Results tagged “video competition”

March 15, 2016 10:07 AM

What's Good for Google . . . Is Good for the FCC

More than a year before the Chairman's "unlock the box" initiative, the Chairman had a different idea:  if the FCC made it easier to become an over-the-top ("OTT") multi-channel video programming distributor ("MVPD"), then more companies would enter the market, and this competition would benefit all subscription video consumers.  You might think this would appeal to a new entrant with TV ambitions, like Google.

After all, the subscription TV market is devilishly hard to penetrate even if you can get the capital to build a distribution system.  A year ago, Google had 20,000 customers in Kansas City--after 5 years of trying.  But, Google wasn't in love with the Chairman's idea.  Why not?

The Market Is Internet Advertising . . . on TV Screens

Google is the dominant company in Internet advertising because it sells information about you--that it learns from your use of its applications, and devices--to advertisers.   If you're using the Internet, whether on a computer, mobile phone, or tablet, then there's a 70-85% likelihood that you're looking at Google ads (according this WSJ article re: the FTC Bureau of Competition 2012 staff recommendation on Google's abuse of its market power in online advertising). 

When you watch TV, however, the ads you see are not targeted at you personally, because they haven't been placed by Google.  This is something Google has been trying to fix since shortly after it first announced plans to build a fiber network.  Google, through its Google TV, and then Android TV, project makes "smart TVs" (with Google software built into the TV) and "buddy boxes" (set top boxes that work with a cable box/cable remote) available to consumers.  But none of these efforts have been particularly successful--leading industry observers to conclude that Google needed "another path to the TV screen."  

Then, a year ago, Google decided to try an "experiment" in Kansas City in which it combined its TV customers' content, and viewing history, with its advertising algorithms in order to sell targeted ads on the customers' TV screens.  Most likely, Google discovered that the content itself was the secret ingredient that would allow it to integrate the TV screen into its advertising universe.  

So why not become an OTT MVPD in the proceeding that Chairman Wheeler had initiated in December of 2014?  One obvious problem with this strategy is that MVPDs have long been subject to extremely strict FCC rules about disclosing customers' personally-identifiable information--rules that don't apply to edge providers like Google. The other problem with this approach is that the subscription TV market is devilishly hard to penetrate--just to get access to the customer's video content. Thus, shortly after Google announced its Kansas City TV experiment, it (along with several of its Google TV partners, trade associations, and pressure groups) formed the Consumer Video Choice Coalition ("CVCC") and began lobbying the Commission on a new set of issues.

The FCC Unbundles Video to Create "Device Market" Competition?

On February 18th, after 6 months of intensive lobbying by the CVCC, the FCC voted to require multichannel video programming distributors (hereinafter "MVPDs") to, effectively, "unbundle" the video stream going to and from the customer's television.  See, "Set Top Box NPRM".   The Commission explains that its proposed rules requiring video stream unbundling are necessary "because MVPDs offer products that directly compete with navigation devices and therefore have an incentive to withhold permission or constrain innovation, which would frustrate Section 629's goal of assuring a commercial market for navigation devices." Set Top Box NPRM at para 12. 

The FCC seems to believe that if it can imply that the MVPDs were responsible for the failure of the Commission's CableCARD rules, and that the MVPDs would likely frustrate any future rules to facilitate device interoperability, then it will be justified in implementing full-scale video stream unbundling.  So, on the thinnest of grounds--a couple of anecdotes, and a facially absurd theory--the FCC asserts that that MVPDs "offered poor support" for the CableCARD rules, and have the ability and incentive to frustrate the manufacture/sale of navigation devices by third parties. Set Top Box NPRM at paras 7, 12, and 28. The actual answer to the Commission's question was already available--but it wasn't the right answer.

The Commission's theory regarding MVPD's "incentive and ability" to foreclose third party sales of navigation devices has been litigated through trial in two separate consumer class action antitrust cases, and this theory has never been found to be supported by any evidence.  See, Jarrett v. Insight Communications Co., (W.D. Ky. July 14, 2014)  
 and Healy v. Cox Enterprises (W.D. Ok. Dec. 15, 2015).  If you bother to read either of these cases, you may also be surprised to learn that the device manufacturing market is very competitive--with at least 5 major vendors competing for each cable system.

So, as was the case with the Commission's reclassification of broadband Internet access, a very small number of privileged entities (Google, its partners and pressure groups) benefit from rules designed to address conduct that is not even hypothetically rational--much less, likely.   Still, you might think, who cares if the TV providers now have to compete with Google to sell ads to viewers?  But, Google won't be competing with your TV provider.

