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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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Caribbean creatives can benefit from zero rating services

Posted October 13th, 2016 in Broadband, capital, content providers, data plans and tagged , , , by Alton Drew

As a native of the Caribbean, my attention has been turning toward global trade in telecommunications markets, primarily between the United States and the Caribbean. While I have a bias toward the English-speaking nations in the Eastern Caribbean having family in that sub-region, and I was born and raised in St.Thomas, it doesn’t mean that I don’t have love for the Spanish, French, and Dutch speaking islands. I just haven’t learned the languages yet. So, paciente, por favor.

Caribbean Export recently published an outlook on Caribbean trade in 2016 and 2017. It takes $500,000 to $2,000,000 for an artist to break into mainstream music markets. Population sizes on smaller island nations force Caribbean music artists to attempt expansion into North American, Asian, and European markets. The survey points out that online streaming is one approach used by artists to sell back catalogs and new music, with 25% of revenues accounted for online. According to Caribbean Export:

“The move to online consumption of music has some significant benefits for emerging artistes.  Online streaming and sales allow the artiste to understand what types of music and artistes are popular in which markets.  This can demonstrate which market may be most relevant for them to target with their music … The Information Technology revolution of the 1990s and the advent of social media have presented a wider reach to artistes today than has ever been possible.  In the age of the Internet, success is possible where an artiste with a quality product can inspire people to share their product, thereby creating millions of impressions. In other words, the sheer accessibility provided by the Internet means that an artiste can release content directly to a global audience, but it is important to stand out.”

The global Caribbean Diaspora numbers approximately 10.7 million with four million of those immigrants living in the United States. Mobile broadband, online streaming and social media can get an artist’s content in front of this audience quickly as discussed before. I believe what can also help is a free data approach combined with other strategic partnership initiatives. For example, where a carrier like Verizon can offer free access to a Caribbean artist website without a subscriber incurring a charge against their data cap, the consumer enjoys the benefit of exposure to new music which may lead to additional sales for the artist. The subscriber is also incentivized to explore other offerings via her smartphones, offerings she hopefully will be willing to pay for.

Another benefit from this type of global trade is the creation of demand for more infrastructure deployment. Increased content and new content delivery systems will need additional fixed line and wireless platforms to run on.

The Caribbean Diaspora should look at advocating for and investing in the development of online streaming for Caribbean artists as a type of remittance program. Greater support for these artists results in greater revenues eventually returning to our homelands with the benefits of infrastructure development both in the Caribbean and here in the United States.

 

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Do the markets see an entry problem for new content providers?

On 18 February 2016, the Federal Communications Commission issued a notice of inquiry asking for comments on how regulation can best address reducing barriers to entry to the video content provider market. The Commission believes that cable companies and other multi-channel video programming distributors are in a position to impede the entry of smaller video content providers into the video market. But do video content providers really need the Commission’s help to enter the content provider market? I don’t think so. Rather than going through the twists and turns of a legal argument on whether the Commission has the authority to address the question, why not let the markets determine what content gets offered and accepted by its participants?

Take for example Netflix. Netflix started out as a supplier of rented DVDs distributed via the U.S. mail. While the company still rents out movies in DVD format, it’s its online format that Netflix is best known for today. Consumers now download video content that Netflix has a license to present or can download content produced originally by the online content provider. While its stock has taken a beating over the last twelve months, traders still look at the online video provider as competing ably with the likes of a Comcast or Time Warner’s video product.

From the programming perspective, Netflix produces original content i.e. “House of Cards”, “Orange is the New Black”, and “Marco Polo”, as a hedge, according to Morningstar analyst Neil Macker, against other content programmers that may be holding back their own content from distribution. Netflix, as a result of data captured from its user base, is able to develop or purchase content that suits its viewers’ needs. In other words, Netflix has properly reinvested its capital and other resources to provide a superior content experience as well as built rapidly on an older business model after recognizing and taking advantage of new technology.

Other content providers are going down Netflix’s path. Amazon not only distributes content via the internet but also produces its own content. Hulu is reportedly purchasing original content for distribution as well.

The Commission is running the risk of promising a more open environment for all content imaginable; sending a message that all content is created equally. The Commission is ignoring the fact that there are limited number of distribution channels, whether via cable or over-the-top, and that this natural limit in distributors will create a bottleneck through which only the content deemed attracting the greatest demand will be able to wiggle through. Content that attracts the greatest demand will draw the most see capital investment creating the vicious cycle that smaller entrants will face and the Commission naively assumes it will regulate away.