EDITOR’S NOTE: Earlier this week, we were invited to submit something to Ars Technica on the hot topic of the SOC waiver, addressed previously here. The following day, they followed up with a counter to our thoughts. We’re grateful for any opportunity to continue a meaningful dialogue, so we’re posting our response back.

First, I appreciate Ars giving me the opportunity to provide a guest post on the issue of Selectable Output Control.  And, like someone lost in the desert, I suppose I should just be grateful for a cup of water and take Ars’ agreement that this issue really isn’t about “hobbling” consumers’ equipment – despite what SOC opponents have been arguing for months.

But Matthew Lasar’s response now shifts the debate from hobbling existing TVs to the inevitable slippery slope: If the FCC grants a waiver for early release movies, Ars argues that next will come use of SOC for the “Big Game” (which won’t likely involve my Washington Redskins), a key episode of Mad Men (perhaps where Don divorces Betty and moves in with Peggy because she has a TV that works with SOC), and, Lord knows, it will then be used to provide exclusive showings of a film of the JFK assassination  that will prove that the Zapruder film was part of the “cover-up.”

But the truth is that there is no studio-cable-DBS cabal to deny consumers viewing opportunities; rather, we’d like to give our customers content they would not otherwise receive without our ability to use SOC.  Forgotten now is that the cable industry supported the adoption of the FCC ban on SOC as part of a compromise with the consumer electronics industry in which both industries recommended one-way Plug & Play rules to the FCC. We did so while recognizing – as did the consumer electronics industry and the FCC – that waivers would be granted upon a showing that the public interest would be served by waiving the rule, for example where the waiver proponent demonstrates that the content is a “new business model” advantageous to consumers. Therefore, the FCC must decide in each particular case whether SOC should be permitted. To me, it is crazy that the government is in this business of deciding outputs/inputs at all.  But the FCC’s role ensures there isn’t a slippery slope; the proponent of a waiver must prove each time that the proposed service is something beneficial to consumers.

Putting aside the debate over the use (or abuse) of SOC, I have a particular concern with the claim that our television services are part of some “public network” akin to the public switched telephone network and therefore subject to some special regulation which restricts our business in ways not allowed with regard to other businesses. To be sure, our video services are subject to government regulation – at the federal, state and local levels – but we aren’t like telephone companies (which built their systems with captive ratepayers and a government-guaranteed rate of return) or even radio and television broadcasters (who were given public airwaves for free, but in return had to adhere to certain “public interest” requirements).  Our industry had no government-guaranteed return or government-granted public airwaves – to the extent we used any public resources, we paid for our rights-of-way with local franchise fees. Indeed, the cable industry built analog networks, our new digital networks, our cable modem and digital phone services with private risk capital with no assured return.

If the goal is innovation to meet rapidly-changing consumer demands, the old-style public utility model is exactly the wrong way to go.

Again, I appreciate the opportunity to engage in a discussion with Ars and its readers and look forward to more in the future.

In a blog post last Friday afternoon, NCTA’s Kyle McSlarrow highlighted cable’s support for a waiver of the FCC’s so-called “selectable output control” rule which would encourage movie studios to provide cable subscribers with access to first-run movies much sooner than today’s often lengthy release window.

It seems that post has now garnered the attention of Ars Technica in a larger missive that puts the Motion Picture Association of America at the heart of a vast conspiracy to Take Over the Internet (or something like that).

I’d like to tackle their comments, and dive a bit more into the benefits that selectable output control brings to consumers.

It seems that Public Knowledge and Ars would like us to focus on the number of people who would be unable to view content protected by SOC.  We’re optimists, we prefer to focus on the entertainment options available to everyone else.

Let’s look again at Kyle’s iPod analogy:

When Apple introduced the “Classic” iPod with the ability to rent movies, earlier generation iPods still functioned well, played music, and (for 5G iPods) played video, but they didn’t play rentals. Apple’s release didn’t suddenly render your older version useless, but you needed to purchase the Classic to get access to the video rental library. So while your “older” device may not have all of the features of the latest model, it certainly still works as intended when you bought it and isn’t “screwed up.”