Don't Expect Much New Competition in the Device, or Online Advertising, Markets

One of the issues from the Commission's Net Neutrality Order (currently on appeal) is whether the FCC could, as part of reclassifying broadband Internet access as a "telecommunications service," classify all of an Internet user's formerly non-confidential information (the kind Google sells to advertisers) as "Customer Proprietary Network Information" ("CPNI") under Section 222 of the Act.  The statutory definition of CPNI is fairly broad, and includes information "made available to the carrier by the customer solely by virtue of the carrier-customer relationship." 47 USC 222(f)(1).  

If the DC Circuit agrees with the FCC that previously non-confidential customer data is now CPNI, as the result of the Commission's change in service definitions, then the FCC could limit the ability of ISPs to provide customer usage information to advertisers.  This was exactly the position that was being urged on the Commission by the Eric Schmidt/Google-funded pressure group New America, only a week before Chairman Wheeler put his "unlock the box" editorial on Recode.   

Last Wednesday, in a Senate Judiciary Committee Oversight Hearing, FTC chair, Edith Ramirez, was grilled on why the FTC overrode the recommendations of its Bureau of Competition and closed an investigation into Google's abuse of its market dominance in the online advertising market.  Not un-ironically, two days later, the FCC released a "fact sheet,"   describing its proposed rules to prevent ISPs from competing in that market by providing the same kind of ads that Google does--over your computer, mobile, and now, TV screens.  

May 23, 2014 11:24 AM

The Difference between AT&T/DirecTV and Comcast/TWC

After Sunday's announcement that AT&T had entered into an agreement to purchase DirecTV, many parties have rushed to talk about the "media consolidation trend."  The usual suspects have expressed their opposition or express their "skepticism."   Others have applied an equally superficial analysis to come to the opposite conclusion.   

In order to appreciate how the Comcast/TWC merger is different from AT&T/DTV, you have to understand what the two mergers have in common.  One, not-so-obvious thing the two transactions have in common is that one party in each transaction--Comcast and DirecTV--is a co-defendant in major consumer antitrust litigation over the foreclosure of sports programming over the Internet to broadband-only consumers.

These cases are significant, because they should have a direct effect on the outcome of the Comcast-TWC merger, but will, most likely, not affect the AT&T/DTV merger.  It should be noted that these cases have survived a motion to dismiss (opinion), under the heightened Twombly scrutiny requiring antitrust complaints to demonstrate a "plausible" (vs. merely "possible") claim that would establish an antitrust violation, before allowing antitrust plaintiffs to proceed to discovery.  So, we know these cases have some merit.  

Equally noteworthy, these cases are being brought by real consumers (not DC interest groups) in reaction to real behavior in the marketplace; behavior that the DoJ and FCC claimed to be fixed by the Comcast-NBCU merger conditions.  The D.C. interest groups, on the other hand, supported the feckless merger conditions imposed by DoJ and the FCC.  

The Antitrust Litigation

The cases are captioned, Garber v. Office of the Commissioner of Baseball, et al.,  and Laumann v. National Hockey League, et al.  I've mentioned these cases before, here and here.

The plaintiffs are classes of consumers that buy the MLB.TV (or NHL GameCenter Live) online service either by itself or in addition to a subscription TV service.  The defendants in the cases (other than the two named sports leagues) are certain individual teams and some regional sports networks owned by Comcast and DirecTV, and the TV providers themselves.  

The crux of the complaints is that the sports leagues, and integrated RSN/subscription TV companies, allocate markets through what are, essentially, agreements not to compete with one another.  Unlike a typical horizontal territorial allocation scheme, though, these are the result of a series of industry-wide "vertical" distribution agreements with sports leagues and the TV companies' RSNs--the success of the scheme being contingent on identical terms in all agreements.

How the Agreements Work

When the RSN pays all that money for the rights to broadcast all of a team's games, what do they get for their money?

First, the RSN gets the rights to show the games of that team on TV for the home team's "market area".  This means the RSN can set the prices that other subscription TV companies in the home market area have to pay in order to give their viewers access to the games.  This right is exclusive to the RSN for the market area.  Thus, even though when the home team plays away games, the away team also has rights to the game, the contracts are written so that the away team will not sell its broadcasts back into another RSN's "home market."

Second, and most importantly, while the vertically-integrated RSN is technically only buying TV rights, it effectively also gets a promise that the league's online streaming provider (i.e., MLB.TV or NHL GameCenter Live) will refuse to deal--at any price--with broadband-only customers within any teams' home market areas.  (If you want to check for yourself, here's the link to the MLB.TV blackout section.)  Thus, there is some foreclosure value being offered in exchange for the ridiculously high fees being paid by cable RSNs for regional sports rights.

How Does the Antitrust Litigation Affect Analysis of the Two Mergers?

Knowing this important commonality, we can try to understand how the big media mergers will change things.  The Comcast/TWC merger is likely to make things worse for customers and competitors of Time Warner Cable.

