Cable v Fox: Latest Battle (TWC)

On the heels of the latest battle between Fox Network and Time Warner Cable (TWC), I hooked up my satellite-based television to my cable-based intenet and - voila - I had internet on the big screen. This simple connection is a major step in the evolution of the box in our living rooms from a broadcast one-way tool to a specificast two-way tool and a potent tool in the long running war between content and distribution.

At one time, the "tv" business model was simple and highly profitable. The distribution of programs involved sticking a huge metal pipe into the sky and sending signals from it on specific airwaves. Everyone received these signals through some "ears" on the television. This distribution model kept the capital expenditures low because the pipe in the sky did not become obsolete.

Even better was the oligopoly on the content side. Programming was the domain of the big three: NBC, CBS and ABC. Because these choices were so limited, the audiences were enormous. The least viewed programming of that era had much higher viewership than the highest viewed programming of today's era. As a result, advertising rates were enormous. While prestige might be an issue, even third place in this race ensured high profitability.

The issue of content versus distribution came into focus in 1985 when CapCities stunned the investment world with its purchase of ABC. CapCities was an owner of media properties in the newspaper, radio and television industries. At the time, ownership was limited by the FCC to five television stations which could not overlap in viewership. As CapCities would grow, it would discard a less favorable market as a new market was purchased. When CapCities purchased ABC with financing provided by BRK, it was a sign that distribution had become more powerful than content. But nothing lasts forever.

Ten years later, in 1995, Michael Eisner led The Walt Disney Co. (DIS) to purchase CapCities in order to expand distribution for the increasingly attractive content that DIS owned. The timing was good for CapCities because distribution had shown the first signs of losing its monopolistic hold as the internet, cable and satellite began to demonstrate increasing distribution capacities. To DIS credit, newspapers and radio stations were sold immediately as the focus was on video. Yet, the broadcasting network became the worst performing asset for DIS.

But not all distribution was weakening. Over the next ten years, cable strengthened as being able to deliver diversity while content suffered (at least from a profitability per program) through an increasingly fragmented market; there were more and more specialist shows in different languages and with varying areas of interst. Still markets were shocked when Comcast (CMCSK) made an unsolicited $54 billion offer for DIS.

Now, as the market continues to fragment, but the broadcast networks maintain some strength in mass audiences, Rupert Murdoch wants Fox to get its fair share. As the rhetoric heated up, TWC brandished the weapon of the future: internet-driven programming which will deliver the ultimate in choice of "what I want when I want it" programming. As I watched my big screen play House MD on the internet without a flaw, I was thankful that I don't own shares in satellite tv.