Comcast Stream shows why consumers' choices for TV may remain limited

Given the popularity of streaming services such as Netflix and the early promise of Sling TV, this would seem like an opportune time for cable companies to broaden their reach by offering their programming to everyone. Right now, firms like Comcast and Charter are restricted by the span of their physical cables. But, presumably, thanks to net neutrality rules, they could offer their lineup of TV shows to any computer owner in the country via the data pipes of fellow cable providers. In effect, they'd be selling subscriptions the way Netflix does.

But that's not happening. When Comcast introduced its $15 Stream package this week, offering to stream TV content to laptops and phones, critics were quick to pounce on the plan's limitations: the fact that it doesn’t include TV viewing (even via Roku or Amazon Fire TV); that it can only accommodate two devices at once; and that it’s solely available to customers of Comcast’s broadband service.

That last complaint is the most interesting. If Comcast can provide HBO, the country’s major broadcast channels, and a cloud-based DVR at such a great price via Stream, then why not go big and let everyone in the country in on the deal? Imagine what it would do for you, the consumer: You'd suddenly have a real alternative to the local cable company. You'd still have to pay your old provider for broadband service to get the content into your home, but you could shop around for a TV bundle that best suits your needs.

There's no important regulatory or technical barrier stopping the CEO of Comcast—or any of his rivals for that matter—from giving it a try. But the truth is that it won't happen, because the numbers just don't add up for the people in the cable and entertainment industries. And that says a lot about how this business works, and why consumers won't get the choices they'd like anytime soon.

Here are three reasons why cable companies resist becoming streaming-media networks.

1. Rights are limited

First off, Comcast isn't allowed to transmit its content all over the Internet. By and large, the current deals signed with HBO, NBC, ESPN, and so on don't give TV providers carte blanche to do what they want with the programs they carry. In fact, the rights are specifically curtailed. They permit the service to transmit content to subscribers via cable lines and to a lesser degree via mobile technology. That's it. “If we wanted to explore over-the-top service that would be available to anybody in the country, that would be a totally separate set of rights,” says a Comcast rep.

And negotiations for rights like those can be gnarly—just ask Apple, which has reportedly been trying to launch its own service for more than a year.

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2. The content is too costly

Comcast already invests $10 billion annually for those limited programming rights, according to the company spokesperson. If the company wanted to beam the same content across the web, the price would be even higher.

Consider the costs borne by Netflix, an actual streaming company with 65 million subscribers. This year, the company will spend $3 billion for content—none of which includes live TV broadcasts, sporting events or even first-run movies. And it will double that expense in 2016. “When Netflix spends $100 million to create one season of House of Cards, that tells you how expensive this stuff really is,” says streaming media analyst Dan Rayburn of Frost & Sullivan. In fact, Netflix has now warned investors not to expect any profits until late 2016.

“Nobody can come to the market—including Apple—and roll out a competitively priced service with the same content as cable because the licensing costs are just too expensive,” Rayburn insists. “You’ll never have enough people willing to pay enough for it online.”

3. No one in charge wants to lower profits

Content prices aren't the only financial concern for cable companies, according to Rob Frieden, who helped shape FCC policy decisions as a lawyer in Washington, D.C. “I don’t think Comcast wants to do anything that would in any way jeopardize its billion-dollar-plus annual revenue from set-top box rentals,” he says. “The last thing it would want to do is have a customer substitute its set-top box with all of its digital rights management, ID protection, and rental revenue for a Roku device.”

So why are Comcast, Dish, and others experimenting with Internet TV? Well, that brings us to the wild card in this whole equation: the young guns who make up the next generation of consumers. Frieden has observed them up close as a telecommunications professor at Penn State. “My students have no patience for old-school appointment television,” he says. “They want on-demand, anytime, anywhere, via any device, any format. And the concept of paying for 50 or 60 channels—80 percent of which they don’t watch—is just anathema to them.”

Indeed, the target audience for Stream is recent college grads, says the Comcast spokesperson. That’s why the service is mobile-centric (just like the company’s college-based package Xfinity on Campus). It’s also why customers have the option to sign up online (a first for Comcast). And why they can cancel the service the very next day—without penalty—if they’d like. The goal for Comcast and its rivals is to learn what those emerging TV viewers want—and what they're willing to pay for. And so, you can expect to see a lot of trial balloons from traditional pay TV providers in the next year or so.

Whether entertainment and cable companies like it or not, millennials could end up forcing changes in the business model. And that means all consumers should take an interest in what those 20-somethings do with Comcast’s latest offering. Because if the group refuses to ever graduate to a set-top box, we may all catch a break one day.

—Chris Raymond