According to a study, published last year by Navigant Economics Principals, the "vertical integration premium [the relatively higher fees charged by a vertically-integrated RSN] increases significantly with the local downstream market share of the RSN's affiliated distributor."  The paper isn't available for free, but you can access the presentation to the FCC staff here.  

So, in all likelihood, Comcast's increased share of certain markets (e.g., New York and L.A.) could be expected to lead to increased prices for TV consumers (of any provider) in those former TWC markets. (Comcast will also increase its L.A. market share through its Charter deal.)  Nor would Comcast's accretion of TV market power be likely to change its opposition to the sports leagues making "in market" games available over the Internet.

On the other hand, AT&T's incentives would be expected to change markedly for the better, relative to a standalone DirecTV.  DirecTV, only a few weeks ago, questioned why it would even bother creating and promoting an online video package.  AT&T, though, just last month, AT&T announced its intentions to get behind over the top content in a big way. 

AT&T has different incentives than Comcast with respect to online video, because--according to the Leichtman Research 1st quarter report on broadband additions--AT&T has a much lower share of the market in terms of video-speed broadband than the cable companies.  If you massage the information available from Leichtman (which groups T and VZ together), an overly optimistic approximation (which only includes Comcast and TWC in the denominator) gives AT&T and VZ less than a 40% share of video-speed broadband subscribers.  

AT&T has already announced plans to dramatically expand its very high speed broadband footprint.  AT&T's successful deployment of higher broadband speeds is dependent on consumers having a reason to purchase higher capacity service.  This is why AT&T will want to push--more content online--especially linear content that consumers want.  

By understanding what has kept linear content--specifically, the sports programming that is so important to consumers--off the Internet, it is easy to see why broadband consumers will be better off with AT&T owning DirecTV than they are now.

April 19, 2013 9:54 AM

Captive Audience: Any Freedom In Sight?

In my earlier post on Susan Crawford's Captive Audience, I concluded by noting that some of the most interesting questions raised by the book are not actually discussed, or even articulated.  The questions raised all relate to how Professor Crawford explains that Comcast, as the dominant incumbent provider of subscription television service, has used (and, she predicts, will continue to use) sports programming to maintain its current market dominance in subscription TV, and possibly transfer some of this market power into Internet content.  

The Comcast/NBCU Merger

Crawford weaves together a compelling story about Comcast's past anticompetitive behavior toward competitive subscription video providers, like RCN and Verizon.  Comcast's pre-NBCU exclusionary behavior was also predicated on vertical integration with regional sports networks (RSNs).  The acquisition of the NBC broadcast network, she adds, will enable Comcast to purchase even more sports content in the future and extend its pattern of anticompetitive behavior.  Therefore, she speculates that, with the addition of the NBCU cable channels Comcast will have other, non-sports tools with which to weaken, or exclude, video competitors.

This is where Professor Crawford leaves us, but is this it?  Crawford expresses regret at the failures of the FCC and the Antitrust Division to protect consumers in the context of this merger.  Her disappointment is understandable, but it is also crying over spilt milk.  

For Professor Crawford, the only hope would be a regulatory re-write in order to separate content ownership from cable/broadband distribution.  But, if RSNs are the source of Comcast's power over competition, then Comcast obtains this power as a result of an agreement with the sports team or a league.  Agreements that "unreasonably" restrain trade are always a violation of Section 1 of the Sherman Act

Antitrust, Sports and Broadcast Television

 All professional sports leagues get some limited antitrust exemptions to allow their teams to cooperate for reasons that are integral to producing their product.  For example, Congress passed the Sports Broadcasting Act of 1961 to allow professional sports leagues to have antitrust immunity in negotiating television contracts with broadcast networks (not cable, satellite, or RS networks).  

The motivation for this exemption was to allow the leagues to set what were considered commercially reasonable blackout policies in order to protect the live gate revenues of home teams.  In order to protect the home teams' ability to continue to maximize ticket sales, the league believed that it had to prevent other individual teams from striking their own bargains with broadcasters that would allow other games to be broadcast in competition with the home teams' game.

What is interesting about the Sports Broadcasting Act is that, with respect to broadcasters, negotiating a "television contract" was not fraught with much competitive peril.  No matter who won the broadcast rights, every television owner could still watch every broadcaster's channel.  Would Congress have still passed this law if the exemption gave the league and the network owner the power to harm consumers or other networks?  

This is the situation Crawford describes with Comcast and the RSNs.  They make deals with teams or leagues for the "exclusive" rights to games--but not just the exclusive right to televise games to their customers on their systems.  No, the RSN is buying an "exclusive" for an entire market area, and can therefore decide on what, if any, terms competitors and other incumbent cable operators will be able to distribute these games to their customers.  Are the leagues using contracts with RSNs to restrain trade?                                     

