Google Plans Foray Into Pay-TV Business

Google (NASDAQ:GOOG) is considering a plan to offer paid cable television services to consumers. Looking at ways to expand a high-speed Internet service project in Kansas City, Missouri, and Kansas City, Kansas, Google has discussed distributing major TV channels from companies like Walt Disney (NYSE:DIS), Time Warner (NYSE:TWX), and Discovery Communications (NASDAQ:DISCA).

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Google reportedly hired former cable executive Jeremy Stern in September to spearhead talks with media companies. Discussions are at this point still just exploratory, and no decisions have been made. But the fact that such discussions are even taking place underscores the intensifying battle for control of the TV set.

In recent years, many phone companies, including AT&T (NYSE:T) and Verizon Wireless (NYSE:VZ) have jumped into a market previously dominated by cable-TV operators and satellite-TV providers. Now companies like Amazon (NASDAQ:AMZN) are offering streaming content, while Apple (NASDAQ:AAPL) allows users to download programming through iTunes that can be viewed on a television set with an Apple TV box, as well as other devices, such as the iPad.

But traditional cable and satellite companies like Comcast (NASDAQ:CMCSA) and DirecTV (NASDAQ:DTV), unwilling to go down without a fight, are creating their own apps and lining up Internet rights to programs that tie into their existing offline TV subscriptions.

Worth over $150 billion a year, the U.S. television industry relies on a combination of subscriber fees and advertisers. Google, the biggest seller of ads on the web, hopes to catch a share of the TV ad dollars as well. To do so, Google may undercut cable and satellite companies on subscription fees.

Meanwhile, Google’s other efforts threaten to undercut the subscription TV business by fueling the availability of less costly content online. Last week, Google unveiled its “channels” project — a series of deals with celebrities and production companies to create roughly 100 free, ad-supported programs for YouTube. And the company has already launched Google TV, software that can be installed on TVs or on cable TV set-top boxes that allows users to search and find content to watch from the Web and broadcast channels. Google released an updated version of the software just last week.

Still, most of the details of Google’s plans remain unclear, including pricing and channel lineup, and whether it will expand beyond Kansas City. When Google first unveiled its plans in February to build a test broadband network in one market, it said it didn’t intend to build a nationwide network.

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Furthermore, entertainment companies could refuse to license their programming, though owners of channels have historically been willing to license their channels to various distributors, assuming they are paid as much as, or more than, existing outlets are paying.