The Upcoming Disney-Google War
While most people think of Disney in terms of movies and theme parks, the big driver of its revenue over the past several years has been sports, specifically ESPN. The company has a tight relationship with cable operators such as Comcast(CMCSA) , with escalating rights fees allowing the cable operator to keep raising its prices.
Analysis firm SNL Kagan estimates cable subscribers now pay $4.69 a month for ESPN alone. That doesn't count ESPN2, ESPNU, ESPN Desportes, ESPNClassic or ESPNews. Captive cable subscribers have allowed ESPN to buy rights to all sorts of sports it doesn't have room for on these channels. These often go to ESPN3, a Web site that also charges cable Internet subscribers a monthly fee for carriage -- whether or not subscribers want sports at all. The Wall Street Journal has estimated 40% of cable bills go to sports , primarily ESPN.
Meanwhile, Google's YouTube unit is exploring the possibility of charging for content . Just as the Department of Justice starts looking at how cable companies (like Comcast) may be hampering the online video sector, YouTube is talking up the idea of fees for "channels" -- read cable channels -- so consumers can buy what they want, rather than what their cable operator decides is "basic."
What I find most interesting about this is that Google is about five years behind rivals such as Netflix(NFLX) in terms of bringing content closer to customers. The company has long offered partial versions of itself, delivered in boxes ranging from briefcase-sized to railcar-sized, that can be mounted at business customer sites or in phone company offices, turning most Internet requests into local calls.
Individual shows, even whole channels, can be brought close to the consumer in this way. Google could even push subscribed content to customer DVRs at night, when lines are less busy, actually reducing what ISPs use as an excuse for charging per-bit for Internet services. (The problem isn't the bits themselves, but the way lots of requests at the same time can cause bottlenecks, as on freeways during rush-hour.)
In other words, Google has the technology to make the threat of unbundling real, and to make ISP's political arguments against Web video crumble into dust.
If you're a sports nut, like I am, this is no big deal. Guys want their games, and we'll pay for them. But not even all guys are "guys." If your taste runs to channels like AMC, Turner Classic Movies or any other set of entertainment choices, Google should be able to give you many such offerings for a fraction of what you're now paying for cable, because of those ESPN rights fees. It could even pay these cable networks more, per subscriber, than cable operators can afford. (If it comes to a bidding war, Comcast is going to dump Lifetime and OWN well ahead of ESPN. Sorry, ladies.)