The Net Neutrality Trap

The significance of the federal court’s decision to strike down the FCC’s net neutrality ruling may not be in its effect on Netflix or Google or any of the usual suspects the inter webs are all freaked out about. No, the companies hit hardest by this lawsuit may be the ones who actually filed the lawsuit in the first place: the MVPDs.

Allow me to explain.

As I wrote last month, there has been much whispering as of late that GAFA (Google/Apple/Facebook/Amazon) have— individually or collectively— figured out that the only way they are going to have a shot of getting into the TV business is to own the means of access, e.g. broadband.

They’ve figured out that so long as they’ve got to go through Comcast or Verizon to get their programming onto people’s TVs and tablets, there’s not a whole lot of reason for NBC or CBS to sell them rights. At least not at a price point that allows them to make any money. And even if they do manage to get the content, they’ve then got to deal with potential broadband caps and other roadblocks the MVPDs will throw up to make sure they don’t steal their audience. Which, as Intel learned the hard way, is why Hollywood sees no reason to play nicely with them.

So the plan seems to be to lobby Congress to declare broadband access an unfair monopoly or oligopoly. Most people only have one or two realistic options for broadband, and those are both via MVPDs. So the plan is to use net neutrality as the crowbar with which to open the door to divestiture and open up the broadband market to new players, e.g. GAFA.

Why net neutrality? Because despite what the court may have ruled earlier this week, most Americans believe that net neutrality is fair. The opposite— letting broadband operators start charging different prices in a way that affects consumer experience is not going to be popular. So just pointing out how evil the MVPDs could be if left to their own devices— especially in light of the recent ruling—- might just be enough to get Congress to sit up and take notice.

“Could” is a long way from “will” though. There’s a strong counterargument that having invested billions in building out the nation’s broadband infrastructure, it would be criminal (or at least socialist) to force the MVPDs to surrender their broadband assets.

So divestment is far from a slam dunk.

Plan B may be for Amazon, Facebook and Apple to follow in Google’s footsteps and build out their own broadband services. While Google Fiber is currently limited to Kansas City and Provo, Utah, noted analyst Rich Greenfield expects them to expand to a major market in 2015. Should the other GAFA members follow suit, the resulting networks could provide a formidable counterweight to the current MVPD oligopoly, especially if they offered a more popular, more consumer-friendly counterweight. And that would be the change needed to launch a major disruption.

Grab your popcorn and enjoy the show.

UPDATE, 1.21.14: Today's confirmation that Verizon has purchased Intel's OnCue service and is likely going to launch a virtual MVPD, has, as Will Richmond points out, created a new wrinkle in the Net Neutrality issue: what if the the MVPDs start denying each other equal access. Will that help GAFA's argument or hurt it? I'm not sure-- depends on how over the top the battle for over the top gets. 

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

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.

Maybe.

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.

Take The Piksel Recommendation Engine Survey

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Survey ends on Saturday December 7 !!

Backdoor Saviors: Why Virtual MVPDs May Be Just What The Industry Needs To Stay Relevant

To no one’s great surprise, Intel’s attempt at creating their version of the mythical Apple TV didn’t pan out. The OnCue service - a streaming set top box and 21st century pay TV service that would replace the viewer’s current service— never came together and now Intel is looking for someone to buy it.

This week’s rumors are about Verizon and Liberty Global, with the former possibly wanting OnCue as their answer to Comcast’s X1 platform… or as a launchpad for their own VMVPD: Virtual Multichannel Video Programming Distributor-- a web only version of their pay TV service.

The allure of a VMPVD (for operators, anyway) is that they it would allow them to expand their footprint beyond their current geographic restrictions and reach a whole new set of customers. Which is why many in the industry view them as potential time bombs that could lead to all out warfare.

I’m much less concerned about that and actually see them as potential saviors for the industry, providing an outlet for all those 20something “cord nevers” much in the way that iTunes provided an outlet for millions of Napster users.

Allow me to explain.

Who is the prime market for a VMPD? Not the family of four with three big screen TVs, a home hub set top box and little inclination towards early adopterdom. Rather, it’s the 23 year old young professional who’s never home to watch live TV (outside of sports) but who understands that the only way to watch HBOGO/ESPN Live/FoxNow/The Olympics is to have a valid pay TV log-in and he’s tired of using his parents credentials to gain access.

Which is why a low-cost, low-hassle virtual package is going to prove to be very appealing.

