Has the Internet Killed TV?

Some proponents argue the Internet has killed the TV, but companies like Time Warner (NYS: TWC) are not ready to give up without a fight. Time Warner, among America's largest TV service providers, has announced that it will offer its Wideband Internet subscribers a subsidy on the purchase of EchoStar's Slingbox, which normally costs around $300.

Is the company trying to promote its premium Internet service? Or is it aiming to encourage subscription of its TV services? The answer lies in a game-changing trend and increasing obsolescence of getting your entertainment only in your living room.

From channel surfing to Internet surfing
Time Warner Cable has increasingly been focusing on its broadband services, after it saw the number of its video subscribers drop to 12.1 million in the second quarter from 12.7 million a year ago. Meanwhile, its broadband subscriber base grew to 9.7 million from 9.3 million. In an interview published in The Wall Street Journal, CEO Glenn Britt noted that broadband was "clearly becoming the anchor service."

Time Warner Cable is just one example in an industry that is witnessing a shift from basic TV services to online content services. People these days desire video content on demand, whenever and wherever they want. Though this shift is not going to take place all at the same time. Success of online content providers such as Netflix (NAS: NFLX) , Hulu, and iTunes makes you think twice.

Acquiring Insight
TWC recently agreed to acquire privately held Insight Communications, which would boost its wideband services with Insight's existing high-speed Internet network. This would also increase TWC's video subscriber base as Insight has more than 750,000 subscribers. Besides this, promoting live streaming or on-demand television from any supported device would certainly attract attention.

Quarterly revenue has not shown much of an uptrend in the last three years. From $4.1 billion in the first quarter of 2008, revenue has improved only a tad to $4.8 billion in 2011. Although the value of its stock has improved during the period, it still trades below the pre-2008 highs around $100. Given that the company is now shifting focus to its growing broadband segment and reviving its dwindling video subscriber numbers, I would say that it is on the right track.

Two for the price of one?
Back to the Slingbox. The discount on the Slingbox at first seems to have a dual purpose behind it -- to promote TWC's TV services and secondly, to promote Wideband, its premium high-speed Internet service.

However, the answer is not that simple. The Slingbox apparently also serves as a loophole to avoid entering into any additional agreements with content providers for streaming their channels on remote devices.

The place-shifting legal conundrum
Products similar to the Slingbox use a clever method of streaming called "place-shifting." The setup is just like an enhanced remote control that allows consumers to manage and stream live, recorded, or stored content on any compatible mobile device or computer via the Internet.

Content providers such as Viacom (NYS: VIA.B) have seen red with these developments since it allows the broadcaster to provide TV programming to any device, anywhere, without having to pay content providers additional licensing fees.

In April 2011, TWC and Viacom entered into a legal battle, disputing whether multisystem operators like TWC should stream content to subscribers' mobile devices such as Apple's (NAS: AAPL) iPad without the need for additional agreements. Viacom, News Corp. (NAS: NWSA) , and Discovery Communications (NAS: DISCA) reportedly told Time Warner Cable to stop the practice of streaming content since it apparently violated their existing licensing agreement.

The Slingbox is not the first device of its kind. Sony (NYS: SNE) sold a similar device in 2004 called the LocationFree TV. It was a small LCD screen that users could carry anywhere and watch live streaming TV. The system used a "base station" that transmitted TV signals from home to the portable screen via the Internet.

The Foolish take
Time Warner Cable is certainly taking steps to ensure growth, with its focus on Wideband. Moreover, while broadcasters such as Viacom would like to receive additional fees for accessing their content through mobile and computer networks, multisystem operators such as WTC would slingshot ahead to allow users to access their TV content from anywhere around the globe, using devices like the Slingbox.

At the time thisarticle was published Keki Fatakia does not hold any shares in the above mentioned companies. The Motley Fool owns shares of Apple.Motley Fool newsletter serviceshave recommended buying shares of Netflix and Apple.Motley Fool newsletter serviceshave recommended creating a bear put spread position in Netflix.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.