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Why Time Warner Cable's Business Model Makes No Sense

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In February, I signed up as a beta tester of the Aereo service and am now more certain than ever that my Time Warner Cable bill will come permanently down from the $160 a month that I currently pay to $50 a month.

First, what Aereo does: Aereo is a new Internet startup that is offering broadcast television (ABC, NBC, CBS, etc.) over the Internet for $12 a month. Their thesis: why should you pay Time Warner as a middle man when you're legally entitled to receive the broadcast stations for free if you put an antenna on the top of your TV? The company seems to acknowledge that if they simply received ABC's broadcast and digitized it themselves and then put it on the Internet that that would be a copyright infringement. So they invested in a technology to create a workaround to the regulatory and legal challenges of copyright law. Essentially, they designed an antenna the size of a thumbnail to receive the broadcast signals for the broadcast television stations. Each customer that wants to view television through Aereo gets their own antenna -- all of which are probably situated in a room or rooftop somewhere. Obviously, the antennas aren't needed to accomplish the receipt of the signal, but Aereo argues they technically satisfy the consumer's rights to receive free broadcast TV.

Barry Diller backed the company and for this we should all be thankful. His cash war chest is going to be needed to defend against the copyright infringement suit already leveled at Aereo by a consortium of media companies who recognize the Company for what it is, namely: the beginning of the end of overcharging consumers for channels they don't want.

Businesses that charge exorbitant "middlemen" fees are anachronistic. Shopping malls, for example, are less trafficked and in their place are Web businesses selling either directly to consumers or through online stores where pricing is transparent and easily compared to other virtual storefronts.

Compare this to the state of cable television: When I moved in to my Brooklyn apartment 2 years ago, the only provider available for cable was Time Warner. As I mentioned before, my basic cable with Internet bill is $160 a month (and that's without HBO, Cinemax or any movie channels). It was basically a 'take or leave it' proposition, so I took it, even though there's only a handful of channels I ever watch. If the pricing wasn't so outrageous it would almost be funny.

In 2009, Time Warner Cable was spun off from Time Warner Inc., and the now the former company's business model is to lay cables and act as a platform for distributing content from it's former parent Company and other content producers. Think of the cable company as the middlemen that strikes deals with HBO (Time Warner Inc. owned) and Fox and MSG and others and then marks up the cost of acquiring that content for you the end-consumer. If I get all the channels they offer and DVR my bill could be over $200 a month or $2,400 a year.

On what planet does this make any sense? In the 1980's, before we had cable, my folks got all of the broadcast television (ABC, NBC, CBS and Fox) for free. Now because it comes through the ground instead of from the top of the Empire State Building we all pay for it. What I'd really like is to pay for what I want to watch, and not pay for what I don't. The original argument that I should pay more for better quality delivered through cable isn't true anymore, as I can receive the same quality if something is streamed over the Internet.

Still more important to me than true a la carte pricing is true competitive and transparent pricing. It's Time Warner's monopolistic behavior that makes them such a popular company to hate.

Everyone should be rooting for Aereo to succeed in their legal battles. Because if they do, here's what the future will look like: If you like broadcast TV, you'll pay Aereo (and hopefully, they'll be competitors to Aereo) something like $12 a month or less for those channels. Aereo even includes the ability to record without any additional monthly fee (i.e. no need for a DVR). You'll sign up for Netflix or a Google competitor for $8 a month for your movies and possibly Hulu Plus for another $8 a month for TV shows. If you're a New York Knicks fan, you have to believe at some point MSG will sell you a monthly subscription over the Internet directly.

Forget about getting a phone line from Time Warner. You can pay one-tenth of the price by getting Magic Jack or even simply using Google Voice.

You'll still call Time Warner periodically to complain that the Internet speed isn't quite what you paid for and they'll probably still keep you on hold for interminable periods of time. But the good news is you won't resent them anywhere near as much when your bill comes, because it will be a fraction of what you're paying now.