Much ink has been spilt in recent days about the program carriage dispute between Comcast and the Tennis Channel.  And while the legal volleys will continue following this week’s initial ALJ decision (now subject to review by the full FCC), what is less clear is why the program carriage regime exists at all given the transformative changes in the video marketplace and the harms inflicted by the rules on the freedoms of speech and contract.

First, a little history.  When Congress adopted program carriage rules in 1992, it cited then-present concerns about high levels of vertical integration between cable programming and cable distribution.  Regulation was necessary, so the story goes, to ensure that content creators could reach consumers and so that MVPDs could not favor program networks in which they had an ownership interest over “similarly situated” program networks owned by someone else.  If they did, the government could order the MVPD to change its programming line-up so that the affiliated and unaffiliated networks were treated “equally.”

For starters, the factual predicate used to support the case for program carriage rules has virtually disappeared.  In 1992, consumers that wanted multichannel video service typically had one choice available to them – the local cable operator.  DBS service hadn’t even launched and the telephone companies were statutorily barred from offering video services to consumers.  Cable systems themselves had limited capacity – the largest systems only had about 60 channels – and about 53% of cable programming networks were affiliated with cable operators.

Today’s marketplace has changed completely.  DBS operators control almost 35% of the MVPD marketplace.  The statutory bar on telco participation was lifted in 1996 and now two of the top ten MVPDs are telephone companies.  Due to advances in technology, all of these platforms, including cable, now offer consumers hundreds of channels to choose from.  And vertical integration of cable networks has plummeted from 53% to only 14% — even after Comcast’s merger with NBCU.  Finally, of course, online video is booming, with companies like Google, Apple, and Microsoft jumping into the fray.  Netflix alone has more video subscribers than the largest cable operator.

In other words, whatever concerns may have led Congress to adopt the program carriage provision in 1992 no longer exist.  Amazingly enough, however, the FCC recently released an Order expanding the program carriage rules and some are pressing it to expand the rules even further.  We have filed an appeal of the FCC’s recent Order and look forward to our day in court.

These marketplace changes lay bare some of the fundamental problems with the program carriage regime itself.  First, the government’s abrogation of freely negotiated contracts between sophisticated parties is a danger to the foundation of free markets.  The security and stability of the marketplace depend upon the predictability that contracts, once entered into, will be enforced.

That’s especially true where free speech is involved.  We should all be alarmed when the government starts favoring certain programming over others and dictating channel line-ups.

But it’s not just government carriage mandates that raise serious free speech concerns; it’s the creeping government involvement along the way.  One of the first things the FCC does in assessing a program carriage complaint is to determine whether the programming networks are sufficiently “similar” to make a case actionable.  Is a channel that carries documentaries similar to a news channel?  Is it similar to a science or history channel?  What if the documentary channel also has some news and interviews – what percentage of its programming has to qualify as news to be considered “similar”?  And do we really want the government making those distinctions?

These questions aren’t academic.  Programming that is deemed “similar” by the government falls into a favored category under the program carriage rules.  Fall outside that favored category and you’ll get no help from the FCC.  And the irony here should not be lost.  In the name of “diversity,” the program carriage rules provide a perverse incentive for new networks to look and feel as much like existing networks in order to gain FCC favor.

The time has come to stop the madness and to replace mythology with intellectual rigor.  In today’s video marketplace, innovation, investment, and, yes, editorial discretion, are more important than ever in ensuring that consumers get the content and technological services they most value.  The world has changed and the regulatory world has to change with it.

Congress and the FCC should take stock of the fundamental changes since 1992 and remove the regulatory underbrush that too often leads to the government picking winners and losers in the marketplace of speech, content and ideas.  This is especially important now, when the shape and form of the video marketplace is in such ferment and transition.  As the Internet emerges as an important source of video content, all media – new and old – need the freedom to experiment and compete.

Nobody knows where this is new world going.  Even the government.  It’s time to reset, step back, and let the marketplace work.

There’s a really interesting discussion to be had about the future of delivering video to the home. Which technology makes the most sense? How will content companies make money in the future? How do we best address digital rights issues?

Instead, I usually read some “kill your cable” rhetoric.

So, that’s why I return to the topic of cord-cutting: Because everybody else keeps writing about it, often in an oddly hostile fashion.

CNET’s Marguerite Reardon started off an Ask Maggie column on cord-cutting this way:

If you are like me, you cringe every month when you pay your cable bill. And you dream of the day you can cut your cable cord and stop paying that monthly bill.

It’s not that I don’t like to watch TV. I do. But I can’t stand that I pay $140 a month to watch a handful of shows on five or six channels.

First, that $140 probably covers more than just standard programming . I pay about $180 a month to Comcast, which includes video, Internet and phone, including HD, a DVR, premium channels, and so on.

When a reader writes in how to watch video online, Reardon answers, “Good for you for cutting the cable cord!”

There are certainly people who choose not to subscribe to multichannel video services. Nothing wrong with that. But if you want to watch the programming – cable’s original shows, news, sports – then that’s how you get it.

Aaron Barnhart of TV Barn helpfully points out that, for all the complaining, people are continuing to subscribe to multichannel video service in growing numbers. But, counterintuitively, Reardon love to recommend that people unhappy with cable service should turn to cord-cutting – which doesn’t allow you to access all you can get from cable programming.

It would probably be along the lines of suggesting that people unhappy with cable should try reading a book. Did you know that libraries loan them out for free?

Read the rest of this entry »

We return to the topic of “cord-cutting,” thanks to a few recent developments.

Before we start, it’s worth noting that much of the cord-cutting coverage I see online seems to begin with frustration at prices (somehow never compared to the costs of other entertainment options) or by desired flexibility in purchasing options (they just want to get the one network or the one show).

Then, the subsequent reporting or blogging is driven by a fierce conviction that the Internet and the Digital Age is changing the “cable model” – as everything must be changed under the new regime (“Resistance is futile!”) – and that it’s only a matter of time before the whole existing infrastructure comes tumbling down, to be replaced by a Bright New Tomorrow.

I must point out that the Internet offers a technical solution to delivery of content. It does not address the business models involving the production of content.

Everybody’s Dropping Cable and Its Days Are Numbered

“It’s only a matter of time,” critics will say. Pretty soon, a Hulu subscription will “kill your cable.” Or perhaps Google has the answer to “kill your cable bill.” In fact, it’s already happening now! The cord-cutters are taking over!

Just as a brief sample of cord-cutting claims, here’s Fierce IPTV from April and the L.A. Times from eight months ago.

About a month ago, I fact-checked two major cord-cutting reports from earlier in the year. Now, a new Nielsen report confirms that “cord cutting to date has been limited to very specific demographic segments.” See this finding from the report, as quoted by Connected Planet:

The survey’s key metric: 3.9% of the U.S. population had broadband Internet but no cable TV service in January 2010. That’s the same percentage reported for the same month a year earlier. In January 2008, it sat at 3.2%.

At the same time, the percentage of people with both cable TV service and broadband was 66.3% in January of this year, compared to 61.6% in January 2009 and 54.8% in January 2008.

But maybe there’s another threat to cable.

Drop Cable and Still Get Sports

About a week ago, ESPN and Microsoft accounted a deal that would bring the ESPN3 online service to Xbox 360 customers. There was much rejoicing in certain quarters, with MG Siegler writing at TechCrunch, “Xbox 360 Gets Live Sports In HD From ESPN. Canceling My Cable In 5, 4, 3…” Two days later, Karl Bode noted at DSLReports, “ESPN/Xbox 360 Deal Less Sexy Upon Closer Inspection.” He noticed that ESPN’s streaming video service has a model similar to its multichannel video business. ISPs are affiliates, much as cable operators are. And ESPN3 doesn’t offer all the same content that the television version does. (Also, see this post from the Sonic.net CEO Blog, arguing that “the Internet is ‘à la carte’, and it should remain that way.”)

So, I Should Still Cancel Cable, Right?

People like to complain. They threaten to cancel their service. But if you like to watch the programming, how else are you going to watch it?

CNET’s Rick Broida writes The Cheapskate column about saving money. He posed the question this week, “Is it time to pull the plug on cable TV?” He notes that you can use streaming services or a media center PC.

However, these options will get me only so far. If I want to watch shows like “Breaking Bad” or “Mad Men,” I’m sunk: they don’t air anywhere except on AMC. My only option would be to wait for them to come out on DVD. And even then, they won’t be high-def.

I also have kids who would probably require hospitalization without daily doses of “iCarly” and “Phineas and Ferb.” Granted, both are available through Netflix, but not the latest episodes.

And then there’s sports. I don’t watch a ton, but I do like my college basketball. The question is, do I like it enough to justify $70/month (especially when the season lasts only six months or so)? Dunno.

If You Want a Revolution, What’s the Solution?

As I’ve said before (see this post), people like to claim you can replace cable with something else, but the “something else” is often just broadcast programming streamed online.