Low cost is going to be a big factor here,  and so the Intel box, designed to be a premium product with a beautiful interface, is not going to be all that necessary. Because our target really doesn’t need a set top box of any sort as very little of his viewing is going to be live. So an app that lives on Roku or Apple TV (as well as an iPad) is going to be enough, particularly if it comes with a cloud-based DVR capable of storing about 10 hours worth of programming. (He doesn’t need more as the DVR is just a way to fill the 24 hour gap between live broadcast and VOD availability.)

What he will then have is a valid pay TV log-in for all his favorite channels along with the zero-hassle ability to tune in to CNN or NBC to watch election results, disaster coverage and the Super Bowl.

He will also go from being a “cord never” to being a loyal paying customer of Comcast, Uverse, Verizon or whoever it is he also gets his broadband service from.

Which is part two of the equation.

While there will be some initial agita over competitors launching VMVPDs in new territories, there won’t be much long term poaching of customers: you still need a broadband connection to access your virtual MVPD, and since that’s not something potential interlopers can provide, it gives the incumbents a huge advantage

Because short term deals aside, it’s always going to be cheaper and more efficient to get your service via a double or triple play package. (And don’t rule out the appeal of a single bill, which, while it may sound trivial, is actually a nice selling point.) And when it comes to pay TV, our prospect is always going to be all about cheaper and more efficient.

If the MVPDs are smart, they’ll negotiate a different set of rights for their virtual offspring, one that allows for a more Netflix-like device agnostic experience along with different package configurations, like the one Comcast rolled out last month that lets customers sign up for broadband plus HBO.

There’s still a lot to be worked out as technology changes are embraced by the masses, but the virtual MVPDs will provide the industry with a back door into the sorts of device agnostic, (partially) unbundled, forward-looking solutions consumers on the cutting edge have been asking for.

Slaves of the Internet, Here's Your Problem

I hate the word "content" and strive to use it as infrequently as possible. I find it to be emblematic of the way stories, photos, movies and TV shows have been reduced to the status of filler and it carries the assumption that the end user could care less what the content is, so long as it is "compelling," an equally nebulous term.

But there's a reason it's become so ubiquitous and that's because the internet is filled with a whole lot of "content"-- poorly written/designed/filmed/concepted content, and the truth is very few people seem to care.

That's the unfortunate response I have to Tim Kreider's much-commented-upon screed Slaves Of The Internet, Unite!

You see while I get that it sucks that people are always asking him to write and speak for free (that's my world as well) I also get that the reason that happens is that audiences don't see enough of a difference between work that's really good and work that's just okay. And if that's the case, there's no reason for anyone to pay for work that's really good, when there's an unending source of "just okay" content (and in this case, the stuff I'm referring to is aptly called "content.")

So if your goal is to put out an 800 word listicle or a "How To" service piece, the audience doesn't seem to care a whole lot about craftsmanship. They care about the bullets and the quick takeaway and that's it. They care that there was some sort of photo to catch their eye, but unless it's egregiously offensive, that's about all they'll notice.

So while it's unfortunate that the people who used to be able to make a living out of those kinds of creative endeavors (and to be fair, the work that Kreider and the people he is talking about create is far more nuanced and skillful than just 800 word listicles or stock photos) the audience for whom their work is intended just doesn't see the value of it.

Once They've Seen Paris: A Revolutionary Proposal For The TV Industry

Once you’ve gotten used to watching television without advertising, it’s really hard to go back.

That’s something the industry hasn’t really come to terms with yet, the fact that they’ve been training a whole generation (and many of its elders) to studiously avoid the very thing they use to pay the bills. It’s like having a dull ache in your leg for years and then suddenly finding a pill that makes it go away. It wasn’t life-altering pain, but once it’s gone, you realize how much better you feel without it and there’s no way you’re ever going to put up with it again.

I was thinking about this while listening to the Netflix earnings call on Tuesday. For 8 dollars a month, they’re able to make hundreds of millions of dollars a year off subscriber fees alone. And no commercials. Ever.

But how many networks are there that we’d pay 8 dollars a month for? I suspect not that many. Maybe 5 or 10 at most. The rest we could live without: we mostly watch them because they’re free or we’re bored or because they have one particular show we like. The rest is just a flyover zone, the channels you pass through when clicking from NBC to Showtime.

So here’s a radical thought: what if we turned the whole paradigm around? What if we made ad supported TV the back-up option and subscription services the premier one?

Take the CBS series Under The Dome which premiered this summer on Monday nights, with multiple commercial breaks, on CBS and then resurfaced on Fridays on Amazon, commercial free.

What if the process was reversed and the Monday night broadcast was on a service called CBS Prime that you paid $8/month to subscribe to and where you got to watch Under The Dome and other CBS series ad-free?

