March 24, 2009 3:09 PM

Let's See . . . Boxee, Sony, Roku . . . High Priced Content Won't Do

A poor man's Dr Seuss, sure, but Harold Feld already took the best content-related blog title, with "The Fragmentation Games Continue: Cable Has a Plan So Cunning Even THEY Can't Figure It Out".  BTW, Congratulations to Harold on his new position as Legal Director for Public Knowledge. 

The point of this post, though, as the title indicates, is that right now subscription television (with vertically-integrated cable as the price leader) and many large programmers are complicit partners in a vicious, and unsustainable, price spiral that appears to take no notice of, or concern for, the economic plight of average Americans.   According to the FCC, the price of "expanded basic" cable--the package most people buy--has risen by 122% over the past 13 years, compared with the average consumer price index ("CPI") increase of 38% during the same period. (see paragraph 2, Chart 1)  Nevertheless, Emily Dickinson sagely observed, "[p]eople need hard times and oppression to develop psychic muscles."

Why am I going into all this, though?  I'm not really a "media bureau" guy, and I'm by no means an expert on video market regulation.  That said, I think that--in terms of TV viewing tastes--and probably every other type of taste as well--I'm an average-to-below-average kind of guy.  For example, I think "The Ultimate Fighter" on Spike TV is THE best show on television . . . period.  And, despite their disappointing performance against Memphis last weekend, don't take my Comcast-owned Terps away!  Maybe this is why I think that, if even I'm noticing this issue, then other average guys (and gals) are also.  Moreover, if I'm noticing this problem enough to whine about it, then so are lots of other consumers, and lots of other big companies are seeing an opportunity.  Why do I think this is such a big consumer issue for the next FCC?  Because a lot of really big, really smart, businesses are investing a lot of money into devices and software designed to bypass subscription TV.

In the last two to three weeks, alone, I have seen a number of stories in the trade press and the popular press about companies developing means to bypass subscription television, through the integration of high-speed Internet service and digital television sets.  I can't help but escape the feeling that the bypass of subscription television is the new Holy Grail of consumer electronics manufacturers. 

For example, Boxee is a software application designed to be a bridge between Internet programming and the television set.  Boxee has announced plans to get into the hardware business in 2009, where they will presumably introduce an intermediary box that brings the Internet to your television--couple that with the ability to integrate over-the-air broadcast television via an antenna, and you just might have a winner.  There was an article on Boxee in the April 2009 edition of Wired Magazine.  The Wired article references some difficulties with NBC/Universal and Hulu access through Boxee; however, a recent CommDaily article suggests that the issue has been resolved. 
 
The game console manufacturers agree that this is a service worth exploring.  Owners of the fabulously-successful Nintendo Wii console have been able to access the Internet over that console for almost two years.  Other game console manufacturers are busily adding content.  Sony's PlayStationNetworks, like Hulu, announced an agreement earlier this month with NBC Universal to distribute content. Over this past summer, Microsoft announced a deal to distribute Netflix over its Xbox Live networkRoku, a hardware manufacturer, already offers a $100 box that allows existing Netflix customers to watch 12,000 videos instantly from Netflix and over 40,000 titles from Amazon Video on Demand.  

These are all great inventions and the market will seek to compete away rents--especially the double-rents (content and distribution) that exist in subscription TV.  For example, there can be no doubt that independent content owners left out of the subscription game will jump at the chance to distribute their content to consumers via new Internet-based systems. Large programmers that are not vertically-integrated with MSOs will also test these new bypass channels, either as a defensive measure or offensive measure. The MSOs themselves are less likely to embrace this trend unless they are able to fully monetize it.

Now, one could (wrongly) say that this makes the case for "Net Neutrality" regulation.  However, such an inference would only contribute to the problem, because allowing consumers to access video programming over high bandwidth Internet access will be a huge selling point for new entrants in the high speed Internet access market--mobile TV providers, fixed wireless providers (like Clearwire), competitive carriers, and for existing high-speed Internet access providers that are new entrants into the subscription TV market (AT&T, Verizon, and other LECs).  These companies would certainly love to avoid the additional operational expense that comes with offering traditional subscription television--especially if it stimulated uptake of high-speed Internet service, a service which is already "on the shelf."

Finally, if the next "killer app" is to be Internet-delivered TV, then the Net Neutrality demagogues might do well to focus a little more on the "first" Internet freedom: consumers should have access to their choice of legal content.  And, as long as we are regulating, what would be the harm in adding the provision "on reasonable and nondiscriminatory terms" to the "first freedom"?  Rather than focusing exclusively on the practices of network owners, consumer advocates should consider adding to their repetoire that someone--FCC or FTC--should prescribe some fair practices for content owners as well.

 

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