Given the FCC approval of the XM – Sirius merger, and the release of the “voluntary commitments and other conditions” that sealed the deal, one natural question that has arisen is “If satellite radio can do a la carte, why can’t cable providers do it?”

The answer, of course, is buried in the details.

To understand the answer, you need to understand several major differences between cable providers and satellite radio.  Some of these include:

• Ownership of content
• Advertising support and business models
• Delivery and ease of reproduction/pricing

Most XM/Sirius channels are produced and owned by XM/Sirius so they do not compete with each other for listeners or access to the satellite radio lineup because the company only produces channels that they launch.  In the video world, most channels are not owned by the distributor so they compete against each other for access to viewers, ratings and advertising dollars.  In an a la carte world, this competition would require each video channel to spend significantly more money on marketing and promotional costs to attract viewers, driving up the cost of that programming to the subscriber.

In addition, satellite radio was founded on the notion that most of its channels would be commercial free or have very limited advertising.  Unlike video programming which relies heavily on commercial advertising, XM/Sirius programming is supported almost entirely by subscriber fees.  So with each channel relying on little or no advertising support, applying an a la carte model to satellite radio would not require each channel to boost its price (or reduce its quality) to make up for lost advertising revenues.  In the video world, that is exactly what would happen.

You also must consider the programming.  While satellite radio does have a respectable diversity of programming, each of the channels is essentially a technical reproduction of the other and the cost of production (which largely consists of recorded music and other material) is lower than video production and generally does not vary widely. Obviously attracting well known personalities like Howard Stern can affect costs (including potential litigation costs), but generally speaking, music and talk programming are fairly consistent.

In the video world, however, the cost of producing channels varies greatly and the cost gaps continue to widen with the growth of high-definition and more and more original programming. For instance, it costs more to produce an episode of Burn Notice than it costs to produce How Do I Look? So, while XM/Sirius may be able to offer customers the opportunity to purchase any fifty of its music channels at the same per-channel price, it is impossible for cable operators to offer video channels in this manner.

Finally, aside from the structural business issues mentioned above, it’s also important to understand that what Sirius-XM has agreed to is not actually ”a la carte”. Despite the marketability of attaching the words “a la carte” to their new options, according to their channel lineup and pricing document, XM and Sirius are offering consumers the opportunity to purchase smaller bundles.  You can choose either 50 channels from ONLY one provider (out of a total of 100 possible choices) or 100 channels combined from both.

The pricing document makes it clear that the “a la carte” option will not be available for a year, and will require new equipment.

A la carte programming will be available beginning within one year following the merger, and the other programming options will be available beginning within six months following the merger… A la carte programming will only be available for subscribers using new radios, which will be developed following approval of the merger.

There is no opportunity to buy only 1, 3, 5 or 6 channels.  You have to start with at least 50 channels.  That’s not what most people describe when they talk about a la carte.

There’s no comparison between cable’s business model of delivering ad-supported television purchased from multiple competing providers and satellite radio’s model of delivering ad-free content of their own design.  People may try to make such a comparison in order to argue that since XM and Sirius have agreed to provide “a la carte,” cable must be able to do it, too.    Unfortunately, as study after study has shown, the facts just don’t support the fiction.

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This Friday, the FCC will hold an Open Meeting and the first agenda item is the complaint by Free Press and Public Knowledge against Comcast. According to an article in the Wall Street Journal today, the agency “will rule that the cable giant violated federal policy by deliberately preventing some customers from sharing videos online via file-sharing services like BitTorrent…”

As I wrote just last week, it’s critical that we can all agree with the principle that “some kind of network management is necessary to ensure a quality experience for our customers.” Once we get past that concept, we can discuss and debate what’s the best way to achieve the goal of a quality Internet experience, but we can hopefully also agree that the government is not the best body to make these decisions.

In this morning’s Washington Post, FCC Commissioner Robert M. McDowell poses the question: Who Should Solve This Internet Crisis? He outlines past network challenges and describes how “engineers, academics, software developers, Web infrastructure builders and others” came together to find solutions. He then answers his own question.

