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I don’t see how the FCC set top box policy adds value to content

On 27 October 2016 the Federal Communications Commission will take up the issue of competition in the navigation device or set top box space. The Commission wants to see the video content distribution industry move from requiring subscribers use of set top boxes to the use of free apps to find content. The main driver of the proposed policy, according to the Commission, is subscriber avoidance of onerous set top box fees that allegedly average $231 a year. With today’s app and internet technology, argues the Commission, subscribers should be able to find content without paying navigation device fees.

The process for getting to a decision is driving some content developers bonkers.  According to a report in Broadcasting & Cable, some content developers are concerned about the proposal’s lack of transparency and whether the Commission will play an intrusive oversight role in contracts between content distributors and content programmers.  Contracts lay out terms for compensation and channel placement, items I would think that the Commission should not really be interested in. Rather, the Commission should be interested in whether the telecommunications sector is bringing value to the overall economy. While content creation is ancillary to the sector, without information, data, or knowledge flowing over networks, the network itself loses value.

From the content programmer’s perspective, while concerned with carving out a niche in a competitive content space, the content developer, where he can seize the opportunity, wants to recover as much of a premium as he can from his product. That means cashing in on as much exclusivity as he can. He will do this in two ways. One, produce content that generates traction. Two, make sure that given the traction, he makes the content as exclusive as possible so that he can extract higher rents. Free apps do not meet either of these conditions. Free apps providing you navigation to licensed and unlicensed content eliminates exclusivity. Content competition is increased which drives down the prices content programmers can charge. This leads to lower returns on capital. If returns on capital are seen as too low, no investment is made, no infrastructure deployed, no workers hired.

All this to save $231 a year.

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How Congress and the FCC can avoid future Section 257 proceedings

On 25 March 2016, the Federal Communications Commission circulated an item regarding a Section 257 market entry barriers proceeding. The purpose of the proceeding is to prepare and distribute a report to Congress detailing regulatory barriers to entry faced by telecommunications and information service providers. The Commission is also expected to promote policies that favor diversity of media voices, vigorous economic competition, and technological advancement.

I think the biggest barrier to information services providers is not a bunch of rules or the Communications Act itself. It is the philosophy behind describing information services; a philosophy that is still silo-based; that separates broadband access providers from websites, information portals, and search engines. All these platforms have the exchange, gathering, repackaging, and sale of data or information in common and it is time that the Commission recognize this basic characteristic of the digital jungle.

The anti-ISP posse will argue that firms like Verizon and AT&T should not be viewed as mere information service providers because they also sell access services; that content providers and consumers rely on these gateways to access information. The anti-ISP posse have a very limited point when they distinguish Verizon or AT&T from other information services based on their access services. The New York Times, an online digital content provider, may be able to hire delivery boys but it won’t shell out billions for deploying networks just to deliver one publication to their subscribers. Paying last mile, mid-mile, or content delivery networks is more economically feasible for them to get their content out. But if we treated the information markets as an exchange, I believe there is an opportunity to create a model that increases opportunities for smaller content providers while getting the Commission and probably Congress out of the business of trying to make the information markets efficient.

Congress and the Commission should explore a blended exchange/independent system operator model for internet service providers. ISPs trade on information. The information markets in this blended model would be coordinated by a “central ISP”, similar to the regional transmission or independent system operators found in the electricity markets. Carriers, such as AT&T or Verizon, would voluntarily turn over functional control of their networks to this central ISP. In order to trade on this central ISP platform, information service providers such as Facebook, Hulu, Amazon, Google, etc., would buy seats on the central ISP’s exchange, similar to a stock market exchange. As a member, the information service provider would have a say in how the exchange is managed. As long as the information service provider has the annual fee to get a seat or membership, they must be allowed to join.

Yes, I hear your next question. “But what about the lone blogger who wants to get his content out there or the start-up information service provider who can’t afford a seat?” My first response would be “value.”  My second response would be, “tough nookies.”

ISPs are looking for content of great value. Smaller content providers will have to step up their game and demonstrate to ISPs that their content should be added to the ISPs portfolio of video and text goodies. And if a content provider cannot demonstrate this value, then tough. The content provider will have to either find another way to distribute content digitally or accept that the digital content world isn’t ready for her…yet.

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Verizon to FCC: We are a media company. Leave us alone

Verizon sent another clear signal this morning to regulators and the financial markets.  We are transitioning from a broadband company to a media company.  Suppose Verizon takes it another step and also declares that they, say five years from now, will get out of the broadband access to the internet business and settle for being a channel solely for their own branded content or content that they get a license to retransmit solely on their servers?  Such a move would get them from under the Federal Communications Commission’s Title II/net neutrality rules while opening the door to smaller internet service providers to fill the broadband access to the internet market vacuum.

First, the news.  Today, The Wall Street Journal reported that Verizon Communications Inc., agreed to buy AOL, Inc., for $4.4 billion.  The purchase will be made with cash on hand and the issuance of commercial paper and make Verizon a player in the digital media content market.  According to The Journal:

“The acquisition would give Verizon, which has set its sights on entering the crowded online video marketplace, access to advanced technology AOL has developed for selling ads and delivering high-quality Web video.”

Verizon goes on to say that its principal interest in the purchase is access to AOL’s ad tech platform probably for use with Verizon’s mobile video service scheduled to launch this summer.  The service will offer snippets of video content, live sports, concerts, and on-demand programming.

Verizon and AT&T believe video content will drive demand for their wireless services as consumers, particularly millenials, (who have passed Generation X-ers as America’s largest consumer group), prefer get their content anywhere on the go, unlike their more sendentary Baby Boomer elders.

Verizon can also leverage its relationships with content providers.  For example, according to the article:

“Verizon already has relationships with many media providers because of its FiOS TV service, which is available in 5.6 million U.S. households. And it has shown prowess in mobile video already, including through a partnership with the NFL that allows it to stream some games over phones.”

It sounds like Verizon is ready to step up to being what I consider all broadband providers to be: media companies.  Regulatory wise, I think Verizon and AT&T could circumvent the FCC’s net neutrality rules by making the declaration that not only are they media companies, but they are no longer in the business of providing access to the 67,000 interconnected networks known as the internet.  Verizon instead should declare that it provides IP-access solely to its website of original and licensed content.  If you want to see “Game of Thrones”, you’ll use a broadband access provider that connects you with HBO’s website.

A broadband internet access service, according to Section 8.2(A) of the FCC’s net neutrality rules is “a mass retail service by wire or radio that provides capability to transmit data to and receive data from all or substantially all Internet endpoints, including any capabilities that are incidental to and enable the operation of the communication service, but excluding dial-up Internet access service.  This term also encompasses any service that the Commission finds to be providing a functional equivalent of the service described in the previous sentence, or that is used to evade the protections set forth in this Part.”

If Verizon describes in its service agreement that access to its particular content found on its website does not include access to the other endpoints found on the remaining 67,000 networks, should that take them out of the FCC’s net neutrality stranglehold?  I would hope so.  Yes, the FCC and the grassroots groups will still utter in their last gasps that even if this new media model held that Verizon’s subscribers would still need consumer protections, but in my opinion those protections would come under contract law and a better equipped Federal Trade Commission since Verizon and any other broadband provider opting for a new media model would fall in the category of edge provider.

Let’s shake it up a little, Verizon.  This is the right step toward bringing well needed disruption into the media market.

 

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Requiring access to cable-owned content creates a barrier to entry for smaller content providers

Yesterday Federal Communications Commission chairman Tom Wheeler announced his intent to ask his fellow commissioners to sign off on a rule that would require cable companies to provide over-the-top video distributors with access to cable company-owned content.  According to Mr. Wheeler, the intent of the rule modification is to provide consumers of content “more alternatives from which to choose so they can buy the programs they want.”

What this change to the rules will actually do is create a barrier to entry by smaller content providers.  Mr. Wheeler’s rule amendment, much like the statute passed in 1992 and its subsequent rule, will simply give incumbent content an additional platform from which to be seen.  “Law and Order: Criminal Intent” will now be seen on cable, satellite, and over-the-top video distribution.  Over-the-top providers can now take a short cut to content and forgo negotiating contracts for new content from new entrants.

For start-up, minority-owned, or woman-owned content production companies there will be a lost opportunity to showcase more of their content to over-the-top distributors.  Smaller content providers may have to reduce the price offerings for their programming just to get one of fewer remaining slots on a over-the-top’s network.

If the FCC is so concerned with competition throughout the internet ecosystem, it should let all stakeholders in the ecosystem enter into contracts on their own without government interference.  Also it should provide smaller content providers the opportunity to enter into strategic partnerships that get their product in front of the public.

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I don’t see the benefit of denying an AT&T, DirecTV merger

Posted May 1st, 2014 in AT&T, Broadband, DirecTV, spectrum, video and tagged , , , , , by Alton Drew

The Wall Street Journal today reported that AT&T and DirecTV are talking courtship.  This comes on the heels of a proposed marriage of Comcast and Time Warner.  I think the biggest difference between two mergers is that under the Comcast transaction you have  a formidable owner of content that also has distribution pipes seeking to combine with another significant provider of access.  AT&T and DirecTV don’t own any content to speak of and although, according to the article, they would rival a combined Comcast-Time Warner subscriber base with both companies providing broadband access to approximately 40 million plus subscribers, it’s still basically one video distributor getting together with a broadband company.

I don’t see how stopping the merger would improve broadband adoption.  Put another way, a merger would not prevent more people from signing up for broadband and I don’t see a combination as reducing the level of competition among broadband providers.  It should be seen by the FCC as the opposite of dampening competition.  Consumers will see two major brands combining forces to add choice in the broadband arena.

Maybe the companies can come up with some technological innovation that combines DirecTV’s satellite technology with AT&T’s fiber capability.  Dish Network chairman, Charlie Ergen, was quoted last year in Bloomberg Businessweek that a satellite company teaming with a wireless company would help meet consumer demand for seeing more video on wireless devices.  If the two combine, I would guess the next step will be a content play.  It would be the only way to truly keep up with a Comcast-Time Warner combination.

Besides, AT&T won’t hurt by having some of DirecTV’s spectrum.  No social policy violation here, FCC.  Go ahead and let it happen.