If you follow the argument made by Ars/Public Knowledge, there would have been a massive outcry against the new iPod and its rental feature.  Instead, here is what Ars itself had to say on the subject:

Apple has answered the calls of consumers and critics with a slick, friendly movie rental section. After playing with it for a week, I’m still inclined to say that it’s off to a strong start. Though other services may have a superior catalogs (for now) or integration with other living room devices, none reach iTunes’ signature ease-of-use or integration with the world’s most popular digital media players.

And what did Ars say about restrictions on the use of the new iPod?

As for why movie rentals have these specific new DRM rules applied to them, they’re clearly conditions enforced by studios interested in locking down their rental content in every way possible. A crack for iTunes DRM is a scary prospect for execs interested in protecting their content and getting paid their dues, and a movie that typically sells for $15-20 at retail getting cracked for as little as $2.99 must be even more insomnia-inducing. These were likely some of the compromises Apple had to make in order to score all the major studios, and perhaps to launch a digital rental section in the first place.

Ars clearly recognizes that protection of content played a critical role in content owners being open to providing that content via the iTunes store.  They are exactly right that such protections were likely a prerequisite for iTunes rentals launching at all.  What Ars is now arguing against, however, is exactly the same protection being afforded to exactly the same content but just on a different platform, Video-on-Demand (VOD).

Movie studios are unwilling to make blockbuster movies available  prior to DVD release  if they don’t have some assurance that the movie won’t be copied and widely distributed.

That fact, however, does not “break” all the TVs now being viewed any more than the iTunes rentals “broke” previous versions of the iPod.

I had a 5G iPod when the Classic came out.  I now have a Classic iPod (I like to watch rental movies on it when I travel).  My kids now have a 5G iPod.  It still plays purchased movies. It still plays music. It still plays games.  It’s not broken at all.  In fact, since Apple makes many of the movies in its library available for sale before they’re available for rent, that old 5G can actually play more content than my Classic.

The world of selectable output control works exactly the same way.  That TV in your den that’s connected with analog cables can still view most of the vast array of “on demand” content.  It can still play all the TV programs you’re used to.  It can still be connected to your DVD player, your TiVo, and even your PC.  What it won’t be able to do is play certain new content offerings without an HDMI connection.

Does that sound broken to you?

Over the last decade, we’ve witnessed an amazing transformation in the video marketplace as the ways in which consumers watch video programming has exploded.  Despite the multitude of new options – whether it’s a choice of several different providers or technology like DVRs, VOD, broadband video, mobile video, etc. – the media industry continues to explore new ways to bring consumers more content when and where they want it.

Delivering the latest movies to consumers’ homes – far earlier than they can watch those movies at home today – should and can be the next big idea.  Why shouldn’t you be able to watch the latest movie in the comfort of your own living room (and on your own schedule) months before you can now buy it on DVD or watch it through conventional video-on-demand?  We think you should be able to and are working with the movie studios to make it happen.

Consumers, content companies and distributors all benefit if more content is out in the marketplace sooner.  Imagine, for example, what this would mean to those who can’t even get to the movie theater for health or other reasons.

However, delivering this high-value content has to be done properly or the system that produces content won’t be able to financially survive.  High-quality content (most movie productions take years from start to finish) is expensive to create and content owners rightly need adequate protection against indiscriminate and unauthorized distribution of their content to take this next step. While content producers already make some less expensive independent movies available to cable at the same time they are in theaters, it’s clear that major studios will not release their blockbuster films early unless we can guarantee proper protection. (To a certain extent, mid-level budget movies benefit even more from being protected from piracy.)

Some people think copyright protection doesn’t need to be taken seriously. For example, note this comment: “Piracy is like a cockroach – you can’t stop it.” If you think it’s not a problem, forget the street vendors selling bootleg DVDs – go to your favorite search engine and type in the name of a movie, plus the word “torrent.”

Getting Content Out Earlier Through SOC

The FCC has, as it happens, set up a process for approving the use of something called Selectable Output Control (SOC) that can provide content owners with the confidence they need to distribute their high-value content sooner.  In 2008, the Motion Picture Association of America (MPAA) asked the FCC to support SOC for this purpose.  NCTA met with Commission officials back in September to express our support for the waiver and filed this letter afterwards.

Somewhat surprisingly, the SOC waiver has run into opposition by some who are concerned that it would limit choice for consumers.

