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The battle lines are drawn between traditional pay television providers and the high-tech electronics companies that want to use their significant resources to distribute OTA broadcast signals and other content over the Web.August 22, 2013

Sony and Viacom have reached a tentative agreement to make Viacom’s popular cable TV channels available on a new Sony Internet TV service. That deal, coupled with the launch of an equally big new Intel Internet service this year, could result in a new landscape of competition for the television business.

The battle lines are drawn between traditional pay television providers and the high-tech electronics companies that want to use their significant resources to distribute OTA broadcast signals as well as other content over the Web. Joining Sony and Intel in the Internet games are Apple, Roku and Google on the hardware side and Netflix, Amazon and Hulu Plus on the software side.

It remains to be seen, however, whether these new alliances and services will end up reshaping the television business or be a simple repackaging of traditional programming for a new generation of display screen devices.

Right now, none of the main players is talking publically. Sony and Viacom wouldn’t comment on a Wall Street Journal article describing the deal. But according to the newspaper, Sony’s long-rumored service will bring cable channels such as Nickelodeon and Comedy Central to the PlayStation and to Sony TV sets. It’s part of an effort to build a credible alternative to cable that reportedly has also included talks with Walt Disney, Time Warner and CBS. The new Sony service could launch by the end of the year.

While Sony would need to strike other programming deals to create a compelling alternative to conventional pay television services, even a single deal represents a big shift within the entertainment industry, the Journal reported. Large channel owners have been reluctant to license their programs to Internet TV services for fear of undercutting the existing lucrative arrangements they have with cable, satellite and phone companies.

Contracts with some pay TV operators, most notably Time Warner Cable, the newspaper reported, also make it difficult for some programmers to license their channels to newcomers. However, these contractual restrictions don’t cover every programming channel.

The Justice Department is examining the impact of such restrictions on the development of online services, people familiar with the matter said. The department has been examining whether the nation’s biggest cable and satellite companies are acting improperly to stifle competition from online video.

Sony isn’t the first to pursue such a deal with a major programmer. Intel, Google and Apple are all said to be seeking similar arrangements with programmers, with a goal of building a so-called OTT Internet service.

“The deal stresses how video and TV consumption online is drastically changing traditional pay TV business models,” Fernando Elizalde, an analyst at Gartner, told The Verge. In Europe, cable companies are already offering OTT services on smart televisions, and public broadcasters are releasing apps for smart TVs. Sony’s relationship with Viacom “is just one more of the emerging business models we are observing,” Elizalde said.

The continued bundling of programs on cable or the Internet wouldn’t make much difference to viewers. What cord cutters are seeking is an unbundled cable service that lets them purchase individual channels a la carte, The Verge reported. But nothing like that appears to be part of the Sony-Viacom arrangement.

“The devil will be in the details of what the final deal is,” Jim Nail, an analyst at Forrester, told The Verge. “Because the early speculation here is that Viacom will still be selling a bundle of its different networks — in which case it’s same thing, different wire.”

At the same time, Nail said, the Viacom agreement is significant because it shows programmers being more flexible about where and how they deliver video to their customers.

“The traditional television business has held back technology-driven change for at least a decade, probably longer,” he said. “But this to me signals they can no longer just dig their heels in and say ‘no.’ The technology, and the consumer behavior enabled by that technology, are reaching that flood crest where the dam finally breaks.”