 A Second Chance for the Government?  

Yes, of course they are.  This was the recent conclusion of a federal district court judge in Manhattan in ruling that allows class action plaintiffs to move forward to discovery on their antitrust complaints against the NHL, MLB, Comcast, DirecTV, and several RSNs.  In a 53 page opinion the court explains that plaintiffs' complaints make a "plausible" showing that the defendants have violated the antitrust laws through distribution agreements that amount to territorial market allocations that unreasonably restrain competition.

 comcast dr evil.jpg                                             Restrain trade?  moi?

Note, however, that the counts in these complaints do not allege harm to competition and competitors, the harm on which Professor Crawford is focused.  But this does not mean that these antitrust complaints cannot succeed, they just haven't been brought.  In these two cases (joined as Laumann v. NHL, et al.) the class action plaintiffs are consumers (viewers) of the NHL, MLB, and of Comcast.  See plaintiff's complaint against MLB here.

The plaintiffs contend that they have been harmed as the result of an elaborate territorial allocation scheme devised by MLB and the NHL, and enforced through agreements with the RSNs, who understand that none will attempt to compete outside of its specific service territory.  These agreements prevent consumers from buying out-of-market games on anything less than an "all or nothing" basis, and the leagues have agreed to protect the RSNs from competition so that "in market" games are not available, either online or on any other cable/satellite channel, at any price.

Contrast these professional sports RSN agreements with the NCAA agreements, which--as a result of the NCAA's prior antitrust violations--do not mandate exclusivity.  Thus, if a local channel (like UHF channel 20 here in the DC area) buys the rights to broadcast Maryland Terrapins basketball games, their broadcast will still air even though the same game might also be purchased by a national network like ESPN.

While the plaintiffs in the Laumann case have won the ability to move to discovery and a trial, they probably won't, because Comcast, the other RSNs, and the leagues have every incentive to write big checks to the plaintiffs in order to avoid the "NCAA" precedent.  But, the success of these class action suits may well embolden other antitrust enforcers, like state attorneys general, or even the Department of Justice, to bring their own actions.  So perhaps consumers can avoid much of the long-term "captivity" Professor Crawford predicts.




August 5, 2010 5:41 PM

BIF-PIB Redux: Doo. Dah. Dippity!

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

The FCC's "Mulletary" Enforcement of Video Competition

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, 3.  

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, 55, n.164.

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.  

August 28, 2009 11:45 AM

A Funny Thing Happened . . . Part 2

Meanwhile, . . . back at the ranch . . . given the potential for inter-governmental "enforcement competition", it is helpful to look at what the FCC's existing longitudinal data sets are showing regarding the performance of markets that, unlike the wireless applications market, are firmly under the jurisdiction of the Commission.  Does the FCC have information that could lead a "fact-driven" agency competitor (like the Antitrust Division or the FTC) to believe that the Commission has any "infra-marginal" markets that might look like good "acquisition targets?"

The following slide was presented by the Media Bureau to the FCC at the Commission's first open meeting at the beginning of this year.  This slide graphically illustrates the price performance of several different communications services from 1995 through 2008 vs. the Consumer Price Index ("CPI").  In the relevant time period, the CPI for all products and services (including food and energy) increased by about 38%.  During this period, the price of most major communications services--including mobile wireless service--declined in absolute terms, not just relative to the CPI.  Every service, that is, except cable television service--which increased by about three times the rate of inflation (122% vs. 38% for the CPI).   The Commission attributed this poor performance to a lack of competition in the market for subscription TV services.  Below is "Slide 5" of the Media Bureau's presentation on January 15th, and was based on data presented in the Commission's Report on Cable Industry Prices ("Cable Price Report"), which was released on the following day.
Rates-for-Communications-Se.jpg 
 So, could the FTC and/or the Antitrust Division sense an opportunity to expand their own jurisdiction?  Well, since the FCC's wireless focus seems to be on vertical integration between handset providers, wireless data applications providers (or at least one provider), and wireless service providers, does the Commission's cable data tell us anything about the effect that vertical integration (with set-top box providers and programmers) has had on the relative poor performance of cable prices?  As a matter of fact, the Commission's data does shed some light on the degree to which vertical integration is responsible for the poor performance of the cable market.
Continue reading A Funny Thing Happened . . . Part 2
August 7, 2009 2:11 AM

Cablevision Spins Off MSG, But Has the Blizzard Started?

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. . .

March 26, 2009 8:02 PM

How Content Integration Has Produced Consumer Welfare Disintegration . . . or How Come Prices Keep Going Up Even with Telco Video Entry?

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. 


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