Archives for April 2005
One Bundle, Many Antitrust Laws: The Dilemma for Digital Products
Recent news accounts on Steve Ballmer’s visit with Europe’s top antitrust official, Neelie Kroes, again brings to light the concept of software bundling. With Microsoft’s Longhorn operating system still 18 months away, we’ll have a little reprieve at least from more antitrust actions directed against MS (maybe). But what the operating system bundles (and what it doesn’t) will surely be the subject of legal attacks.
It can be easy to bundle digital products, but when is it illegal? This is a difficult question to answer, made more difficult when viewed against the global regulatory scale. In my recent article published in the Intellectual Property & Technology Law Journal, I argue that while it is easy to think of bundling as anticompetitive tying, economic justifications show that this fear is overblown. Consumers generally prefer bundled products because they offer convenience and more value for the money. That’s why EU regulators need to adopt a “rule of reason” approach toward antitrust tying cases. This is the approach that the U.S. has essentially adopted, and represents a more forgiving standard than the hard and fast per se rule.
Why bundle digital products? What are the consumer and regulatory misunderstandings toward technology bundling? What is tying, legally speaking? What’s the international impact? Answers to these and other titillating questions here.
Media Deconsolidation, Part 5: “Clear Channel to Dismantle Media Empire”
“Clear Channel to Dismantle Media Empire.” That’s the headline from pg. B1 of today’s Wall Street Journal. In the article, Sarah McBride reports that the media giant plans to spinoff its entertainment division “in the latest example of a media company deconstructing an empire built during the late 1990s.”
As I’ve noted in previous posts, media deconsolidation is all the rage these days. The list of high-profile media divestitures and divorces continues to grow: AOL-Time Warner, Disney-Miramax, Cablevision, Viacom, Liberty Media, Sony, and on and on. They all have been pondering or carrying out major spin-offs or restructuring plans in recent months. As McBride reports in the Journal today, “Clear Channel is following a media-industry trend of deconsolidation that has picked up steam recently.”
The Public Interest Tax on Communications
My latest C:\Spin article, The Public Interest Tax on Communications, corresponded with last week’s National Association of Broadcasters show in Vegas. In this article I go after a weighty subject that is somewhat abstract but directly relevant to today’s communications industry - the “public interest” legal standard. Regulations predicated upon the public interest are essentially proxies for the public’s own taste and preferences. If there was a need for this requirement early in the days of broadcasting, today’s new technologies make it unnecessary and a costly way to regulate.
The public interest standard is overly subjective for a legal standard, which results in too much political pork and special interest hijacking. Consumers would be better off if we removed this language from our communications law. My article:
NAB 2005
Last week was the annual National Association of Broadcasters show in Las Vegas. I was fortunate enough to attend, and having finally accustomed to Eastern Standard Time, here are my thoughts:
* Every regulator needs to attend these trade shows, which represent market forces working to meet whatever needs or perceived needs exist. I was truly overwhelmed by the smart people in the electronic media industry.
* Most broadcast industry reps are free speech proponents and against broadcast indecency regulation. The National Association of Broadcasters Education Foundation (NABEF) announced the creation of National Freedom of Speech Week from October 17-23, 2005.
* Digital TV transition is still a mess. The congressional breakfast featured Sen. Conrad Burns, Rep. Joe Barton, and Rep. Fred Upton among others. Barton and Upton advocated for a hard cutoff date, something needed or else the broadcasters will never return the analog spectrum.
Tech and Free Trade in International Waters
No longer just a place for “conservatarian” icons to smoke pot or a hunting ground for modern-day pirates, the international waters (just off the shore of California) will soon harbor an innovative software engineering firm, according to a great post over at CNet’s News.com. Due to ridiculous limits on H1-B visas and other regulatory hurdles, the entrepreneurs at SeaCode did what freedom-loving businessmen have done for centuries, exploit loopholes in the law. SeaCode will employ 600 software engineers from all over the globe and house them on a boat 3.1 miles off the coast of California, just over the line into international waters. The programmers will all be registered as “seamen” with the Bahamas and will be able to take advantage of shore leave without H1-Bs. Not only will SeaCode offer wages of around $1,800 a month compared to about $500 a month in India, they’ll also not have to pay U.S. payroll taxes. Sounds like a win-win situation for the programmers, SeaCode and their clients.
