August 5, 2010 5:41 PM
No reason to even apologize about the fact that I haven't been blogging much recently (relative to my normal furious pace of about 1 every 10 days)--and I'm not apologizing. I could make a lot of excuses (and, believe me, I do!). But, hey, there just hasn't been a whole lot of FCC Policy to be blogging about. Don't take my word for it--even Harold Feld
says so--and he's a prodigious blogger. Blame Chairman Genachowski. My personal laziness is purely coincident.
However, I do have one slightly timely follow-up point on my last post on video competition. Earlier this week, Mr. "PIB" (Party in Back, in the mulletary sense of the term) made his appearance on the Comcast-NBC merger. How so?
Well, Congressman Rick Boucher, Chairman of the House Energy and Commerce Committee's Subcommittee on Communications, Technology, and the Internet concluded his investigation into the Comcast-NBC Universal merger and deemed it to be not a threat to competition. In fact, he sent letters to the Department of Justice's Antitrust Division and to the FCC, urging expeditious approval of the merger to "ensure continued consumer access to content."
Who could argue? After all, the antitrust and consumer protection laws were founded on the principle that the best way to ensure that consumers receive maximum access to a good or service was to let one company control as much of that market as possible. Or maybe that was the principle on which the Hudson's Bay Company, and the British East India Company were founded. Hmmm? One or the other . . .
Competition or mercantilism, toe-may-toe, toe-mah-toe . . . . No matter; the top dog on this subject matter at the House of Representatives told the reviewing agencies to fold up tent, conclude that the industry is competing like heck out there, approve the merger, and crack open a cold Bud Light! This is some serious political cover: the political version of "The Eagle Has Landed."
Of course, I could always be wrong, and the reviewing agencies could continue their own investigations, and make an independent assessment of how the merger will affect competition in the markets for video programming and video distribution. But . . . why would they bother? It's summertime and the livin' is easy.
Now, we just sit back and watch, listen and learn, as the story unfolds about the competitive irrelevance--nay, benefits--of vertical concentration in the subscription video market. But be careful out there, partner, with trying to make a general assumption about vertical integration in communications markets. Woe to anyone who makes that same mistake about vertical contracts between service providers and handset manufacturers in the mobile wireless market! The Party in Back is strictly for incumbent video providers and programmers . . .
July 14, 2010 3:48 PM
When I say "mulletary", I mean like "military", but in the way of the "mullet
", as in the haircut, as in "BIFPIB": business in front, party in back. That's right, the mullet. Like Billy Ray Cyrus
, "Joe Dirt
", and every '80's metal band. But, why in the world would I compare video competition policy enforcement to the mullet? I'll say it again. Two words: "BIF" "PIB"--business in front, party in back. Why? Because when confronted with the stubborn lack of video competition, to the detriment of consumers, the Commission has steadfastly talked tough in public (on the front end), but refused to break up the party out back with the owners and distributors of cable programming. The result?
Just look at the chart
in the last FCC Video Competition Report to Congress
, where the Commission reported that subscription video, and programming are the only major services for which prices have steadily increased since the Telecom Act was adopted in 1996. What's more, the last Video Competition Report was produced in the last administration
. So, is there a "party in back"? When prices are climbing in a down economy, both in nominal terms, and relative to the CPI, you bet there's a "party in back"!
Nonetheless, the tough-talking, "business in front" continues unabated. Like the mullet militia
, the Commission will almost certainly not want to be reminded of their "style" when this administration goes out of style . . . as they all must . . . whether in four, or eight, years. Let's look at some examples of the "mulletary" enforcement of "video competition policies."
"Business in Front
"Exclusionary Programming Practices.
On January 20, 2010, the Commission adopted rules
to prevent incumbent cable operators, and owners of "must have" programming (like real time sports programming), from using the so-called "terrestrial loophole" to exclude certain competitors from access to this essential programming. This programming is considered essential because customers will not buy subscription television that does not give them access to local sports programming. The "terrestrial loophole" was originally designed to prevent owners of closed circuit TV systems (like the live feed you might see on the "Jumbotron" at FedEx, or the Verizon Center) from being required to broadcast the entire feed (including proprietary "programming", like birthday announcements, marriage proposals, product promotion contests, etc.) to all providers of subscription television service. The FCC has found that just because the sports program (i.e., the game) is transmitted for distribution over a wire, it does not give the owner/licensee of the sports programming the right to exclude rivals from access to this essential content.
