From the Washington Post article:

“What Aereo is doing to bring broadcast signals to its customers is interesting,” Time Warner Cable chief executive Glenn Britt said in an interview with The Washington Post. “If it is found legal, we could conceivably use similar technology.”

That’s a big admission from Britt, and illustrates both how rapidly the internet is changing the television industry. But what would be an even bigger admission would be if Britt would consider delivering that public broadcast package beyond its existing subscriber base.

A modest proposal

In short, would Britt be willing to break the unspoken agreement that has kept the telcos and cable providers from infringing on each other’s turfs even as IP technology has made it possible for them to deliver their TV packages over the top?

If Time Warner Cable were to implement an Aereo-like business model and offer it to anyone, it might hurt Aereo but it would set off a war between the telcos and cable companies to deliver their services over the top. In many cases, the technology isn’t stopping this revolution, but the business implications would give them pause.

If Comcast’s Xfinity service were available everywhere and so were Verizon’s FiOS packages, then pay TV will have been decoupled from the entwork. All you would be left with are dumb pipes and whole lot of companies offering to provide the same channels of television. Would we need 20 “premium cable offerings?”

My hunch is no, which would have trickle down effects on the money the networks make as well as hasten the rise of a la carte pay TV packages, or even simply paying for a show. However, all of this speculation is premature as Britt cushioned his statements by telling the Washington Post that his company is only watching Aereo’s legal battle and that it doesn’t have concrete plans.

Taking action on this sort of talk would hugely piss off the broadcasters that own some of the channels that Time Warner Cable depends on to keep its subscribers happy, and may just be a feint in the ongoing fight between cable providers and content companies about retransmission fees.

Back in the real world

But Britt is clearly a fan of shaking things up. Unlike many ISPs that view Netflix as a threat to their triple play bundle, Time Warner Cable sends out advertisements touting Netflix as a reason to upgrade broadband speeds. He’s also letting consumers stream live TV to their Roku boxes with a Time Warner Subscription (that might come in handy should it elect to make an Aereo-style over the top offering). And he’s also been more vocal about the need for more flexible packages of channels for consumers.

He reiterated that to the Washington Post:

“The structure needs more flexibility,” Britt said. A customer shouldn’t have to pay for less popular channels like VH1 Honors in order to get Nick Jr. and MTV. “There are fellow citizens who are struggling financially and can’t afford large programming packages. We want the ability to offer those customers smaller, more affordable packages.”

It’s better to keep a customer paying you something, rather than decamping because they don’t want to pay for a $150 cable bill. Britt seems to get that, and wants to find a middle ground before the internet and over the top TV offerings take that ground out from under his feet. I wonder if he’s willing to take it even further.

The point of contention is Netflix’s recent launch of 3D and Super HD video formats. Netflix launched a limited number of 3D titles during CES last week, and also added the ability to stream many of its titles in Super HD — a better-looking 1080p HD format that features less compression, and thus higher bandwidth requirements, that Netflix’s regular 1080p streams.

Both 3D and Super HD are exclusively available to subscribers whose ISPs take part in Neftlix’s Open Connect CDN network, and the company is actively encouraging its subscribers to contact their ISPs and get them to adopt Open Connect.

This kind of customer-driven campaign apparently didn’t go over so well with Time Warner Cable. The company told Multichannel News that it is wrong for Netflix to “withhold any content formats” from Time Warner Cable Customers, adding: “Time Warner Cable’s network is more than capable of delivering this content to Netflix subscribers today.”

Of course, Netflix doesn’t exactly agree with this point of view. Netflix Chief Communications Officer Jonathan Friedland sent me the following statement via email:

“OpenConnect provides Netflix data at no cost to the location the ISP desires and doesn’t seek preferential treatment. We hope TimeWarner will join the many major ISPs around the world who are participating in Open Connect to reduce costs, minimize congestion and improve data delivery to enhance the consumer experience.”

As we wrote before, this conflict between Netflix and ISPs has been going on for some time, and it essentially comes down to peering arrangements. ISPs want big content providers like Netflix and Google with its YouTube service to pay for traffic, but Netflix and Co. point out that consumers are already paying for their traffic.

These disputes have largely remained under the radar, but Netflix elevated the issue by tying it to its new video formats, and enlisting consumers in the process. It now looks like Time Warner Cable is responding with the same vigor it displays during cable TV carriage disputes.

The question is whether consumers will side with Netflix, or with their cable company.

Time Warner Cable will stream up to 300 channels to subscribers through the service. The actual channel line-up depends on where customers live, as well as their subscription package, but I’ve been told by Roku that this isn’t one of those “get all the major broadcasters, minus the two you actually watch” kind of deals: “All channels will be included,” a Roku spokesperson told me.

