Time to change how we pay for premium video content

by Larry Magid

Showtime last week announced it will stop allowing Netflix to stream some of its current shows, such as “Dexter” and “Californication.”

According to the Los Angeles Times, “Showtime decided to clamp down on the rights to its first-run programs in an effort to use them as bait to sign up and retain subscribers.”

That’s understandable but regrettable. Imagine if movie theaters stopped selling tickets to individual films, instead requiring you to subscribe for an entire season of movies. I would be tempted to pay the fee to get to see films I love, like “The King’s Speech,” but weeks would go by when there was nothing at the cinema that I would want to watch.

Yet that’s what happens now with premium TV channels such as Showtime and HBO. To see the shows I like, I have to also pay for shows I don’t want to watch.

Unfortunately, the economics of cable and satellite TV more or less dictate that you buy content by subscribing to the basic service and paying extra — sometimes a lot extra — to get packages of programming that include shows you want to watch. Thanks to this system, it’s not uncommon for people’s bills to exceed $100 a month.

Although I’m mostly annoyed by this vestige of 20th-century premium TV pricing and programming, it’s not totally without merit. With the revenues companies like HBO and Showtime make from their popular programs and movies, they are able to invest in more original content, which has resulted in some great programs, and some great jobs for the cast and crew that create them.

But in the age of Internet streaming, this model seems archaic. It’s no longer necessary for companies like Comcast, Dish Networks or Time Warner Cable to serve as gatekeepers. In theory, we should be able to access any content we want directly over the Internet without having to subscribe to premium channels.

Netflix, Hulu, Amazon and other Internet content aggregators offer a somewhat similar — but I think better — model. Like the premium TV channels, you have to pay for programming you don’t necessarily want to watch. Most reindividuals are likely to sample only a tiny fraction of the tens of thousands of movies and programs available on Netflix. But because it’s an on-demand streaming service, you can watch what you want when you want to watch it. For me, that is a lot more satisfying than watching premium content on cable or satellite.

I also find it interesting that Netflix recently outbid the premium channels for the right to broadcast a new original series, “House of Cards,” staring Kevin Spacey and directed by David Fincher, the director of “The Social Network.” The acquisition of the first 26 episodes of this hourlong political drama elevates Netflix into a new position. It’s no longer just the place to go for TV reruns and movies weeks, months or years after they come out on DVD. It’s now a place for what promises to be high-quality original content. Just as HBO and Showtime disrupted the TV and movie business, Netflix has the potential to disrupt cable and satellite TV distribution.

And it’s not just Netflix. Millions of viewers — especially young adults no longer living with their parents or in dorms — have cut the cord to cable, satellite and broadcast to get virtually all of their TV programming via the Internet, whether using legitimate services like Netflix and Hulu or finding alternative (and perhaps illegal) ways to download content.

Zediva is a game changer

And the choices keep expanding. Last week I signed up for a new streaming service called Zediva, which offers content that Netflix and even Apple and Amazon can only dream of. Studios don’t usually give Internet services access to the latest titles on DVD. That not only applies to all-you-can-watch streaming services like Netflix but even pay-per-view services like Amazon on Demand and iTunes. But Sunnyvale-based Zediva has found a loophole.

Rather than stream content from a server, they “rent” you an actual DVD and DVD player that they house at their facility. When you “rent” a movie on Zediva, you’re renting the DVD and the DVD player. They play the movie and deliver it to you via the Net.

For the most part, the experience of using Zediva is similar to other streaming services except, like that old-fashioned video store, it’s possible that the title you want to watch might be “rented out.” But the price is cheaper and length of the rental period longer than what you get from iTunes, Amazon and other services, which typically charge $2.99 or $3.99 for a 24-hour rental. With Zediva, DVDs are $2 each or $1 if you buy 10 credits at a time, and you get to watch them as many times as you want for a 14-day period.

I have a strong feeling the Motion Picture Association of America or its members are going to challenge Zediva’s legal right to stream movies the day they come out on DVD, and I have no idea how a court might rule. But if it turns out to be sustainable and scalable (they need to buy a separate DVD and player for each person who is watching it at a given time), it will be yet another disruption to the ever changing scene of Internet video.