Jeremy Toeman is the CEO of Dijit Media, which develops technologies for people to discover new ways to experience TV shows and movies. He contributed this article to Tom's Guide's Expert Voices: Op-Ed & Insights.
These days, it seems like just about everybody wants to start a cable company. Depending on the rumors you read, everyone from Apple to Google to Facebook to Intel is about to "take down" the pay-TV providers. Sounds great, and while many people would love technology innovators to "disrupt" the industry, there are five practical reasons why that probably won't happen.
Video content deals aren't easy
There's a tendency to believe that licensing TV shows from producers is a simple matter of scheduling a meeting, coming to pricing terms and poof — you've got a deal. That's not the case. Remember, there's a value in control and scarcity — as much as the producers do want eyeballs on all their content, they also want to preserve the value associated with it not being everywhere.
Shows aren't always available
In many cases, there are exclusive relationships between producers and providers. For example, Netflix didn't purchase the U.S. streaming rights to "House of Cards" just so any mom-and-pop startup can have it too. This means any new entrant in the space with a focus on digital delivery may end up in situations where, sometimes, there's literally no price at which content is available.
Content isn't cheap
Netflix paid $100 million just for the rights to "House of Cards." HBO gets a rumored $9 to $12 per household and there are requirements for a minimum number of subscriptions. With just 500 customers, for example, an upstart TV company isn't going t be able to negotiate a deal with HBO. So what does it have to offer you?" No matter what model you're looking for, nothing about it is cheap — especially considering viably competing with existing providers means offering something similar to existing platforms. In other words, nobody is going to switch from their existing Pay TV Provider to yours just because yours is new and cool — as is said, content is king.
Content becomes available in "windows"
Ever notice how long it takes for new episodes of a show to come to Netflix? Or how movies are released on DVD before they are offered through video-on-demand? Or how long (or short) it takes shows to reach syndication? Every piece of content has its own set of "windows" during which it becomes available to different types of platforms.
Content has minimum prices
So, even if all of the above is acceptable, there's one last little caveat in TV licensing: fixed-contract pricing. So, even if someone were going to invest billions into buying the rights to FOX, NBC or other network shows, they aren't going to get any better pricing than the current providers will. In other words, whatever the cable provider is paying for a TV network, a competitor cannot possibly get a better deal than that, due to the potentially decades-long contracts that are in place.
Now, putting it all together: Anyone trying to compete with existing pay-TV providers will do so at an inherent disadvantage. They will not get anything cheaper than existing providers do, in any way, nor with a wider offering of selections, nor with earlier access, or any other element that improves their economic prospects. Furthermore, they'll be doing it with no starting subscribers to offset the massive costs. In fact, when you add it all up, it seems like the only way to enter the game is with an unbelievable amount of risk.
I'm as big a fan as anyone of seeing new competition, opening more audience choice and creating new services. But anytime I hear about new companies that want to become TV providers, I can't help but wonder "why?"
Jeremy Toeman's most recent Op-Ed was "6 Things You Might Not Know About Cord-Cutting". The views expressed are those of the author and do not necessarily reflect the views of the publisher. This version of the article was originally published on Tom's Guide.