The Internet has flourished because it has operated under the principle that engineers, not politicians or bureaucrats, should solve engineering problems.

P2P apps present particular challenges for network managers, as McDowell acknowledges, and just building bigger pipes doesn’t fix the problem. That’s not to say that this challenge (and others) can’t be addressed. McDowell points out that we need to avoid creating a bigger problem.

Our Internet economy is the strongest in the world. It got that way not by government fiat but because interested parties worked together toward a common goal. As a worldwide network of networks, the Internet is the ultimate “wiki” environment — one that we all share, build, pay for and shape. Millions endeavor each day to keep it open and free. Since its early days as a government creation, it has migrated away from government regulation.

If we choose regulation over collaboration, we will be setting a precedent by thrusting politicians and bureaucrats into engineering decisions.

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You may recall last week’s discussion of network management, provoked by our FCC filing. Michael Willner also posted about this issue, which then garnered some interesting comments from the likes of George Ou and Robb Topolski.

It’s a good idea to take a look at the whole thing, because it illustrates an important point.  I hope we made the argument sufficiently in our post that some kind of network management is necessary to ensure a quality experience for our customers.  This online discussion illustrates that achieving this is a complex issue. Almost any decision requires you to balance pros and cons. It’s complicated and it’s not clear what the correct path is, which then probably requires a period of some experimentation.

Given all of that, why would you want to put a government agency in charge of deciding what particular method of management should be used?  Or worse, have it decide that no methods of management can be used at all?

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Well, that’s the way it’s being positioned anyway…

The Emmy nominations came out today and the historical part was that, for the first time, two basic cable programs (Mad Men & Damages) were nominated for Outstanding Drama Series, along with Showtime’s Dexter.   (Aaron Barnhart also has a rundown at TV Barn.) HBO got 23 nominations for John Adams.  Fan fave Battlestar Galactica got five.  Check the Emmys site for more.

We say this over and over, but this is part of the cable success story. I recently wrote about how cable became a big player in the summertime, but ratings have been up overall for some time. It was back during the 2001/2002 TV season that cable networks first topped all national broadcast networks collectively in terms of primetime television viewership. It was in 2004 that 11 cable networks collectively garnered 50 awards during the Primetime Emmy Awards, surpassing for the first time broadcast networks, which only earned 37 awards.

This doesn’t just happen by accident. Operators and programmers invest billions in programming - the networks spent $20.32 billion last year in making it and the operators also spent over $23 billion in paying fees to the networks for carriage.

And don’t even get me started about what mandatory a la carte might do to this situation…

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There’s a very amusing picture painted of NCTA on Ars Technica, literally Shakespearean in nature.

“Once more unto the breach, dear friends, once more,” cried William Shakespeare’s Henry V in the play so titled. “Or close the wall up with our English dead!” Perhaps in said spirit did the National Cable and Television [sic] Association (NCTA) veep Michael Schooler and Insight CEO Michael Willner march up to the eighth floor of the Federal Communications Commission on the ninth of July to plead the cause of ISP “network management”…

Taken in conjunction with yesterday’s post on DSL Reports, it sounds like we painted a portrait of Biblical apocalypse. NCTA’s own Michael Schooler and Insight’s Michael Willner supposedly warned of “the impending destruction of the Internet by P2P users.” Or else we said “that the Internet would all but collapse.”

Wow! That sure sounds scary. But since neither Karl Bode nor Matthew Lasar was actually at that meeting, they instead apparently based their accounts on a letter we filed. If you read it for yourself, you find that four points were made.

• Network management is necessary to prevent serious congestion.
• Service for customers would be degraded without such management.
• Network upgrades alone won’t solve problem.
• The government should not pre-determine the tools and technology to be used for network management.

So I ask: Which of these four points are in contention? The DSL Reports post even says “Most techs don’t oppose reasonable network management (booting extreme gluttons, some QOS and prioritization)…” So, we can start by agreeing that reasonable network management is a good thing. Without some kind of management, problems will arise.