This is a significant win for Roku, and it foreshadows where the company is going: In the past, Roku has often advertised itself as a cord cutting solution, with Roku CEO Anthony Wood telling us back in 2010 that 12 percent of his customers had already given up on their pay TV subscription. But since then, Roku has put a bigger emphasis on authenticated offerings like HBO Go. The Time Warner Cable deal now marks the first time a pay TV operator is streaming live TV straight to Roku devices.

On Thursday, DirecTV reported its first net subscriber loss for a quarter, with a net 52,000 U.S. customers bolting the satellite service during the period extending from April 1 to June 30.

Also read: Pay TV model won’t die anytime soon, analyst says

In fact, each of the top four multi-channel video providers — which collectively service more than 60 percent of U.S. pay TV homes — lost customers in the second quarter. Earlier on Thursday, No. 4 service, Time Warner Cable announced a net loss of 169,000 subscribers. That came just a day after No. 1 service, Comcast, reported a net loss of 176,000 cable customers.

Last week, in a pre-Q2-earnings filing with the Securities Exchange Commission, satellite carrier Dish Network, the No. 3 service, revealed a net second-quarter loss of 10,000 users. Collective total for the Big Four: minus 407,000 users.

Many of these lost subscribers continue to migrate to telco-based services, with AT&T U-Verse  and Verizon FiOS  adding 202,000 and 120,000 video subscribers, respectively, during Q2.

Also read: Pay TV growth keeps slowing: 484k users added in Q1

Coupled with satellite additions, the emergence of these two telco video services have more than offset the declines of the cable business and kept the overall pay TV business in growth mode the last few years. But at least for now, satellite has stopped growing.

Also read: For Comcast, broadband subscribers are up, but video subs are down

As for DirecTV, the loss of 52,000 net U.S. subscribers wasn’t a complete surprise, with analysts predicting a loss in the mid-30,000 range due to the company’s efforts to reduce “churn” and keep subscribers around for the long haul, instead of enticing them for short stays with short-term promotions.

DirecTV reported a 9 percent increase in quarterly revenue to $7.22 billion. It’s operating income before depreciation and amortization (OIBDA) — i.e. profit – also increased 9 percent to 2.01 billion. While the satellite company faces stagnant growth domestically, it continues to show ample promise in Latin America, where it added another 645,000 net subscribers.

Also read: DirecTV aims to double Latin American revenue to $10B in five years

And while Latin American expansion continues to be the key to DirecTV’s future, cable companies like Time Warner are banking on the growth of broadband users. The addition of 72,000 net ISP customers pushed Time Warner’s revenue up 9.3 percent to $5.4 billion in Q2. OIBDA increased 10.3 percent to $2 billion.

On Wednesday, Viacom finally reached an agreement with Time Warner Cable, enabling the pay TV service provider to stream the media conglomerate’s shows on iPads, notebook computers, smart phones and other digital devices.

The agreement ends a 13-month court dispute between the two companies, which started after Time Warner Cable began streaming Viacom cable channels including Nickelodeon, MTV, Spike TV and Comedy Central to its nearly 12 million customers.

In suing the No. 2 cable provider in the U.S., Viacom claimed that Time Warner needed to pay for the right to stream its content. The cable company claimed that its ongoing carriage deal with the conglomerate gave it those rights.

Separately, Time Warner fought Cablevision over the same issue last year. These disputes have caused many to wonder if TV Everywhere — the broad-reaching pay-TV industry initiative that seeks to broaden the reach of bundled subscription television into the digital realm — will ever get done.

With consumers expanding their video usage well beyond the living-room TV screen, the multi-channel industry sees TV Everywhere as the weapon needed to ward off new, so-called “over-the-top” competition from on-demand program distributors like Netflix.

TV Everywhere requires each program supplier to make individual deals with each multi-channel operator. At the time Viacom and Time Warner Cable entered the courtroom, there was a lack of clarity on some very basic and necessary dealmaking infrastructure — i.e. what should the ability to stream video be worth on top of already agreed-upon carriage fees?

So with a streaming deal in place between a top cable programmer and leading cable provider, are we closer to having established those basic terms?

Tough to say yes on that one.

Notably, Time Warner Cable and Cablevision settled their dispute all the way back in August, but that doesn’t seem to have created the kind of template that would spur a sudden flurry of TV Everywhere dealmaking And in the joint statement announcing their agreement Wednesday, Viacom and Time Warner included the following coda: “Neither side is conceding its original legal position or will have further comment.”