I’m strongly resisting the urge to make a nautically- or piratically-themed joke.
Will A Wireless Ratings Scheme Be Enough to Head Off Cellphone Censorship?
As I’ve mentioned in previous posts (here and here), the potential for cell phone content regulation is something worth monitoring. There have been some rumblings in Washington already about the need for the wireless industry to take steps to shield children from potentially objectionable material even before it hits the market. And you’d have to be a fool not to realize that at some point very soon, technological & media convergence is going to bring adult-oriented fare to mobile devices. The question is, once that happens, will regulatory convergence follow technological convergence? More specifically, will broadcast TV and radio “indecency” controls be imposed on wireless content in coming years?
How Google and the Internet Are Challenging Traditional Media
[[cross-posted from the PFF Blog]]
There’s a crowd of people out there who still think that nothing has changed in our modern media world. They think that the same old newspapers, television, and radio outlets that dominated the media marketplace 30 years ago are still the only media outlets of importance today.
For example, Farhad Manjoo of Salon claims that “it’s hard to find anyone in the media world… who can furnish proof that new technologies are shaking the foundations beneath entrenched media giants. If anything, the Web and cable and satellite have expanded the reach of media conglomerates.” Using similar conspiratorial rhetoric, FCC Commissioner Michael Copps argues that “those who believe the Internet alone will save us from this fate should realize that the dominating Internet news sources are controlled by the same media giants who control radio, TV, newspapers, and cable.” And the ever-pessimistic Mark Cooper of the Consumers Federation of America has complained that “the Internet has not lived up to its hope or hype. It has become more of an extension of two dominant, 20th century communications media [television and telephony] than a revolutionary new 21st century technology.”
To these critics, left me just respectfully say, get a grip! Wake up and take a whiff of reality because the media world has already changed in amazing ways and the Internet and cyberspace ARE shaking the foundations of traditional media.
“Hill Ponders Regulating Convergence”: A Note on the Proper Way to Solve “Level Playing Field” Concerns
Yesterday’s House Telecommunications Subcommittee hearing confirmed some of my worst fears about government regulation of new technologies / media, which I had discussed on Tuesday in this post.
Today’s Broadcasting & Cable includes a story about the hearing with the perfect title: “Hill Ponders Regulating Convergence.” That’s exactly what’s going on here with Congress and the FCC considering how to “level the (regulatory) playing field” as everyone tries to get into everyone else’s business. Illinois Republican John Shimkus is quoted in the story and what he said also frames the issue quite nicely: “How do we restructure the FCC to meet the new technological age. How do we justify different regulatory schemes when you are all competing in broadband.”
New PFF Analysis of S. 616, the “Indecent and Gratuitous and Excessively Violent Programming Control Act of 2005″
PFF has just released my new PFF paper on the rising threat of cable and satellite censorship. In the paper, I provide a section-by-section analysis of the leading pro-censorship measure, S. 616, the “Indecent and Gratuitous and Excessively Violent Programming Control Act of 2005.” My analysis of the bill can be summarized as follows:
* Section 2’s pervasiveness rationale has never been applied to newspapers and the Internet, and would be constitutionally suspect for cable and satellite.
* Sections 4, 7 and 8 would impose mandates on warning systems and filters deployed voluntarily by programmers. These efforts might best be grouped under the theme ‘hanging the industry with its own rope.’ Ratings systems are subjective, and government shouldn’t have any say over them.
* Section 5’s significant fines would carry the “clear as mud” indecency enforcement to cable and satellite, expanding the current confusion on what is appropriate.
* Section 6 would potentially abrogate contracts between national networks and their TV affiliates by forcing networks to expand veto power over programming, despite the fact that local affiliates already have significant influence.
* Section 10’s proposal of a return of a “voluntary” code of conduct seems far from voluntary, with an implicit “or else” attached.
* Section 11 would exempt premium and pay-per-view channels, but what happens if S-616 forces popular content onto these networks and viewers follow? Would they then be regulated as well?
Please read the paper for more details. While the entire bill may not pass, given the atmosphere on the Hill and at the FCC today, portions of S. 616 could easily become law in coming months and years.
Who Needs the Internet When You Have a Pencil and Paper?