Let’s look at service degradation. Was complete congestion claimed? The phrase used is “can cause substantial (and sometimes complete) congestion of the system’s upload capacity.” Let’s emphasize three key words: can, sometimes and upload. This is critical, because peer-to-peer applications are the focus of attention.

This goes to the point about simply upgrading a network. A peer-to-peer application looks for users with the best upload connection. Building a bigger pipe does not eliminate the necessity of network management.

Finally, is the federal government really the best body to judge what network management tools are appropriate? I’m not convinced it is. Nor am I convinced that the answer is a big dumb pipe that treats all bits equally, whether it’s a phone call, streaming video, a P2P download, an e-mail, or a Web page request. And anybody who actually understands how networks work wouldn’t either.

Both of these posts claim that we are crying “Armageddon!” for nefarious reasons. But should nothing be done at all? We want to give our customers the best Internet experience possible, now and in the future, and we need network management to accomplish that goal.

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Patrick Maines over at The Media Institute’s Media & Communications Policy blog has an interesting post up today about some of Google’s policy positions.

He points out that both Google’s position on net neutrality and copyright infringement pose serious First Amendment problems.

… as with net neutrality, Google’s posture regarding copyright infringement seems to be driven more by its own interests than by any sense of a community of interests.

By the standards of those of us at The Media Institute, which is primarily a First Amendment organization, Google’s lack of any meaningful concern or action regarding freedom of speech and of the press is the most troubling aspect of the company.

We would not have this concern if Google were just a small affair, or if the legacy media were fat and sassy. But neither is the case. Google is a giant while newspapers, for instance, are in a fight for their very survival.

The Media Institute is a nonprofit organization that is one of the preeminent defenders of the First Amendment, so these remarks bear some close attention.

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Tech blogger Om Malik does some really good work covering the telecom/technology space. If he’s not on your reading list, he should be. I don’t always agree with him, but he brings some interesting perspective to coverage of this space.

Today he has an interesting look at two complementary articles on Google and its advertising future - the Wall Street Journal’s Kevin Delaney offers the first and Richard Bennett, in the San Francisco Chronicle, provides the second.

Malik wonders if the WSJ article is intended to draw sympathy for Google as it tries to grab at the brass ring with the Yahoo deal.

If anything, the [Delaney] article paints a rather sympathetic view of Google and its money machine. I am surprised by the timing of this story. After all, these problems are quite well known and have been subject of many tomes.

I wonder if this story and Google’s challenges are meant to portray the search-and-online advertising giant as an underdog and win it some sympathy from regulators as it goes in to get its advertising deal with Yahoo approved.

Malik links to Bennett’s column which suggests that Google’s renewed interest in net neutrality (a concept it had begun to walk away from, until Cerf’s recent comments implying a preference for nationalization) may be an effort at drawing attention away from the Google-Yahoo deal.

Nearing an agreement with Yahoo to grab the ailing company’s search business, Google scripted a series of dramatic public events apparently designed to distract from the pending deal. These events emphasize network neutrality, an ever-changing regulatory ideal that Google thrust into the political spotlight two years ago. As entertaining as this spectacle is, regulators should not be fooled.

In his exploration of Google’s Net neutrality efforts and the timing, Bennett charges that there is a certain amount of doublespeak going on. While highlighting Google’s argument that net neutrality is necessary because there are only a few competitors in broadband provision, Bennett points out that the Google-Yahoo deal would give the Big-G 85% of the market for search ads, and the ability to set prices with no competitive controls.

I think both articles are interesting reads, and thank Om for pointing them out. Malik also has a poll up on his site asking readers to weigh in on whether the Google-Yahoo deal should go through.

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Kyle posted a few weeks ago about his interview with Robert Scoble of FastCompany.tv. Scoble’s video of the interview is online now and embedded below.

Enjoy!