In fact, despite the "loophole", which (according to interpretations rejected by the Commission) would allow the owner of the sports event to foreclose access to anyone that didn't own access, cable distributors that owned programming did choose to make transmission of these sports events (both conventional and high-definition feeds) available to non-competing, adjacent incumbent cable operators
, but not to competitive video providers, either "in-region" or in adjacent regions. The rules became substantially effective at the beginning of April
and fully, technically effective, on June 21, 2010.
The FCC laid down the law . . . it could be said. Yet Verizon, and AT&T, have had formal complaints pending with the Commission for over a year (since July and August of 2009) regarding their inability to get access to the high-definition feeds of local New York sports programming owned by Cablevision--even in areas where neither company competed against Cablevision
. See, Order
, ¶17. Programming/Distribution Concentration
. Let's move on to the still-pending Comcast/NBC/GE merger, where the largest owner and distributor of subscription TV programming filed a request with the FCC on January 28, 2010
for approval to acquire one of the largest network programmers. Interesting stuff, really, because Business Week
already declared the death of "free TV"
, even before the FCC got into the "business in front" part of the "mullet-ary" style review. Others also expressed concern
that the proposed merger would threaten "free TV."
As a public statement, but not a binding rule, the FCC tries to hold itself to a 180 day "time clock" for reviewing mergers. Technically, this would require the Commission to approve or reject the Comcast/NBC/GE merger in a couple of weeks. Accordingly, the FCC hired an attorney to lead the investigation
in late May. Final comments on the merger are due in early August.
Moreover, on July 13, 2010, the FCC held a public hearing at Northwestern University regarding the consequences of the merger, chaired by Commissioner Copps. Commissioner Copps released a public statement, concurrent with the public hearing
, discussing the potentially dire consequences of the proposed merger--not only for traditional subscription television consumers, but also for the "new media" markets. In Commissioner Copps' public statement on the hearings, he concludes, "[a]s for me, I have said before that approval of this proposed transaction would be a very steep climb.
" [emphasis added] Now that's some serious business. . . which brings us to . . . .
"Party in Back
" Exclusionary Programming Practices
. Well . . . there is that matter of the FCC never enforcing an act of exclusion by a vertically integrated owner of cable programming and distribution--despite rules and practices to the contrary. As I said a year ago
, practices such as these--refusals to deal with some firms on terms that have been voluntarily offered to other, similarly-situated, firms--have been condemned as anticompetitive by the Supreme Court. They're Competing Like Heck Out There!
As part of its "business in front" approach to video competition policy, the Commission announced the previously-mentioned "public forum
" to review the merger. Coincidently, though, on the same date (June 3, 2010), Communications Daily
reported, "[t]he FCC is partway through trimming a backlog of requests from cable operators to be freed of local rate and equipment regulation
, said commission and industry officials. The Media Bureau in recent months has stepped up approvals of petitions seeking findings of effective video competition
. . . ." [emphasis added]. The story went on to note that the FCC is making "effective competition" determinations for video markets at a rate greater than once a day--as many as 30 times in May alone?! Wow! Is the subscription TV market "effectively competitive
I don't know, but maybe the answer depends on the circumstances. Do over 90% of cable consumers have a choice of at least one "same media" subscription video provider (as is the case in the wireless industry)? Doubtful--but such a finding should be vital to the approval of a certain pending merger. Why? Because the Commission previously found that only wireline-delivered multichannel video had a price-constraining effect on the behavior of the incumbent cable provider. Video Competition Order,
Does the FCC have to exclude wireless-to-wireline competition
? It would seem so, because the Commission made a similar finding only a few weeks ago. In the recent Qwest Phoenix Forbearance Order
, the FCC reached the same conclusions about wireless voice as they did about wireless video when they declined to include wireless voice--even for customers that only used wireless voice--as a competitive market participant. Qwest Phoenix Order,
Even if not everyone agreed with the Commission on the ineffectiveness of cross-media wireless competition, the outcome would be unlikely to change in the video market. In an article entitled "Wall Street Loves Cable. . . Still"
, Multichannel News
recently reported one analyst's observation:
'The operating environment in cable is better,' [UBS cable analyst] [John] Hodulik said, adding that the competitive threat may have reached a crest with Verizon Communications announcing last month that it would no longer build out new FiOS markets and DirecTV being less aggressive in new subscriber additions.Programming/Distribution Concentration
. So, how will the FCC tackle a big media merger, unpopular with consumers? Will the "business in front" be followed by a "party in back"? Some would say the party never ended for this industry. Regardless, this year's Video Competition Report should be as interesting an exercise in intellectual contortions as its conclusions are predictable . . . and, no doubt, the same team will write the order approving the Comcast/NBCU/GE merger.