A story linked from Drudge describes a new service that Google is offering: saved search history. Create a Google login, and the search service will keep track of all your searches, as well as the results that you’ve clicked-through to access. Anyone who has used Westlaw or Lexis-Nexis will find the idea familiar–those services have offered it for years.
Reaction, however, has not been uniformly positive. Once again the privacy wingnuts (so said to distinguish them from from people with legitimate concerns about privacy) are all worked up:
“It’s really a bad idea,” said Dixon, executive director of the World Privacy Forum. “If you need to keep track of your past searches, I recommend using a notebook. It would be a lot more private and a lot less risky.”
Had Google or any other operator of a web server some kind of malicious intent, it could keep track of every page you access on its servers and every search term you send to it. If you’ve ever sent them your email address or some other personally identifying information–then bingo, they’ve got you! For better or worse, this is the way that computer networks work, barring those that employ extremely complex, unreliable, and slow misdirection technologies. Dixon might as well caution users to stay away from the Web altogether, because the privacy implications are about the same as Google’s new service.
Still, she is right that some people don’t like like to divulge any information at all, ever, whether they’re using a computer network or boarding an airplane. At least in the case of Google, as opposed to boarding a flight, these people have options: they can choose not to use the search history service, not to use Google at all, or even not to use the Internet, period.
But the people who harbor such concerns are clearly on the fringe; the success of online services testifies to that. These are the sort of people who exclusively use anonymous proxies to access the Internet and send all their email encrypted. The really radical ones live “off the grid” altogether and pay for everything in cash. These are not normal computer users–who do take their privacy seriously but have proven more than willing to divulge certain bits of information when there is a payoff to doing so. All of us make that compromise every day when we access the Internet.
So Dixon is right that some people might want to think twice about Google’s search history service. Normal users, however, will probably make their decision based solely on whether it’s useful to them. And that’s the way it should be, that users get to choose what they’re willing to accept.
What this episode reinforces, though, is that privacy “advocates” like Dixon don’t really speak for normal users but for the paranoid. Whether their paranoia is legitimate–who’s to say? But the next time that privacy advocates come out calling for government controls on innovative technologies–a regular occurrence–remember that their concerns are likely far different from yours and those of most users.
More on Cellphone TV Regulation
As I mentioned in a previous post, cellphone television is coming and that raises the interesting question of whether cellphone censorship will follow.
The New York Post has a short article today about the new race to develop a standard for cellphone video transmission. The article quotes Neil Strother, an analyst with In-Stat, a Scottsdale, Ariz., tech research firm, saying: “It’s a technology that’s here. But I think it’ll be about four years before it becomes mainstream.”
So cellphone video is coming quicker than anyone expected and the question now is whether the government will attempt to expand “indecency” regulations to cover it, much as they are currently trying to do for cable and satellite television.
Your Telephone Company Will Be Your Next Cable Company
[[cross-posted from PFF Blog]]
Verizon announced yesterday that it has struck a major deal with NBC Universal to carry all of NBC’s 12 cable networks on Verizon’s new fiber lines. This comes on the heels of Verizon penning deals with cable giants Discovery Communications and Liberty Media’s Starz Entertainment Group to carry the networks produced by those programmers. Now that they’ve got their foot in the door in a major way, expect Verizon to sign waves of programmers up for carriage on their new fiber networks.
Let’s step back for a moment and think about this. Verizon–one of the nation’s largest and most respected telecom operators–is about to become a full-fledged multichannel video operator. Since the mid-90s, telecom operators have been trying to figure out the best way to bust into the video market, but the numbers (or the technology) just didn’t work out right. Now the stars are aligned properly and telcos like Verizon are itching to jump into this market to justify the billions they are investing in those speed-of-light fiber systems. More importantly, the telcos know they have to do this NOW to stop the further hemorrhaging of customers to cable operators, which can now offer a communications “triple play”: voice, video, and data–all over a single line with a single bill.
Do Regulators Read the Papers? The Blockbuster Antitrust Fiasco Revisited
A few weeks ago, video rental giant Blockbuster announced it was abandoning its effort to acquire rival Hollywood Video after Federal Trade Commission (FTC) antitrust officials made it clear they would likely block the deal.
As I mentioned in a post prior to that announcement, this represents a classic example of how backward-looking antitrust policy can be at times. In particular, rarely has a case gotten the “relevant market” for purposes of market power analysis so completely wrong.