For example, the group Public Knowledge (PK) has been very active on this issue. See their letters here, here, here, and here, as well as this alert urging consumers to “Tell the FCC to Say ‘No’ to the Cable Kill Switch.”

PK includes a link to this video with Harold Feld, in which he argues that SOC “breaks 25 million television sets,” and causes your personal devices – such as your TiVo or Slingbox – to no longer function.

In the video, Feld says that movie studios, as well as cable operators and DBS providers, would “like to be able to remotely turn off your Slingbox, turn off your DVR, turn off anything that’s coming out of the TV set that we don’t directly control.”

As an additional example, see this Ars Technica post, which says that the “output changes [MPAA] wants could, in fact, hobble some home video systems.”

SOC Does Not Break Your TV

We addressed the charge that SOC “breaks” devices when we filed Reply Comments last summer on the waiver. We noted that the Consumer Electronics Association and its affiliated group the Home Recording Rights Coalition made the argument that such a move would “put at risk… very ‘early adopters’” and that it was important to maintain “the value of devices in which consumers invested earliest and most heavily.”

We noted that existing devices are not harmed.  If you have a TV set that doesn’t support SOC, then you wouldn’t be able to order these new movies releases anyway. But nothing prevents your TV from doing all the things it can do now.

The situation is analogous to any early adopter who acquires new equipment which, with the passage of time, cannot access as easily or at all new services coming down the road. From computers to cell phones to televisions, that has been and likely always will be the case. The important point is that nothing is being taken away from those consumers, and other consumers with more capable devices will have more viewing options. Indeed, there can be no public interest justification for denying new choices to a majority of consumers simply because a small minority cannot avail themselves of those choices.

Both Public Knowledge and Ars Technica have argued that the MPAA’s bid for selectable output control could force some consumers to buy new home theater equipment. But that isn’t even close to accurate – both MPAA and NCTA have demonstrated that an SOC waiver simply means that a consumer’s current gear without protected connectors will work exactly the same way it does today, and newer generation devices with protected connectors (including devices in homes today) will be able to take advantage of the earlier release of movies under an SOC waiver.

When Apple introduced the “Classic” iPod with the ability to rent movies, earlier generation iPods still functioned well, played music, and (for 5G iPods) played video, but they didn’t play rentals. Apple’s release didn’t suddenly render your older version useless, but you needed to purchase the Classic to get access to the video rental library. So while your “older” device may not have all of the features of the latest model, it certainly still works as intended when you bought it and isn’t “screwed up.”

Technology changes all the time.  And the pace and intensity of innovation across the board in technology, communications networks, and consumer electronics is undoubtedly going to raise these types of issues with greater frequency.  I don’t pretend that these issues are necessarily easy.  But it does strike me that in order to continue providing consumers more services, more choices and the opportunity to do things they currently can’t do today . . . we shouldn’t let the perfect be the enemy of the good.

Not all consumers are going to be first adopters; not all technology changes are going to instantly, seamlessly and magically work on every device currently in the marketplace.  Taking practical steps, like approving the SOC waiver, that move us down the path of greater consumer choice is a far better policy choice than standing pat, or pretending that creators of content are going to accept unnecessary risks with their investment.

Have you ever had trouble with a company and said to yourself, “Even I could run it better!”  Well if that company was your cable or telephone company, now is your chance to prove it.

The folks at Cisco (an NCTA member) have put together a fun little game that lets you build your own ISP.  Starting in 1990, your dial-up internet company has to attract customers, make money, invest in new technologies, and remain profitable.  If you do it well, you’ll progress through the years and become a broadband innovator.

If you’re a tech/telecom junkie like me, you’ll find this very addictive.  If you can make it through the 1990s, please drop us a note in the comments and let us know.

Sean Fallon has a post up at Gizmodo titled “Life Without Cable or Satellite Is Easier Than You Think.” Fallon’s central argument is that all the shows you watch are available freely online, and you just need to connect a PC to your TV to get all the same content. It’s a premise we have seen before in countless posts and newspaper articles. As in those articles that came before it, however, the premise is simply not true.

Broadcast Programs Aren’t Cable

To begin with, Fallon makes the same mistake others have made in confusing broadcast versus cable content. His list of favorite shows is rich with broadcast content.

I’m not a TV addict by a long shot, but there are shows that I watch religiously. These shows include 30 Rock, Lost, Family Guy, Californication and Dexter. The following graph illustrates the pluses and minuses of viewing a handful of different shows—not just my favorites—from popular networks.

The graph includes those mentioned plus The Daily Show, CSI, Deadliest Catch, and Entourage. Of the nine programs he specifically mentions, four (30 Rock, Lost, Family Guy, and CSI) are broadcast offerings available with nothing more than rabbit ears (for those with an HDTV or rabbit ears and a converter box for those without an HD tuner).

The other 5 are actually cable content. So, let’s focus this discussion on those to see how “easy” it would be to get them online.

The Daily Show makes most of its content available online for free. The program is relatively inexpensive to produce and Viacom has chosen to make it widely available via the Internet. Based on one network’s decision to make its content available for free, Fallon makes the laughable suggestion that all cable operators, regardless of the production costs of their shows, “move away from old revenue models and look towards the future.”

So what, exactly does Fallon’s future business model look like? To answer that, let’s look at one of Fallon’s examples.

Time Sensitivity and Value

Comedy Central’s Daily Show and The Colbert Report are often cited as examples of the new business model based on giving away content for free. For the most part, both of these shows are placed online almost immediately after their original air date. People arguing for “cord-cutting” often cite them in their arguments. Unfortunately, they’re actually very poor examples for one specific reason. They’re time-sensitive.

These two programs, being based on current events, lose value as the viewer is further and further removed from the context of the events. Yes, the shows may still be humorous if viewed weeks later, but what about months? What about years? In other words, their shelf life is limited.

Typical sitcoms, where the humor is situation-based, can be viewed much later and retain relevance. The clothes may appear dated, but the story still rings true. That’s why shows like Friends, Cheers, and Gilligan’s Island may be in syndication for a decade or more after their original air date. Shows like The Colbert Report and The Daily Show have almost no syndication value. Comedy Central can pick up more revenue through online ads in the days and weeks immediately following broadcast than they would be able to with DVD sales months later.

So we see in one of Fallon’s specific examples a clear reason for making the content available online. What about the rest?

Broadcast Versus Cable Business Models

Since we have begun the discussion of value, we should look at the ways that programs earn revenue. Broadcast programs typically earn the bulk of their revenue from advertising based on their original air date. Broadcasters sell ads and support the programs with that revenue. Shows are routinely canceled when they don’t draw enough viewers to earn a return based on advertising. This has become a particularly troublesome business model as ads are increasingly avoided through the use of DVRs and online viewing.

Cable programming is based on a different model. While cable show still feature advertising, cable programmers also earn a per-subscriber fee from the operators who carry their channel. This revenue model works better as it provides a stable source of revenue separate from the regular fluctuations of ad income. Under this model, the subscriber fees are based on exclusivity of content. If the same content were suddenly available for free elsewhere, the incentive to subscribe is gone and you’re suddenly back to a purely ad-supported model.

Fallon cleverly ignores the fact that most of the shows he cites are among the most protected of cable’s programs. Deadliest Catch, Dexter, Californication, and Entourage are exceptionally difficult to find elsewhere. As he mentions, only one episode of Californication and Dexter were made available via Netflix, and only for a short time. He is correct that you can buy entire seasons on DVD, or rent them, but that is typically months after their original air date. If you want to watch these shows when your friends are watching and talking about them, a six month or greater delay is simply not an option.

So How “Easy” Is It To Drop Cable And Get It All Online?

Fallon’s central thesis and the title of his post come down to it being “easier than you think” to have life without cable. Yet his post demonstrates quite the opposite. He freely acknowledges that 4 of the 5 cable shows he watches are not at all easy to find without a cable provider; the one program that is easy to find is available primarily because it carries an expiration date; and the remaining 4 programs aren’t cable programs at all.

We have stated on a number of occasions a simple truth: If you are watching cable to get broadcast programming, you may be paying for a service you don’t need.

If, however, you are subscribing to cable because you enjoy the tremendous variety of cable programming – everything from Entourage and Jon & Kate Plus Eight to Real Housewives of Orange County and ESPN sports, then you simply won’t find the programs, or the quality of programs available anywhere else.