surprised that Burke was surprised. He apparently hasn’t been keeping up with the trades. There was have been rumblings about HBO and CBS direct-to-consumer ambitions for a long time — at least a year and a half in the case of CBS.

I was also surprised by Burke’s lecturing CBS and HBO on what’s in their best interest. Don’t they know, he was saying, that they are jeopardizing all the millions upon millions they now receive from cable and satellite?

I’m guessing HBO and CBS know exactly what they are doing. I don’t think CBS is worried about disrupting the “traditional ecosystem” any more than HBO is worried much about “cannibalization.”

HBO is still working the spreadsheets, trying to come up with a monthly retail price that will insure that it will come up at least even if a consumer who paying for HBO on cable or satellite cuts the cord and signs up with HBO online.

Same goes for CBS. The network has gotten use to the big retrans revenue it gets from cable and satellite, but a dollar is a dollar. If a Comcast subscriber cuts the cord and signs on with CBS All Access, CBS may lose a buck or two in retrans revenue, but I assume it would net at least as much from the $5.99-a-month All Access subscription.

Burke is correct in suggesting that neither HBO nor CBS is out to undermine the cable platform. But that doesn’t mean their online services are not over the top. They clearly are. In my dictionary, an OTT service is any online or mobile service offering TV. Netflix, Amazon and MLB.com and prime examples, but there are many others.

As they multiply, the OTT services will slowly, but steadily erode the cable business just has cable has eroded the broadcasting business for the past 40 years. The erosion accelerates when major programmers like CBS and HBO get in the game.

I don’t understand why Burke would say the online distribution business is tough.

The streaming technology is proved and widely available. Working with a company called Anvato, NBC itself expects to roll out a TV Everywhere service by the end of this year that will make the NBC O&Os and affiliates available online. The only difference between what NBC and CBS are doing is the marketing. To access the NBC service, consumers will pay nothing, but will have to be subscribers in good standing of cable or satellite system.

And Netflix and Hulu have shown that online retailing of TV is no big deal. You persuade the consumer to input his credit call number as he signs up for the app and then hope he forgets about it. I do, except when my credit card bill arrives each month and I see that $7.99 charge from Netflix.

What’s tough is distribution of TV via cable. It involves municipal franchises, bucket trucks, telephone poles, in-home equipment, cable guys, CSRs, grumpy subscribers, convoluted monthly bills and collection agencies. It’s not for the faint of heart or the underfinanced.

As others have commented, the takeaway from the HBO and CBS announcements is that content is truly king. If you’ve got the content as HBO and CBS do, you get to call the shots. If one distributor gets too uppity and doesn’t want to pay what you’re asking, you threaten to take it to another. And for good measure, you create your own online pipeline to home and phones.

So no need to feel bad for Comcast. By virtue of its NBCUniversal acquisition a few years back, it is one of the largest purveyors of high-quality TV content in the land.

Burke reminded the analysts of the fact.

“We are still early on in the transition to more Internet television … [and] I think you are going to see a lot of surprising things. And you know what’s surprising to me is that we are making hundreds of millions of dollars from Hulu and Netflix and Amazon, businesses that we didn’t even think about five years ago.”