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FCC does not recognize the value cable creates for content

Recently the Federal Communications Commission released a plan for increasing the number of ways consumers can navigate video content. The Commission wants cable companies to provide pay television subscribers with a free app that allows the subscriber to access their video content. The Commission believes that at an annual amount of approximately $231 for set top boxes, households are getting hosed and that additional choice is needed in order to reduce this financial burden.

The Commission appears to be ignoring the capital side of set top box equation. No where in his plan does Commission chairman acknowledge the billions cable companies spend on obtaining licensing to programming or creating their own content.  To extract value from this content, cable companies charge consumers a positive premium for using platforms necessary for accessing the content including set top boxes. The Commission is blatantly circumventing the ability of cable companies to extract the value of the content by requiring that cable companies provide consumers with apps that allow the consumer to avoid monthly fees altogether.

The Commission believes it is correcting some type of market failure by providing consumers access to content at a reduced cost, but by interfering with a market transaction, the Commission is creating an environment that sends a false signal to content providers and navigation technology providers. Device makers may think twice about investing resources into developing hardware where the use of free apps freezes the hardware provider out of the market. Small, non-cable affiliated app developers may have second thoughts as well, especially going up against deeper pocketed cable companies or internet portal companies such as Google who can leverage its advertising revenue to provide video navigation apps for free.

In addition, with the requirement that cable companies provide free apps and the expectation that established internet portals will enter the video navigation application market, smaller entrepreneurs will have a harder time accessing capital as investors view their business model as a source of lower returns.

Sending skewed market signals and reducing small app developer access to capital doesn’t make for good video marketplace policy.

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FCC’s set top box policy displays no understanding of markets

On 18 February 2016, the Federal Communications Commission issued a notice of proposed rulemaking that would allow third parties access to a consumer’s cable television set top box (STP) to gather information that could be used to provide competitive viewing services. Specifically, the third party would have access to:

1. Information about what programming is available to the consumer, i.e., channel listing, video-on-demand lineups;

2. Information about what a device is allowed to do with content; and

3. The video programming itself.

The Commission’s rationale for allowing a firm like Google access to these information streams is that with this information, third parties could create services i.e., apps and hardware, to compete with a cable company’s STP.

Will this policy increase demand for content thus driving up prices, revenues, and returns on the capital it takes to create content? No, it won’t. What the Commission’s policy will do is create a shell game for content. It’s not clear whether there will be a change in demand for content and while alternatives for accessing content will increase incrementally, unless the policy entices more consumers to go online, the policy won’t do much for increasing economic activity in the content markets.

In addition to not creating additional demand in the content markets, the Commission ignores the competition that already exists for cable and the movement from STP to apps. Steve Pociask makes this observation in a recent piece for Forbes.com where he argues that:

“Absent the plan, cable competition already exists and its growing”, and that, “the market is currently moving away from STB to apps, but the plan would forever require STBs.”

The Commission’s proposed policy is indicative of an ongoing problem of failing to focus on the primary market that its policy impacts, in this case the content market. Where information is proprietary, the Commission should protect the content owners’ rights. Otherwise, the Commision should advocate policy that promotes content flows.

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Megaupload and willful blindness?

Honestly never heard of Megaupload before this news broke. Their services remind me of those lockers you see at airports and bus stations. You rent a box and the box owner probably warns you up front not to put anything in there that you wouldn’t want seen on the evening news.

Megaupload could probably claim that it did not know that copyright material was being uploaded and downloaded, but that would be a bit naïve on their part, especially since their technology was replacing an older, less efficient file sharing technology. The “I didn’t know” argument may not hold up against the prosecution’s argument of willful blindness, however. Time for their attorneys to take a look at the Pentalpha and Grokster cases for further guidance on litigation strategy or better yet, guidance on a settlement. Not only won’t willful blindness hold, but their file sharing business model may have induced more consumers to infringe on copyrights.

Fortunately these guys aren’t a public company or else investors would be seeing shares tank.

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I don’t mind Wikipedia’s self-imposed blackout

Posted January 18th, 2012 in Congress, copyright, Internet, SOPA and tagged , by Alton Drew

Wikipedia’s self-imposed blackout over the Stop Online Piracy Act is fine by me. When I taught at a community college, any student who cited Wikipedia qualified for an automatic “F”. I put a few papers into the shredder using that filtering system.

Let’s consider whether freedom of speech means taking another person’s copyrighted material and using it for commercial gain without so much as giving the producer of the content credit for creating it in the first place.

Yes, the Internet facilitates the exchange of information, the ease of which adds great value to the providers of the network and to those information consumers who use the network. If liberals are so concerned about transparency, however, shouldn’t the information consumer have knowledge about where this information is coming from?

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So where is the Obama Administration alternative to SOPA?

The Wall Street Journal reported last Saturday about President Obama’s discomfort with the Stop Online Piracy Act. Seems even if it passes Congress, Mr. Obama will veto it.

Is the Obama Administration saying it’s more concerned about protecting content delivered by rogue web sites? If what is currently on the books was effective against infringement on American copyrights, would this legislation have been brought forward? What alternative legislation has the Obama Administration offered?