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The iPad App Flap – What’s the Big Deal?

Ever since Time Warner Cable released an app that allows users to watch two or three dozen cable channels on iPads we’ve been barraged by press reports of litigation and plans of other multichannel providers to launch similar services. Cablevision has announced it’s launching a similar app that lets subscribers watch their entire channel lineup on an iPad.

Suddenly cable and satellite companies are rushing to review their programming and retransmission deals to figure out what rights they have obtained, while programmers frantically review distribution agreements to see what rights they may have given away. We can find a few lessons about retransmission consent agreements in the App Flap, but let’s save those for another day.

What this really comes down to is whether the iPad apps qualify as “cable system” distribution, Internet distribution, or something else. Most programmers (and a few careful broadcasters) specifically carve out Internet distribution when signing carriage agreements – existing deals cover distribution for in-home viewing over cable and DBS systems. Internet distribution rights are negotiated separately, if at all. But many broadcasters who signed MSO form retrans agreements may have given away a lot more than they intended to.

So do the iPad apps get their programming from the cable systems or over the Internet? Depends whom you ask. Although the providers (especially Cablevision) have been murky about how the apps work, it seems pretty clear that the apps ride over the broadband portion of the cable plant. They aren’t encoded at the headend with the same technology used to encode traditional cable channels, and they aren’t decoded in the home by a set-top box. Based on the scant available information, it appears that the iPad programming is encoded just the way it would be encoded for delivery over the Internet. And it is received in the home, not through a cable connected to a set top box, but by the same cable modem that sends and receives Internet content.

So how do cable operators claim this is part of the cable TV service? Well, although the app programming rides on the broadband portion of the cable pipe, it arrives in the home over the same cable that carries cable TV. But of course, you can say the same thing about any iPad apps (and all other Internet content) accessed over a cable broadband link – and those aren’t “cable TV services”. But these new cable TV apps only work when the subscriber is home – a trait shared by the lowly set top box.

For better or worse, most people seem to wonder what the big deal is. Joe Flint of the Los Angeles Times uses a peanut butter analogy to argue that if he buys peanut butter in a jar he should be able to transfer it to Tupperware at home without paying an extra fee. I don’t like that analogy (and I told him so). To Joe’s credit he also mentioned my analogy: If I have the right to sell the print edition of the Times on the street, that doesn’t give me the right to put it on the Internet. Those are two different deals.

In media, packaging matters a whole lot more than it does in commodity trades like peanut butter distribution.

Programmers and broadcasters are worried about the iPad apps for a whole bunch of reasons. Yes, most want to be paid separately for Internet distribution, if they want to allow that at all. Many cable programmers and most broadcasters don’t even have the rights needed to distribute all of the programming on their linear channels on the Internet. So if they are deemed to have inadvertently given those rights to cable operators in their program carriage and retransmission agreements, they may get angry calls from their own suppliers.

There are other problems too. Right now, viewing on iPad apps isn’t measured. That’s a huge downside, especially for broadcasters, who rely disproportionately on ad revenue. Unmeasured viewing is as good as lost – the broadcaster doesn’t get paid for it. Do you want your station’s viewing shifting to unmeasured devices? While the consumer at home may think he’s just putting the peanut butter into Tupperware, the peanut butter supplier (in this case, the broadcaster) is rightfully concerned that he isn’t getting paid for most of the peanut butter at all.

Another problem (and another clue that this is a whole lot more like Internet distribution than cable distribution) is that, at least today, I am being told that the iPad apps don’t respect syndex and network non-duplication restrictions. As cool as they may be, until they can do that, they literally aren’t ready for prime time. Savvy broadcasters may want to be honest about their feelings with their partners.

From some perspectives (not including mine), the first generation iPad apps look pretty benign. It’s in-home viewing, after all, and it arrives over the same cable that brings TV. But how long before those apps include DVR functions? You can bet viewing will slip out of the home then. Maybe that’s a good thing for broadcasters who lack Internet and out-of-home rights. But will that viewing be measured? And where else could this lead? Once the peanut butter is out of the jar, it’s hard to get it back in.