We knew it was always come down to the question of what to do about online video.  Although the overwhelming majority of broadband customers still take some sort of video package (or simply don’t care enough about television to get one in the first place), there is a small, but growing number of people who are dispensing with video packages from cable and relying entirely on broadband video services to watch network and cable programming.

Hulu and Joost, along with limited fare from the major American networks, as well as video offerings from the CBC and BBC exclusive to residents of those countries, create the potential for a major problem for cable operators — what happens if people stop buying video packages.

Comedy Central's Video Streaming - Will it be available to non-cable subscribers for long?

Comcast and Time Warner, the nation’s largest cable operators, have plans to put a stop to the erosion in video subscribers before it gets serious — by seeing to it that they don’t get to watch free online video any longer.

Comcast’s On Demand Online and Time Warner’s TV Everywhere services are either in operation or will begin trials later this year.  Both seek arrangements with cable programmers (coincidentally many of which they also have an ownership interest in) to create a new authentication system to block non-video subscribers from accessing video content aired on those channels.  Cable subscribers who do take a video package will get in for free.

The video programming would still exist on various cable network websites.  Comedy Central would still have clips on comedycentral.com and CNN would still have their news clips at cnn.com.  But under the cable operators’ proposals, those clips would no longer be available to individuals who cannot prove they have a video subscription.

Currently, some 90% of Time Warner’s broadband customers also take a video package, and Time Warner can easily authenticate those subscribers with a type of “authorization key” which an online video player would seek for permission to play the programming.  Time Warner is also contemplating whether live streams of cable channels would also be a good idea.  Currently, cable operators routinely insist on prohibiting live streaming of the cable networks they carry.

Of course, the problem will come down to those who subscribe via satellite dish services or a smaller cable operator or telephone company video package.  Does this enforcement only occur on Time Warner and Comcast’s own broadband networks, or would it be widespread?

Multichannel News covered the Time Warner TV Everywhere trial:

Time Warner Cable is working with two major programming partners on its “TV Everywhere” initiative to make sure the Internet-video service is easy to use and scalable, said Peter Stern, the operator’s executive vice president and chief strategy officer.

Stern, speaking on a panel here at the Cable Show ’09, said the MSO is already working closely with two programmers — Turner Broadcasting System and another he did not identify — that will involve authenticating consumers “in a very straightforward way so they can get access to content.”

“To be honest, we’re still working it out in terms of the user experience,” Stern said.

The concept, which is being Comcast and Cox Communications, is to reinforce the cable TV subscription model, by providing that programming to paying customers over their Internet devices.

Stern pointed out that 90% of Time Warner Cable’s broadband customers are already paying for multichannel video.

“Those people are already entitled to watch this programming,” he said. “The big risk we have is, if we don’t offer this programming to them the way they want it, they’ll turn to piracy.”

Alternatively, if that programming is provided to them for free over the Internet, the risk is they’ll cancel their subscription service – with such “cord cutters” obtaining their media online.

Some basic principles Time Warner Cable is following in developing TV Everywhere are that consumers should “have choice in terms of the sites they can have access on,” he said. “That will be dictated by programmers, not the cable operators.”

Stern continued, “Not to say we’ll not have content on the [Time Warner Cable] RoadRunner site, but we’d be kidding ourselves if we thought we were the only site consumers should be able to access.”

Cable operators have always been concerned about “leakage” of valued cable programming to online streaming or piracy.  Cable programming currently charge subscription fees to cable operators for carriage on those systems.  Some, like C-SPAN or Current, amount to pennies per month per subscriber.  But others, particularly for sports programming, Fox News, basic movie channels, and other high-rated channels command enormous fees amounting to several dollars a subscriber per month each, whether the subscriber wants to watch the programming or not.  These costs are continually increasing.  Fox News, for example, leveraged very strong price increases for its news channel, as well as forcing a number of cable systems to pick up the low rated Fox Business Channel to receive discounts.  Viacom also routinely demands cable operators take additional networks they may not want to carry in return for discounts on the networks those operators do want.

It all gets passed on to cable subscribers in the form of rate increases every year.  With the increasing number of channels on a cable lineup, when a bunch demand rate increases, rates can spike significantly from year to year.  Nearly all have carriage contracts that forbid the cable operator from selling their network(s) on an a-la-carte basis.

With cable video pricing increasing, many subscribers downgrade their subscriptions to save money.  If a cable programming is giving away their content online, that creates a greater incentive for viewers to stop paying for video packages, and rely on their Internet connections instead.

Earlier this week, Time Warner CEO Glenn Britt reiterated that although the erosion of video subscribers isn’t a problem today, it could easily become one tomorrow.  He cautioned programmers who give their shows away for free online that a day of reckoning may be coming, when a cable operator is no longer willing to pay for networks that give everything away online.