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The handwringing about broadband adoption in the US continues unabated with yet another group calling for either some sort of government intervention or some form of nationalization (though Vint Cerf now claims he was joking – mostly). In trying to clarify his comments, Cerf actually added more confusion.

“Maybe we should treat the Internet more like the road system, look for ways of creating incentives to make the Internet more accessible to everyone, and less likely to be abused by the private sector,” Cerf said. … “It’s not likely you’re going to want to have multiple roads owned by the private sector to get to your house. Generally speaking, that’s true of the power system — you don’t have multiple wires going to your house to carry power.”

It’s good that Cerf cleared this up. He doesn’t want nationalized Internet. He just wants one wire going to your house, no “multiple roads” run by the private sector and something that resembles the road system (which is run by government, right?)

As just one example of why making the Internet like roads is a bad idea, look at the Big Dig in Boston. It was completed five years late for almost five times its original $2.6 billion budget. Just after it opened, a huge chunk fell on a passing cars causing injury and a fatality. It is a perfect example of government inefficiency on large scale building projects. Not exactly a great model when compared to cable’s $130 billion investment in its network and the more than $200 billion the telephone companies are expected to invest in their upgrade.

While I’m still confused about how making the Internet like roads isn’t actually a call for nationalization (to me, it looks like a duck, walks like a duck, and quacks like a duck…), fortunately, in the midst of the confusion comes a voice of reason.

The Pew Internet & American Life Project released its latest report on broadband adoption on Wednesday. Pew isn’t a group you can write off as Astroturf. They’ve done a lot of extraordinary research into how Americans are using the Internet. What did they find?

• The average price of broadband dropped 4% since the last survey (12/2005) to $34.50;
• Prices dropped despite the fact that 29% of respondents reported opting for a premium tier of broadband service – taking cable’s high-value offerings of faster speeds at a higher price;
• Across the board, broadband adoption grew 17% nationwide for the 12 months ending May 2008 – the strongest growth areas were among senior citizens, lower-middle income households and rural areas;
• The number of dial-up users who report disinterest in upgrading to broadband service remains roughly constant at 62% - even though the average price of dial-up actually increased 9% since the 12/05 survey;
• Of respondents who do not use the Internet, only 7% said that price was a deciding factor.

What this clearly demonstrates is what cable has been saying all along – while the goal of connecting every American is certainly a priority, and one we are working towards – the notion that there is a national crisis which requires immediate government intervention is simply overblown.

Contrary to assertions that the price of broadband in the US is prohibitively high, very few respondents in the Pew study agreed. This correlates nicely with the a Parks Associates Study last year that found very few people refused to get connected due to cost considerations. Adoption increased among Americans in households earning between $20-40k per year by 24% - the highest growth rate among any economic group.  Only among household earning less than $20k a year did adoption rates actually fall.  Given the state of the economy and the weakened dollar, this is not surprising. 

It does, however, highlight the need to specifically target the barriers to adoption that low-income families face – ranging from lack of computer ownership in the home to lower education attainment. In stark contrast to the OCED figures touted by groups like Internet for Everyone – figures about which there is considerable debate regarding methods and measurements – Pew finds that when you actually ask America what they’re paying for broadband you get a very reasonable-sounding number.

Further, the 17% growth rate in broadband adoption is astounding given the level of economic uncertainty gripping other sectors of the economy. This speaks to the steady march toward near-universal nationwide adoption. With more than 55% now connected, broadband Internet has passed the 50% barrier faster than any technology in history – faster than cell phones, radio, television, and computers, Will all Americans be online next year?  No, but we’re definitely getting there – and as we do, cable services are improving to keep pace with faster speeds and lower prices.

Last, but not least, note that 24% of dial-up users in rural America report that they would adopt broadband if it became available to them.  The big takeaway here is that the US, working with ISPs on policies such as the changes to the broadband loan program that were included in the Farm Bill, is doing exactly what it should be doing – focusing on the small percentage of Americans who are either unserved or underserved. There is clearly demand in rural America for broadband, and we ought to use the power of the government wisely to provide the right incentives for companies to connect the unconnected.