Still, in a transparent and data-driven world, the FCC--should they decide to approve this merger--should adopt a riff on the old English Solicitor custom . . . and wear formal wigs at the Open Meeting . . . like these
. Plus, if I had my druthers, every separate statement endorsing any conclusion of vigorous competition in the subscription TV market would have to conclude with this graphic prominently displayed
November 27, 2009 8:52 PM
"In another moment down went Alice after it, never once considering how in the world she was to get out again.
The rabbit-hole went straight on like a tunnel for some way, and then dipped suddenly down, so suddenly that Alice had not a moment to think about stopping herself before she found herself falling down what seemed to be a very deep well.
Either the well was very deep, or she fell very slowly, for she had plenty of time as she went down to look about her, and to wonder what was going to happen next. First, she tried to look down and make out what she was coming to, but it was too dark to see anything . . .
'Well!' thought Alice to herself 'After such a fall as this, I shall think nothing of tumbling down-stairs! How brave they'll all think me at home! Why, I wouldn't say anything about it, even if I fell off the top of the house!' (which was very likely true.)
In keeping with our Adventures in Wonderland approach to the Net Neutrality NPRM
, it only seemed appropriate to keep the long quote from Down the Rabbit Hole
) intact--especially when discussing vertical integration. As noted in the last post, we'll look at real harms caused by vertical integration in one market--and not addressed by the Commission--and compare these circumstances to the empty theories posited in the NPRM.
You see, so many of the potential "threats" to the public that are postulated in the world of Internet commerce are only speculative in the NPRM . . . BUT
. . . the Commission is
in possession of a great deal of "data driven" information on the harms to consumer welfare resulting from unhealthy vertical integration. Where? Why in the only communications market where prices have been escalating in both real and nominal terms since Congress passed the Telecommunications Act of 1996--the market for subscription TV services. This is a market characterized by unchecked price hikes resulting from a lack of competition in the programming and distribution markets. We've been over the Commission's data before
, and don't need to repeat it in this post.
Suffice it to say, though, that the Commission could look back on their previous failure to pursue a "data-driven" pro-consumer approach to much steeper prices caused by vertical integration in a real industry subject to the FCC's regulation, and (rather than sound the alarm about consumer welfare concerns related to vertical integration in any Internet-related market)--like Alice--say "[a]fter such a fall as this, I shall think nothing of tumbling down stairs!" Later on, I'll put on my Nostradamus hat and predict--but with much more specificity--why the first problem, the real, data-driven, harms to consumers in the subscription TV business--may well continue to go unaddressed, as the Commission thinks nothing of "tumbling down the stairs" of imagined vertical integration in the Internet ecosystem.
Not to beat a dead horse, but take a look at the "data-driven" chart in the post addressing the consumer harms of vertical integration ignored in the subscription television market
. There is considerable concentration in both the cable programming, and cable distribution markets. These facts have been documented in this blog in multiple posts (look at the tag cloud under "high subscription TV prices." Moreover, according to some of the same parties supporting the Net Neutrality NPRM
, this concentration is only increasing with the recently proposed Comcast-NBC merger. Comcast is already the largest single owner of cable television programming, and, unlike Internet backbone services, there does seem to be some scarcity/exclusionary value in vertical integration through ownership of cable programming, rather than simply purchasing it through contract.