Broadcast television has been around since the 1940′s and has a business model based on broad distribution; the free online viewing of those shows is just ancillary revenue. Cable has always offered niche content and has a dual revenue stream of advertising and affiliate fees.

Cable and other multichannel video providers are now responding to consumers’ interest in accessing cable content in new ways; that’s why we’ve seen the launch of “TV Everywhere” kinds of services, which allow subscribers to watch online the content they’re already paying for.

All those prognosticators who claimed that the cable model is doomed should try to answer the fundamental questions of how the television business is supposed to transition into this Bright New Tomorrow, while still maintaining the ability to recover production costs and generate revenue.

Yesterday, former FCC Chairman Michael Powell led Marc Andreessen, Time Warner’s Jeffrey Bewkes, CBS’ Leslie Moonves, Comcast’s Brian Roberts, and Fox Filmed Entertainment’s Tom Rothman through a wide ranging, free flowing, and spirited discussion of the future of content at The Cable Show’s second general session.

To start the conversation, Powell asked Brian Roberts if cable should be worried about online video.  Roberts responded that every new medium presents a new opportunity, but said they all present avenues to deliver lawful content; the more opportunities for that, the better.

Andreessen (who shared details of his 36 port HDMI switch with 36 different inputs and a $4,000 per month commercial Internet connection) said that was the right way to look at the future – since every device is now expected to be Internet-enabled, and to allow content consumption.

Rothman chimed in to agree, but said that creates a requirement that content be compelling.  Without compelling content, you just have a bunch of devices to check baseball scores.  Rothman says the key to content online is two-fold.  First, the most important piece of content is good storytelling.  Second, that storytelling must be accompanied by a way to protect and monetize content.

The various models of monetization became a hot topic and Powell noted that customers may have different thoughts about the monetization process – so cable operators may end up fighting with consumers.

Moonves answered by noting that, for his company, there used to be one source of revenue – advertising – but now there are many more, such as syndication, retransmission fees, DVDs,  iTunes, Hulu, etc.  That presents more options to address the monetization question.

The introduction of the topic of advertising led Powell to ask what impact services like Facebook will have, since they present a new, and possibly competing, set of audience segmentation data.  Powell noted the industry no longer has the exclusive on audience data.

Bewkes suggested all the different entities must become partners in the sharing of audience data, and Moonves said one of the essentials is accurate eyeball measurement – and we don’t have that yet.

Andreessen suggest Facebook can be an enabler of content by providing data, and also by sharing content with friends.

Roberts said people may go to other providers  – not because the content is different, but because the experience is different or cooler.  As a result, it is incumbent upon cable to stay fresh and cool, and spend more time on the interface.

Asked what makes them nervous, the panelists suggested that the uncertainty of regulatory change was a great challenge.

Moonves joked, “Whenever they say it’s not about the money, it’s all about the money.”

Regular readers of this blog may recall our discussion last year of the Selectable Output Control. The rest of you are no doubt completely puzzled.

John Eggerton’s story explains what happened: “FCC Grants Partial Waiver for Early VOD Release of Theatricals.”

[The waiver gives] studios and multichannel video programming distributors, or MVPDs, the ability to disable certain set-top outputs so they can copy-protect the release of theatrical films to VOD closer to their release date.

We issued a statement attributed to NCTA President & CEO Kyle McSlarrow:

We’re pleased that the FCC has granted MPAA’s request to permit cable customers to receive first-run theatrical movies before their release on DVD. The Commission recognized that waiving its selectable output control rule would permit cable operators and other multichannel video programming distributors to provide their customers a new service which would not be available absent FCC action. This decision serves consumers well by allowing us to provide them more choices in how and when they can view new movies.

For a better understanding of the issue, it’s helpful to read some of our old posts. We had a post answering some of the SOC waiver’s critics (including responding to the charge that SOC “breaks 25 million television sets.”). The blog Ars Technica weighed in and we responded to their response, which lead to even more discussion here.

As we move into a world of great digital distribution of content – including, in this case, the possible earlier release of theatrical films to VOD – it’s understandable that “content owners [i.e., movie studios] rightly need adequate protection against indiscriminate and unauthorized distribution of their content…” (as we put it here). The group Public Knowledge (as quoted in John Eggerton’s story above) said that SOC  “will allow the big firms for the first time to take control of a consumer’s TV set or set-top box, blocking viewing of a TV program or motion picture.”

Consumers today routinely deal with content or software that has copy protection. To describe this as “breaking” or “taking control” of your device seems over-the-top. Instead, what this hopefully means, is greater viewing options for you.