The cable industry continues to work with Connected Nation to identify areas that are not reached by cable so every effort can be made to focus government resources on those areas that need it most.

Let’s also not overlook voluntary efforts by the private sector. For more than a decade, cable systems through Cable in the Classroom have been offering complimentary broadband service to any school within the cable system’s broadband footprint. That’s an offer that’s been accepted by thousands of schools already, and it continues to stand today.

What we should not be doing, and the Pew study makes this clear, is pursuing heavy-handed regulation (or even worse, the radical nationalization ideas proposed by Vint Cerf and others).

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Bob Sullivan, senior writer for MSNBC.com’s Technology section, posted an article today entitled “The ‘Other’ Digital TV Conversion Might Cost You,” which purportedly attempts to clear up some confusion about the coming Digital Television transition. In fact, it simply sows more confusion. Sullivan has tried to establish (falsely) a direct relationship between the upcoming “DTV Transition” and efforts by cable operators to expand their video offerings and enhance other services.

As a public service, I’ll attempt to unpack what he wrote.

First, let me point out that NCTA has been saying for some time that there are two “digital transitions” – the digital TV transition for full-power, over-the-air television stations, and the cable industry’s efforts to transition analog channels onto digital cable tiers, in order to reclaim bandwidth and serve consumers with more and better services. This second transition is more of a “digital migration,” and it has been under way for many years now. See this earlier blog post for more details on the differences between these two transitions.

The article starts off correctly distinguishing between the two efforts, but then he makes the claim that cable’s transition “could leave up to 100 million TVs in the dark, unable to display any cable TV channels at all without adding extra equipment.” He further claims that this gathering threat will come to pass eight months from now: “Come February, though, millions of TVs will no longer be capable of displaying cable TV channels without new equipment…”

Having sounded the alarm, Sullivan then pulls back on the timing. First, he writes, “But the death of cable analog television is arriving a bit more stealthily, and more piecemeal.” And pretty soon he makes it clear that the change will be gradual:

…it’s unclear how the industry can turn off analog service without leaving millions of customers in the dark.

The cable transition will not be as brutal as the end of the analog broadcast, which will hit with one fell swoop in February.

Instead, cable operators will decide on their own when to make the switch. So far, some services – such as Time Warner – have indicated that its analog signal won’t be shut down any time soon. Robyn Watson, spokeswoman for the company, said its 3 million analog “basic cable” consumers won’t see any changes in service.

The rest of the article continues to mix concerns about the broadcast transition and the cable one, suggesting that something nefarious is afoot. The fact that cable’s transition has been going on for some years (since the late Nineties), and is anticipated to continue for several years beyond next February, appears to be almost entirely overlooked.

The transition to all-digital cable systems will provide a range of benefits for cable customers, such as access to many more channels, including high-definition offerings. Freeing up bandwidth will help with the deployment of DOCSIS 3.0, the ultra fast “wideband” Internet access that will deliver speeds of over 100 Mbps. In addition, new digital set-top boxes will deliver DVR capability, better interactivity, and improved technical quality. For consumers who don’t want a set-top, the coming deployment of tru2way technology, supported by recent progress in completing deals with television set manufacturers, will move us towards a world where consumers can elect to not have a box.

As pointed out already in the article, the cable industry is working hard to comply with the requirements from the FCC for continued carriage of broadcast TV signals in analog.

It’s important to note that DBS was an all-digital platform from its inception, which means that consumers have always needed a box on every TV for reception. AT&T’s U-verse multichannel video service has also been all digital since inception, and Verizon’s FiOS TV service is undergoing the exact same digital conversion, on a market-by-market basis, that the writer finds so sinister. Therefore, it’s amusing to read reader comments under the story expressing anger about having to take a box from a cable operator, complete with threats to go to the telcos or DBS – who will then require you to take a box.

UPDATE: Michael Willner also touched on this issue in a post today, in regards to the migration of premium channels from analog to digital on Insight’s Louisville system.

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