Now that Time Warner Cable, AT&T and Verizon have kicked off  the latest round of quarterly earnings reports by multi-channel operators late last month — a series that continues Wednesday when Comcast releases its first-quarter numbers — a case can be made that the cable industry has a better future in providing broadband services rather than TV/video bundles. And they have Netflix and YouTube to thank for that.

This notion has picked up stream recently, with research company Sandvine releasing data last week showing that streaming on Netflix accounts for 29 percent of broadband usage over fixed networks during peak hours (8:15 p.m. – 10:45 p.m.), up 4 percent from last year. YouTube is second in line, accounting for 12.2 percent, up nearly 2.5 percent.

Overall, Sandvine found that “real-time entertainment” accounts for 58 percent of peak  fixed-network traffic, up from 49.2 percent a year ago (see chart). Overall, median U.S. broadband usage has more than doubled over the last year to more than 10 gigabytes per month per household.

“The faster bandwidth consumption escalates, the better the cable industry is positioned,” wrote BTIG Research’s noted media technology analyst, Richard Greenfield, on his blog Tuesday. “With an increasing number of IP-enabled devices ‘on net’ in the home all the time, consumers will demand increasingly robust bandwidth and be willing to pay for it.”

For the last several years, cable companies have been losing multi-channel video subscribers to telco-based service providers. But as Greenfield also pointed out, with 214,000 net subscriber additions for high-speed data services in the first quarter, Time Warner Cable had more broadband growth than Verizon and AT&T combined.

The latter two companies are experiencing subscriber losses in the increasingly uncompetitive DSL sector. And their wireless broadband products don’t offer enough bandwidth to keep up with demand, Greenfield added. Neither AT&T or Verizon offers a cap as big as 10 GB a month, for example.

“While the broadband speeds delivered by wireless companies have notably improved, bandwidth caps mitigate the risk of wireless devices replacing in-home fixed broadband connections,” he wrote.

With escalating programming costs and stagnant revenue growth limiting the margins of video services, the performance of Comcast’s broadband services will undoubtedly gather close scrutiny by investors Wednesday.

Time Warner Cable’s revenue for residential video services rose only 2 percent to $2.7 billion, for instance, while revenue for residential broadband was up nearly 10 percent to $1.2 billion.

The number of residential video subscribers is being watched closely for signs that customers are leaving higher priced cable for online video but there’s nothing to suggest a major change. That doesn’t negate the trend: in the past six quarters one of the country’s largest cable operators has gone from 12,543,00 million residential video subscribers to just over 12 million — 12,067,000, to be exact. That’s a decrease of nearly four percent. In the same period, broadband subs rose 5.4 percent, to 9.7 million, from 9.2 million in Q210.

Some people will be tempted to look at last quarter’s video sub drop of 66,000, then at this quarter’s of 130,000 and gasp. Don’t. The cable biz is cyclical and the same kind of drop happened last year. What is worth noting is that the numbers are higher this year over the same quarters last year, and if the same cycles hold true, TWC could be on pace to lose a half-million video subs this year. (The net additions/losses don’t include acquisitions.)

That shouldn’t obscure the big picture. As BernsteinResearch analyst Craig Moffett said in his quick take following the release, looking at the straight financial story, “Time Warner (NYSE: TWX) Cable’s results must be viewed as a home run.”

Update: Asked about cord cutting during the earnings call, TWC CEO Glenn Britt said there is still no evidence that it’s a key factor. “To the best of our market research ability,” Britt said, “the effect right now is very, very modest — and hard to measure because it so small.”

So far, TWC has been affected more by depressed economics and by competitors

Earlier this week, Netflix (NSDQ: NFLX) CEO Reed Hastings used his shareholders’ letter to talk about “cord mending”:

For the second quarter in a row, U.S. MVPD households grew in Q1, adding nearly 500,000 additional households and deepening evidence that cord-cutting in the past was prompted by economic hard times rather than the substitution of over-the-top (OTT) services for cable.

Since MVPD households are growing while online video use explodes, the data suggests that OTT services like Netflix are complementary to, rather than competitive with, cable television. In this way, the growth of Netflix streaming is no different to the prior growth of the DVD rental market – both supplemental to the programming offering of the MVPDs. Our subscribers overwhelmingly enjoy both Netflix and the wide variety of sports, current season TV shows, news and entertainment available through MVPDs.

Will this quarter match that? Given the issues cable usually has with Q2 (seasonal college accounts dropping, etc.), possibly not. TWC is just the first out of the gate.

Trending tables | Slides

More to come.

TWC joins a long roster of investors in the San Jose, CA-based company, including Cisco Systems (NSDQ: CSCO), Comcast (NSDQ: CMCSA) Interactive Capital, Intel (NSDQ: INTC) Capital, Mayfield Fund, Polaris Venture Partners and NDS, which led the third round.

