Diller: Would be 'insane' for ESPN to sell directly to consumers

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While Internet video will offer consumers more a la carte programming choices, Congress shouldn't expect cable networks such as HBO or ESPN to bypass cable operators and satellite TV providers and sell video directly to consumers, IAC chairman Barry Diller said Tuesday.

"It would be insane for ESPN to sell themselves directly to the consumer," Diller testified at a Senate Commerce Committee hearing on online video competition, noting that ESPN is able to reach all expanded basic subscribers through its carriage deals with affiliates. "I am paying for ESPN because 100 percent of subscribers have to pay for it. To sell it individually would be something they would avoid," he added.

Diller and executives from Amazon (Nasdaq: AMZN) , Microsoft (Nasdaq: MSFT) and Nielsen testified that Internet video consumption will continue to increase, but that online video won't replace traditional TV distribution outlets.

"What we see is a record number of televisions in the home, which may seem counterintuitive. But people love large screen TVs and a high-definition experience," Nielsen vice chair Susan Whiting said when asked by Sen. Jay Rockefeller (D - W.V.), the committee chairman, if online video could compete with or substitute pay TV services. "Consumers follow the content. The devices will multiply," Whiting said, noting that consumers will want to be able to access video content on multiple screens.

Diller said the Internet will help drive distribution of programs and packages of content through connected TVs. "As time goes on, and we get more television sets in big screen format connected to the Internet, you have this incredible optionality that can only come from the Internet. There is no closed pipe. So I think that it's long term effect is it's not going to replace pay television, but it will certainly be up there in terms of consumption," Diller said.

IAC is an investor in Aereo TV, the New York-based startup focused on selling a platform that lets Web surfers watch local broadcast programming live on the Web and mobile devices. Diller dedicated much of his testimony to defending Aereo, which has been sued by broadcasters for alleged copyright infringement. He said Congress will need to rewrite the 1996 Telecommunications Act, which was written before most homes had Internet access.

Also worth noting from the hearing:

  • Asked by Sen. Jim DeMint (R- S.C.) if Amazon plans to offer a live TV product via the Web, similar to Aereo's service, Amazon VP for global public policy Paul Misener said, "We certainly don't offer live programming in our video service, and we don't know what the future holds for our other business."
  • Microsoft expects that its Xbox 360 with Kinect will drive new interactive TV programming experiences for consumers, including an interactive programming of Sesame Street that will allow children to interact with characters such as Elmo, Blair Westlake, Microsoft corporate VP of its Media and Entertainment Group, testified. "The difference between children watching the linear versus interactive versions of the program is simply amazing to see firsthand," Westlake said in his prepared testimony.
  • If the Internet existed in the 1960s, there would be no cable or satellite TV platforms, Diller said. "We would not have wired the country. We would not have put up satellites. We simply would have done it over this wonderful Internet ubiquity," Diller said.

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