Viewers who didn’t sign up for CBS Prime would get to watch the show five days later for free, only with the usual eight minutes worth of advertising thrown in.

This would create two strong reasons for fans to subscribe to CBS Prime (early access and no commercials) and would still allow the show to build audience with remaining viewers, some of whom might like the show enough to sign up for CBS Prime. It would also place pressure on the networks to improve the quality of their programming so that viewers would want to sign up for the prime versions.

There are potential downsides to this maneuver: affluent audiences might just default to the ad-free services and be lost to advertisers forever (though I’d argue that this is more or less happening already, thanks to streaming, VOD and DVR.)

The industry would also be forced to admit that an ad-supported model is an inferior model and risk losing ad revenue (though again, you can argue that this is already the case with apps and it’s not hurting mobile ad revenue. Plus TV advertising still has incredible reach and services like AdTonik that tie TV spots to mobile ads can help extend that reach, while also hitting affluent audiences.)

The biggest downside would be that the Prime system would only work for a dozen networks at most and that would create a more transparent two-tier system. On the other hand, if costs were low enough and a niche network had a small-but-extremely-loyal following, the Prime system could work for them as well.

How it would work is also open for discussion: the most logical move would be an HBO-style service with a preset linear schedule, though there’s also an argument to be made for a pure VOD service that had much of the network's library already on it (ad-free) and where each new episode would be available for download at noon Eastern time on Mondays. A Netflix-style system where all episodes were released at once is also possible, though spoilers might serve to disincentivize weekly viewers.)

Given the results of Piksel's recent Binge Viewing Survey, that showed many viewers are no longer watching their favorite shows live (and thus presumably watching them without commercials) a shift in emphasis to align TV with the rest of the entertainment industry, where the free/ad-supported model is not the premium model, could go a long way to keeping those viewers happy and keep them from leaving the pay TV ecosystem. It’s a major paradigm shift, but it’s one that could work to the advantage of all parties involved.

Viewers in particular.

Beyond The Bubble

This article first appeared in Visions, a newsletter put out by our partner Civolution

There’s an apocryphal story of how the late playwright Arthur Miller, upon hearing that Richard Nixon had won the 1972 election, expressed incredulity given that “no one I know voted for him.”

That attitude persists today inside the media and tech bubble where all too often we look at the behavior of our friends who also reside inside that bubble and decide that it’s reflective of the world at large. Unfortunately, that’s just not true and can lead to some very bad decisions. But put that behavior into the right context, and it can lead to some very prescient ones.

Inside the bubble, we take it for granted that no one actually watches linear (live) TV apart from the occasional sporting event. But the reality is that over 80% of the TV watched in the US is watched live. We don’t watch commercials, so we assume no one else does either. But TV ad revenue is actually up. It’s an article of faith that “kids” all watch TV on their iPads. But most kids, even in Europe and the US, don’t have iPads or tablets to begin with, let alone use them for watching television. Many of our friends seem to be abandoning pay TV and cutting the cord in favor of a combination of Netflix and other streaming services. But there’s scant statistical evidence that this is happening on any significant basis, and a recent Nielsen study showed that Netflix actually indexes considerably higher with high income families who maintain their top tier pay TV service.

So then here’s the catch: none of these things are true today. But they will be. Maybe not in 2013 or 2014 and maybe not all of them. But that train’s already left the station, and the trends that are happening inside the bubble now, have a very good chance of happening outside of it quite soon.

Our challenge, as an industry, is to figure out how to harness those trends and make them work to our advantage. Television is as mass a medium as it gets. While smartphones and computers can feign at attracting the young and tech-savvy, we’ve got to appeal to everyone, to grandma and grandpa, to people who don’t know an OS from an OTT. And we’ve got to do that without alienating the people on the cutting edge.

The best tool at our disposal for accomplishing this task is listening. Listening doesn’t have to mean extensive research and long costly studies. It can be as basic as taking people outside the bubble into account, thinking about what they’d want to see, whether their living rooms also contain multiple iPads, let alone multiple TVs. It’s easy to assume we know what the consumer wants because we are consumers too and why wouldn’t everyone want the same things we do? That’s fatal though and it’s a problem that’s plagued the tech industry from day one, along with its cousin, “we should build it because we can.”

Television is changing, and like most changes, it will happen slowly and then all at once. Success involves staying ahead of the change, but not too far ahead that you’re waiting for everyone else to catch up. Listen to your friends and co-workers, but listen to the people outside the bubble as well. They’re the ones who are going to make or break you. Not us.