Besides financial support, Joan Gillman, TWC’s president, media sales, has been named to the BlackArrow board of directors.

The “TV Everywhere” concept, which allows “authenticated” cable subscribers to view programming on web-based devices, continues to gain momentum with recent apps from TWC, Cablevision (NYSE: CVC) and individual channels such as the HBO Go feature, the ability to create ad environments outside the regular TV viewing environment is becoming more crucial. BlackArrow, heavily backed with a total of $67 million by the investors mentioned above, is in a good position to help lead that race.

In addition to those networks, those being dropped include Animal Planet and Discovery Channel from Discovery, and BET, CMT, Comedy Central, MTV, Nickelodeon, Spike, and VH1 from Viacom. What’s left? Networks from NBCU/Comcast (NSDQ: CMCSA) (E!, Bravo, CNBC, USA, SyFy, MSNBC), Scripps, which has complained but apparently not threatened (HGTV, Food Network, Travel); Turner (CNN, HLN); Disney (NYSE: DIS) (ABC Family, Disney Channel); A&E (A&E, Lifetime Movie Network, History Channel); Cablevision/Rainbow (AMC); Hallmark Channel; Galavision, and Fox News. Yes, a News Corp (NSDQ: NWS). network is still running but the only two in the cease and demand letter were NatGeo and FX, which are part of the Fox Cable Group.

TWC’s formal statement:

We believe we have every right to carry the Fox Cable Networks, Viacom and Discovery programming on the iPad app. But, for the time being, we have decided to focus our iPad efforts on those enlightened programmers who understand the benefit and importance of allowing our subscribers – and their viewers – to watch their programming on any screen in their homes.

In the meantime, we will pursue all of our legal rights against the programmers who don’t share our vision. The enthusiasm of our customers and the programming partners who have embraced the app, rather than those who are solely focused on finding additional ways to reach into wallets of their own viewers, has convinced us more than ever that we are on the right path.

In West Virginia, lawyer Kenneth Ford has filed one lawsuit accusing more than 7,000 “John Doe” defendants, and another naming more than 9,700, accusing them of downloading copyrighted pornographic content. That’s on top of the 5,000-plus defendants he sued earlier this year. In Chicago, a federal judge has already ordered ISPs to hand over the names of about 3,000 customers to attorney John Steele, who’s also representing porn studios. And in Washington D.C., lawyer-controlled companies like U.S. Copyright Group are litigating against public-interest lawyers from the ACLU and Electronic Frontier Foundation after suing around 16,000 defendants (in several separate suits) for allegedly downloading movies like “The Hurt Locker” and “Far Cry.”

It isn’t just public-interest lawyers who rail against the strategy, either. In a motion [PDF] filed in May, Time Warner Cable (NYSE: TWC) asked a Washington, D.C., judge to quash the subpoenas asking for users’ names. The company complained that attorney Tom Dunlap was demanding identifying information from Time Warner (NYSE: TWX) for 6,284 defendants — an expensive and time-consuming process. Before Dunlap contacted the company, Time Warner had been looking up an average of 567 IP addresses per month, nearly all on behalf of law enforcement, the company said in court papers.

In the case of the music industry, the strategy didn’t exactly pay off. The RIAA, which hired high-priced lawyers, lost large sums of money in its now-suspended legal fight against illegal music downloads. The copyright owners and lawyers now embarking on a similar strategy seem to be hoping that a large group of the defendants will settle quickly, making the litigation profitable.

Defense lawyers in the Washington copyright cases say that suing thousands of people together in a single suit is inherently unfair, because it doesn’t give defendants a fair shot, especially when the suits are filed in a venue that’s convenient only for the plaintiff’s lawyers. The EFF and Public Citizen have already filed motions asking for the first batch of suits, filed by U.S. Copyright Group in March, to be dismissed. The American Civil Liberties Union, a group that doesn’t often involve itself in copyright issues, is also fighting the suit.

The Washington lawsuits are based on copyrights from independent and mainstream films. But more recently, the porn studios and their lawyers are jumping onto the bandwagon. “2010 is going to be the year of lawsuits,” an Arizona porn studio owner told the Chicago Tribune. He’s hooked up with Steele, the Chicago lawyer, who was recently called a “pirate slayer” by an adult video magazine.

Some critics have suggested that lawyers pursuing the porn lawsuits are using the added threat of embarrassment to pressure defendants into a quick settlement — a threat that might be greater in the case of gay and lesbian content. Adult Entertainment company IO Group filed suit in August against more than 200 “John Doe” defendants alleged to have downloaded gay adult content.