Continue reading Net Neutrality: Down the Rabbit Hole (Vertical Integration Ignored)
August 7, 2009 2:11 AM
If you haven't noticed yet, you probably shouldn't rely on me for your telecom news--because I'm really not that timely. Nonetheless, if you read at all, God bless you, brother (or sister); without you, I wouldn't even have a reader. So, for all my whining about subscription TV prices and practices, I would be remiss in not reporting what's come out in the last week on our subscription TV vertical foreclosure issue.
Cablevision has decided to spinoff its MSG programming unit to its shareholders as a separate property. Contrary to some speculation, though, the spinoff in itself does not solve the potential antitrust problem of vertical foreclosure faced by competitors that are unable to obtain all of MSG's programming because the management of MSG and Cablevision will be the same. Still, though, by separating MSG as a standalone programmer, it will become more obvious over time how much this business is losing if it continues to refuse revenue from subscription television providers like AT&T, DirecTV, RCN, and Verizon in service territories where these companies do not even compete with Cablevision's subscription television service.
This will take a little time, though. But, if the transaction requires any license transfers, it should be easier for all downstream competitors in the MSG programming area to get access to all of MSGs programming on reasonable terms. If an FCC license transfer proceeding is necessary, one can expect competitors to demand, and likely be successful, at getting access to cable programming at the same terms available to other competitors, as a condition to merger approval. My guess is that the Commission would be sympathetic to these requests.
Alternatively, if the FCC's cable ownership caps are overturned by the Court of Appeals, Cablevision might fetch a higher price from an adjacent incumbent cable company (like Time Warner Cable, or Comcast), and its shareholders might benefit more by holding MSG and becoming "arms merchants"--capitalizing on a regulatory environment that seems likely to promote increased subscription TV competition. So, the Blizzard hasn't started yet, but the temperature and the barometer are both falling. . .
July 14, 2009 3:36 PM
Competitive subscription TV providers are, most often, confronted with a blizzard of "no"s, or, even worse, a blizzard of "nose" when they ask if they can buy sports programming in a "high definition" format from the vertically-integrated owner of that local sports programming. Most regional sports programming (most college sports, and all professional sports except football) is owned by a regional programming company that is usually affiliated with a large cable TV company. The vertically-integrated sports programmers (big cable) are always fighting with competitive subscription TV providers (telco--ILEC and CLEC, competitive cable overbuilders, and satellite). The major source of contention is access to the "feeds" of local sports content (both "regular" and "high def"). Incumbent cable operators, who do not compete with one another, routinely make all proprietary programming available to other cable incumbents.
A good example of how vertically-integrated video providers can use their programming market power to reduce consumer welfare is described in the FCC complaint filed last week by Verizon against Madison Square Garden L.P. ("MSG"), and Cablevision. MSG is owned by Cablevision, and MSG owns the exclusive rights to produce and exhibit games of important local sports teams, such as the NY Knicks, NY Rangers, NY Islanders , NJ Devils, and the Buffalo Sabres. Providers of subscription TV in the NY metro area, and upstate and western New York, believe that the high definition feeds of these events are competitively significant. Every provider of subscription TV services that is offered the "high-def" format purchases it, and every other provider of subscription TV services wants to buy it.
In its complaint, Verizon claims that MSG is violating Section 628 of the Communications Act, which prohibits vertically-integrated distributors of satellite programming from acting in an unfair, or anticompetitive manner. Verizon contends that Cablevision is in violation of the Act because it refuses to sell Verizon its "high def" feed for sporting events, for which MSG owns the rights. Cablevision's response is that, because it transmits the "high def" feed to its distribution points via fiber (vs. satellite) transmission, it is not required to deal at all (much less, fairly) with any other programming distributor. This post is NOT about Verizon's complaint at the FCC.