Rupert Murdoch, chairman of News Corporation, which owns Fox News, supports the concept, according to Multichannel News:

News Corp. chairman Rupert Murdoch said that cable networks have to find a way to monetize the Web, before consumers begin to expect to get their content for free.

“The fact is with free content, people are used to it being free on the Internet,” Murdoch said. “Nobody is making any real money from the Web except search. We have to monetize it.”

The other controversy involves cable operators trying to limit video viewing by imposing usage caps or tiered pricing on consumers, limiting the amount of video they can consume online.  At the lower end of the caps proposed by Time Warner, viewing Hulu or Joost programming would be akin to “pay per view,” with fees of 50 cents or more per show in broadband costs, once one’s usage allowance expires.

The protest against Time Warner in Rochester on April 18th attracted approximately 30 people, which was significant for an event many people assumed was canceled after Time Warner shelved their cap program temporarily 48 hours earlier.  But the point needed to be made that many people in our community don’t believe Time Warner has actually scrapped anything.  They’ll be back with the same kind of tiering program by the fall, trying to convince people that paying a lot more for the same thing is a good idea.

The Triad protestors were smaller in number, but still effectively made the news on several stations in the area.

Time Warner’s latest statement indicated the “company was actively working on [pricing] that would meet everyone’s needs.”  Of course, they already have a range of packages which meet the overwhelming majority of customers’ needs.  The problem is, light users aren’t being sold Road Runner Lite, which is available and less expensive than standard Road Runner service.  Another safe bet is asking people to pay triple the price they pay now for their existing service is not meeting anyone’s needs, except the bean counters at Time Warner headquarters.

Amusing in some of the informality, such as when the anchor asked people to call her up and explain what a “gigabyte was.”  Many customers are in the same position, not having a clue.  The sad part of this, of course, is that Time Warner wants to force them to learn, and had punitive tiers with substantial overlimit fees to spank those who didn’t learn enough.  It’s a plan designed to make you fear how much you are using, with the hope that you will use substantially less to avoid going over your “ration” for the month. April 18, 2009

More from the Re-Education camp.  They want to take some time and let us understand their plans, so that we can reject them out of hand all over again later this year.  Except next time, the protests and push back will be even greater than it was this spring.  That’s because we’ll also be educating customers about what tiered pricing will mean for their bill, both now and into the expansive future for the Internet.  Time Warner forgets Rochester Telephone’s disastrous attempt to get rid of flat rate home phone calling back in the 1970s and the firestorm that caused.  This is going to become more or less the same thing.  Even people without computers who don’t understand the Internet do understand one thing: they don’t trust Time Warner as far as they can throw them.  The company already forces channels on customers they don’t want, but have to pay for, and they also know this universal fact of life: cable bills always go up, never down.

So when Time Warner comes a’knocking and says they have a plan to save you money, people will slam the door in their face. Their claims that “they” found a lot of customers could “right-size” their plans when people realized they weren’t using that much is amusing, especially in Rochester where you can find the Road Runner Lite plan on the back of milk cartons bannered “Missing.”  That’s because the company makes it next to impossible for those light users to find the Road Runner Lite plan they already offer.  And when customers learn they can save money and never fear paying overlimit fees on their Internet under the existing plan, you can be sure they won’t be snake oiled into accepting the new one that has overlimit penalties that would make Bank of America blush.

Frontier isn’t fooled either.  Ann Burr, Chairman and General Manager, Frontier Communications of Rochester, might have a problem saying “inconsistency,” but her company is making hay out of the PR nightmare Time Warner put itself in, signing up new customers.

Fun Trivia: Ann Burr should know.  She used to be president of Time Warner’s Rochester division!

“We have a listening process,” says Time Warner spokeswoman Robin Wolfgang.  Yes, and here it is — Customer: “I want to keep the same plan I have right now and not pay three times more for the exact same Internet service I have today.”  Time Warner: “No.”  That about sums it up.

‘There is no reason to protest — we’re listening,’ says Time Warner, according to this report.  The company was responding to planned protests which continued despite the decision by Time Warner to temporarily shelve usage caps and tiered pricing.  That’s because most of those doing the protesting don’t believe for a second that Time Warner is listening to anyone but themselves.  Customers overwhelmingly rejected the “experiment” force-fed on people in four cities, but the company has never been willing to admit it was wrong, and give up on the idea for good.

A long history of endless rate increases, forcing people to pay for channels they don’t want, and a general sense of mistrust has become near-automatic for even under-informed customers.  But when we learn the facts about just how profitable Time Warner Cable’s Road Runner service is, they get hoppin’ mad.

I found it interesting WGHP also mentioned the protests in Rochester.  Melissa is here at least admitting, for the first time, they underestimated the impact of the “experiment.”  They also misunderstand the fact almost nobody wants this.  One of the news outlets needs to bring up the fact that Road Runner Lite is already available for those light users at a substantial discount, without ever worrying about overlimit fees under the tiered rate system they temporarily shelved.