Dec 2, 2013

There Ought To Be A Law: Using Congress To Change The Television Industry

Law Enforcement Torch Run_IMG_2916

Cord cutting is not going to change the TV industry.

Not because it’s happening really slowly, not because it appears to be mostly an economic decision made by lower income people, not because Netflix trends highest with more affluent households, the ones with titanium level pay TV packages who regard it as just another flavor of HBO.

It’s not going to change the TV industry because right now, there’s no real alternative to pay TV.

You ever hear people who’ve cut the cord for non-economic reasons? They’re always talking about how easy it is to cobble together a solution using an outdoor antenna or Aereo and some combination of Netflix, Amazon and Hulu.

“Cobble together.”

That’s the problem, right there, in those two words. The vast majority of Americans may not be happy with their pay TV service, but they’re not turning it over for something they have to cobble together. Revolutions don’t work like that. At least not in the tech world. People want a better alternative. Or at least a better-seeming one.

“1,000 songs in your pocket” was a pretty appealing proposition and so people were willing to give up CDs for iPods. So was the notion of a flat rectangular telephone that put millions of apps and websites in your pocket.

So why hasn’t the TV industry had a similar “ah-hah” moment?

The answer is pretty simple: the same people who bring you your pay TV service generally bring you your broadband service. So cut one cord, and you’re left with the other. That makes it next to impossible for anyone on the outside to innovate: in order to get the service into your house, they’ve got to rely on the very people they’re seeking to displace. And because broadband service in the US has become such an oligopoly, it’s way too profitable for anyone to willingly give it up. So of course you can cut the cord and stream hours worth of Netflix. The same way they can then impose bandwidth caps on all that streaming (it’s already happening in certain markets) so that your bill isn’t really any smaller.

And there’s nothing you can really do about that because there’s no one else for you to take your business to.

Right now there is no realistic alternative to the major broadband providers. Which is why so many “death of television” manifestos end up claiming that people are going to give up their Comcast and FIOS broadband… for free WiFi at Starbucks. Because that’s currently about it for alternatives: free WiFi at Starbucks or the free public WiFi that some cities now offer in limited locations. And if you’ve ever tried to watch even a 30 second YouTube video on free WiFi, you’ll know why that’s not really an option. (Think free hotel WiFi.)

So what is?

Well, here’s where it gets complicated. Because right now, the only realistic possibility for change is going to come courtesy of the United States government. Who have it within their power (either Congress or the FCC) to break the stranglehold the MVPDs have on broadband.

That legislation is not going to happen (if indeed it ever does) because so many people are pissed off about having to pay for 800 channels they never watch or because they can’t watch the Olympics online or because they have to use their parents log-in to watch HBO. It’s going to happen because the companies the French have nicknamed “GAFA” (GoogleAppleFacebookAmazon) have launched a major lobbying effort to make it happen.

Who stands to gain the most from the breakup of the television industry? GAFA. And who keeps getting punted every time they try? GAFA. Which is why I keep hearing so many rumors about how they’ve come to the conclusion (individually or together) that legislation is the only thing that’s going to work. Because they’ve tried all the obvious routes: GAFA have all come to Hollywood, waving their billions, only to get rejected by deals that were too expensive to be profitable or not happening at all. Partly because the entertainment industry thinks of them as the scorpion in Aesop’s The Frog and the Scorpion fable, but mostly because there’s no compelling reason to give them a good deal— as Intel recently learned the hard way, without their own broadband connection, there’s not much they can really offer in return.)

And it’s not like they haven’t tried that angle either: Google is building out something called Google Fiber, a high speed (1G) broadband and pay TV service. But they launched that service around two years ago, and thus far they’ve wired up Kansas City, with nascent forays into Austin, Texas and one or two other small cities. It’s a big country and build it yourself isn’t really a viable option, something FIOS also recently figured out: after spending billions to bring fiber optic cable to what essentially amounted to the upscale suburbs of the Northeast, they gave up on building out new territories and opted instead to fill in their existing territories.

Which leaves the federal government as GAFA’s only viable option. They need an angle, of course, because stamping their collective feet and shouting “it’s not fair!” is only going to get them so far. And it seems they’ve found that angle too, in a theory known as Net Neutrality.

Net Neutrality is the principle that all internet traffic should be treated equally and that no company should be able to pay for preferential treatment or access to bandwidth. It’s meant to protect start-ups and prevent power (aka bandwidth) from accumulating in the hands of the few. Which is exactly what GAFA will be claiming: by creating an oligopoly where access to broadband is controlled by two or three major carriers in any given market, we’ve created a situation where net neutrality is too easily compromised and thus we need to break open the system the way we once broke open Ma Bell.

The MVPDs on the other hand, have a very compelling counterargument centered around the billions of dollars they’ve invested in building and maintaining that infrastructure and the inherent unfairness of a government deciding to take that all away from them.

While both sides have extremely deep pockets with which to lobby Congress, the MVPDs generally wind up dominating the list of America’s most hated companies while GAFA are still pretty popular. A fact that should be keeping the former up at night.

What happens if GAFA wins and they get to have their own broadband pipes and the ability to set up their own pay TV services? Well that’s when the TV industry should start to see a shakeup.


On the one hand, competition is the lifeblood of innovation and the entrance of several well-liked, well-funded competitors should serve to shake things up and induce real changes in an industry that desperately needs them.

On the other, there’s the fact that we still only have one source for popular, high-production value programming and the networks and studios are not going to roll over and accede to deals that negatively affect their bottom lines. Nor should they: they are businesses, not charities. So the sweeping changes may happen in slow waves, rather than all at once. (Factor in too the long-term deals and rights agreements already in place: those can’t be trashed unless both parties agree to it.)

Nothing is a given however, especially government intervention. Which may take on many forms, including a push to build out a high-bandwidth free national WiFi network. If change is going to come to the TV industry, it will come in the form of a shakeup to our current broadband infrastructure, as closed markets have no incentive to innovate whereas open markets breed innovation. Only time will tell.

No comments: