The Hollywood Reporter have cited a source that says Google has made some regulatory filings that look like a pre-cursor to a pay TV system and would see Google filing for "cable TV franchise licenses" in Kansas City (both MO and KA).
So the way I see it is this, cable operators and MSOs are not going to be too happy with Google trying to muscle in on their territory and clogging their bandwidth with great video content. Some of them, my local cable company included, have horrible service and high prices meaning there are probably a large number of disgruntled customers of the major cable providers.
What Is Google Up To?
Enter Google, who after seeing its Google TV service widely blacklisted by cable operators originally, knows that the MSOs and cable operators won't want to play nice. So what's a company to do? Well knowing Google, they'll create a service that is completely competitive, yet slightly different. The Hollywood Reporter article talks about it all being centered in their Council Bluffs, Iowa data center for the specific test in question.
Will it be an IP-based premium video delivery service? That doesn't sound like something that they'd need all of this for. It sounds like something else.
It sounds like, Google wants to become an ISP or MSO, more precisely (multiple system operator). While the pilot site, Kansas City, is Time Warner Cable territory, the largest MSO is Comcast who has nearly twice the subscribers.
A cable system in the United States, by Federal Communications Commission (FCC) definition, is a facility serving a single community or a distinct governmental entity, each with its own franchise agreement with the cable company. - Wikipedia
What Would A Google Pay TV Service Look Like?
The thing one might ponder in regards to a Google-powered cable system (which is what it would be in Kansas City and when it expands to further cities become an MSO) is how video friendly it would be. Google owns YouTube, and Google TV. That means they know online video is the future. It also means that, because they just purchased Motorola Mobility, who make set-top boxes, they have everything they need to create a cable system, the hardware (MM), the software (Google TV) and the content (YouTube and Google TV partners).
On top of that, it's rumored that they are cutting content deals with companies like Disney, Time Warner, and Discovery Communications. But, wouldnt' Time Warner want to not work with Google if they were going to start cutting into their profits. It's estimated that the Kansas City area contains less than 2% of Time Warner Cable revenues.
The thing I hate about cable is that there are large areas that are a monopoly. The only cable company in my area is Time Warner Cable so, even though they have some of the worst service (HD channels not available for days, constant pixelation and pausing of shows, utter lack of helpful customer service) they are pretty much the only option unless I wanted to go with a satellite system or turn to the evil empire U-verse.
But, if they're after a cable franchise license, it sounds like they're planning on entering that market.
It wouldn't be that difficult for Google. As I said, they've got the hardware, software and are working on the content. If they go full bore they could also offer telephony services via Google Voice including videoconferencing right from the set-top box. They already have a massive advertising arm so they could easily monetize free content and offer some subscription-based premium channels as well. I did already talk about a Google Channel Marketplace. Heck, they might even be able to offer total home automation as well with Android.
The only question left to ponder is, will they run their own cables, lease bandwidth on existing cables or, even more interesting, buy existing cable systems?
Google generally, to me, seems like the why rent when we can buy type of company. So while their initial pilot in Kansas City might be all their own stuff, perhaps they'll start looking to pick up some existing MSOs. According to the Wikipedia article on MSOs, ten of the top 36 of them worldwide based on subscribers are in the US. Google could easily slide up that chart in a hurry and be in the top ten jockeying for customers with Charter, Cox, Time Warner and Comcast.
I'm ready for a change. Actually, I'm ready to start a class-action lawsuit, because I'm extremely dissatisfied with my current cable operator and their poor service. If Google were to drop into my neighborhood, I would be customer #1. Now there's almost a compelling reason to live in Kansas City.
The really interesting thing is that Google is rooted in IP and the Internet and if they're going to expand into the realm of standard TV, to the point of not just offering a user interface to see IPTV on your TV but actually be the total supply chain, it could be screen convergence on a massive scale and all of your online video content (and ad budgets) might simply combine with the more traditional TV platform.