Tim Hermes, BGR CEO

Where was I. Oh yeah. OTT.

OTT taxes the limits of my meager understanding of cable, alternate technology, the three-screens phenomena, how ad revenue works, and simply, where the bucks come from and go to.

I love OTT programming. In fact, most of my TV watching this summer has been via my Wi-Fi card, streamed to my computer. Since being a cable-isto pays the bills here at Chez Hermes, I am devoted to my COMCAST Xfinity service. It kicks butt. (COMCAST tech team – we got hammered with t-storms here in Virginia this summer and not one outtage. Bravo.) So, the flow of content went as such:

I want to watch the new episode of Mad Men, now available on iTunes.

I buy said program – completing the transaction through my provider – COMCAST.

The program hits my laptop.

I watch it, commercial free.

Now if I was watching Mad Men on an expanded tier from my TV service, I’d get both top- and bottom-of-the-hour commercials as well as mid-show ads. In addition, I would have had to purchase the whole tier, or, use On Demand, which I don’t have. For me, to get the programs I wanted, the choice was easy.

The local COMCAST ad sales rep has to tell prospective local advertisers that Mad Men pulls x -1, instead of x amount of viewers per show. Now just one viewer won’t change that ad buy, but several thousand will. And that is replicating across the country. So is cable cursed with a catch-22? The speed and bandwidth that made them a leader and allowed me to download Don Draper’s latest stroke of ad brilliance, is also – probably – costing the cable companies tiered subscriptions and ad revenue. While at the same time that killer shows like Weeds, Mad Men and Dexter are making iTunes and the networks happy, this strategy also bypasses the cable companies themselves. Granted, many cable companies own some networks, or at least a piece, so I recognize that. But again comes the model – where revenue is lost, revenue must be gained. I’ll admit – my main value from COMCAST is the broadband internet access, not TV programming except SportCenter and Fox NFL football. Now, my son’s Wii can get NetFlix – which has equal on-demand choice (for me) including Mad Men.

The premise of three screens – hand-held smartphone, computer, TV – has exploded faster than many thought. Can the operators figure it all out? They probably have, and I’m too slow to see it. But I see my cable bill, then I see my iTunes charges and wonder when I’ll see, as Malcolm Gladwell calls it, “the tipping point.” I bet my cable and iTunes bill are less than what I would have had to pay to get the same programming choices if my internet was too slow to stream these same shows to my computer or iPhone (side note – yes, the iPhone 4 drops a ton of calls but the 5 megapixel camera more than makes up for it). Slow the pipe and make the customers pay for speed? That’s one way to make up for lost ad and tier revenue. I get it, it’s being done. Can it be sustained?

Probably. Those Harvard guys in Philly and Stamford probably have a plan. And my guess is they have a few episodes of Mad Men on their phones, too.