Continue reading The Blizzard of Yaahhhs: Is Aspen Skiing A Lift Ticket To Fair Programming Terms?
April 6, 2009 1:26 AM
OK, I've got to stop chasing my tail, and I promise this will be my last blog (for at least a little while) on the subject of the subscription TV-cable programmer price spiral. Maybe it's just the natural insecurity of a new blogger, but I feel compelled to point out whenever someone with even more experience as a reporter is reporting on something I've noticed, which--in case you haven't been reading is my completely-consumer (I'm a telecom guy, remember) fixation on subscription TV prices. This past Friday, April 3d, Rob Pegoraro of the Washington Post wrote an on-line article, on the propagation of "included" channels and the unstoppable increase in subscription TV prices (the same article was printed in the Sunday, April 5th print edition of the post). Mr. Pegoraro made an observation, also from last week's Cable Show, that prices for subscription TV bundles were going higher--across the board--whether the provider be cable, telco, or satellite. His article makes some of the same observations that I have made, in a general sense, but he makes others, that are even more concise and compelling. You might have to register for the Post article, but it's short, and worth the read. However, his conclusions, and hoped-for solutions, are largely the same that surfaced in my March 24th post.
So, for those of you that don't want to set up a Post account, I'll copy the last three paragraphs of Mr. Pegoraro's article (from the on-line version, with active links), that describe the problem-solution dichotomy in a more succinct manner than I have managed to do so far:
Continue reading Stop The Video Loop! More Propagation of Complaints on Channel/Price Escalation
March 26, 2009 8:02 PM
OK, yesterday's post was all about the relatively-recent propagation of companies with applications, features, or hardware designed to allow the consumer to bypass traditional subscription TV. Why the effort? Do I have to throw out the purported Willie Sutton quote? Of course, because--at least to many entrepreneurs and large businesses--this is where the money is. But why is the money here? In yesterday's post, I referred to an unsustainable program/programmer-distribution "price spiral." What I was referring to was the "clubby" kind of way in which large programmers, and large distributors of subscription programming (sometimes the same firms), have reinforced a certain mutually-beneficial co-dependence to the detriment of the consumer. It's gotten to the point that even new entry--by a Verizon, an AT&T, or other competitor--doesn't reduce prices as much as you'd think. Why? Because the programming is so darned expensive! Why? Because that's the way the status quo wants it!
The anti-consumer symbiosis goes something like this: programmers insist on price increases--either outright, or through tying more popular to less popular channels. This happens on both the "programmer-to-distributor" level (distributor has to take ESPN Classic if it wants ESPN), and on the "distributor-to-consumer" level (MSOs agree to put each other's programming into "expanded basic tier" regardless of its popularity). Content distributors, led by the regionally-dominant cable MSOs, have been only too happy to oblige with their own price increases, either by reducing the number of channels available on the "basic" tier, or simply by eliminating the basic tier altogether. No doubt, large programmers and distributors would be happy to continue this happy state of economic hegemony indefinitely.
Consumers, on the other hand, have not been so happy. The benefits to the large content providers extend beyond the immediate benefits of higher prices (which are always appreciated), but also have the effect of foreclosing other content competitors, because these same companies--by requiring distributors to carry both the "regular" digital versions of their channels AND the high definition versions, can use the same content to take up at least twice as much bandwidth on the distribution networks. Thus, large programmers protect themselves from competition from small, independent, programming by effectively "crowding out" valuable bandwidth "shelf space." This is yet another reason why the firms mentioned yesterday are trying so hard to bypass subscription TV, and deliver video content over the Internet.
For a really enlightening dialogue on the issue of Internet-distributed television/video content, it's really worth it to take a look at the dialogue between Avner Ronen, Boxee CEO, Mark Cuban of HDNet, a subscription TV channel.
Continue reading How Content Integration Has Produced Consumer Welfare Disintegration . . . or How Come Prices Keep Going Up Even with Telco Video Entry?
March 24, 2009 3:09 PM
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.
Continue reading Let's See . . . Boxee, Sony, Roku . . . High Priced Content Won't Do