The idea that Blockbuster and Hollywood Video only compete against each other is absolutely absurd. To make that claim, antitrust officials are essentially arguing that the relevant market in this case is a niche of a niche of a niche. That is, apparently they believe that the relevant market here is:
(a) the market for video programming;
(b) in which you rent the video programming;
(c) in which you rent the video programming on a piece of tangible plastic;
(d) in which you get in your car and drive to a store to rent the video programming on a piece of tangible plastic.
This is just crazy. Is that really the relevant market in a world in which 85% of all households subscribe to cable and satellite television services and have access to a 500-channel universe of video programming? On those cable and satellite networks, consumers can also gain access to dozens of a la carte video-on-demand (VOD) movies and programs.
The Internet is also increasingly offering an array of video download services, including the popular Movielink.com site. An article on page B1 of today’s Wall Street Journal also mentions how many Bell companies are preparing to roll out IPTV (Internet protocal TV) services with their new fiber networks.
And how about Netflix, which has single-handedly upended this entire business and forced the traditional vendors to abolish late fees? And even if your relevant market is just the good old tangible plastic video store, don’t you think WalMart has a bearing on market price? After all, there are bins of DVDs at WalMart that include new movies for less than $10 bucks. Hell, why rent when you can own for almost the same amount of money?
Don’t these other providers and technologies count as competitors? Why not? As Mr. Spock would say, this is highly illogical.
From Luxury Item to Disposable Good: The Amazing $29 DVD Player
So I drove over to CompUSA late last night for a special 10-till-Midnight sale. (Yes, I’m that big of a dork… but hey, I needed a new laptop and they had some good sales).
When I walked through the door, there was a mob standing around a giant bin fighting each other for a chance to grab one of the DVD players inside. After the commotion died down and all of the DVD players were picked over, I went over to see what the big deal was. Incredibly, CompUSA was selling brand new progressive scan DVD players for $29.99.
Now to explain to you how incredible this was to me, you have to understand that I’m one of those idiots called an “early adopter.” Yes, I’m the guinea pig who buys every new technology right out of the gates for outrageous prices just so I can be the first kid on the block with the hot new toy in town. Back in 1993, I was one of the first people to buy Onkyo’s hot new laser disc player–you remember those old discs that were as big as LP records and that you had to flip them over to continue to watch even short movies? Well, I threw down $1000 bucks on one of those suckers. It was rendered obsolete by the rise of DVDs just a few years later, and yes, I bought one of the first DVD players to hit the market too. This one was around $1000 bucks as well. And later this year I plan to throw down even more insane amounts of cash to be one of the first to grab a Blue-Ray high-def DVD player. So I’m not just the sucker that’s born every minute, I’m a reborn sucker every few years. The industry loves spend-happy idiots like me.
So, anyway, there I am in CompUSA late last night staring at the empty big of $29 DVD players and thinking to myself just how amazing that was. Not just because I paid so much more for my first one a few years ago, but also because of how fast the market had brought the price of these devices down below the cost of a good steak at Morton’s. (I had had a steak at Morton’s earlier in the day that cost $34 bucks. It was the cheapest one on the menu!)
Moreover, at a price of $29, that means that DVD players are now almost as inexpensive as the DVDs that they play! In fact, on a rack right next to this bin of $29 DVD players was a stack of “Lord of the Rings” special edition DVDs that actually cost more than the DVD players. (Also, in another bin, CompUSA was selling brand new LCD computer monitors for $120 bucks. Insane!)
Am I the only person that finds this absolutely amazing? I wonder what all those people who complain about a “digital divide” in this country would say about this.
P.S. Proving yet again what an idiot I am, I bypassed all the great sales on sub-$800 computers last night and shelled out over $2000 bucks on a state-of-the-art new Toshiba multimedia laptop. I’m sure the same model will be selling in a bin next year for $400 bucks. Somewhere in Tokyo, an account executive is laughing about people like me right now.
Boomerang Politics: Cable Industry Fights for Regulation
Kyle McSlarrow is, by all accounts, a good guy. I even voted for him when he ran unsuccessfully for Congress in my district a few years ago. It was a tough district, against a tough incumbent. That political challenge, however, was nothing compared to the challenges he now faces as cable’s man in Washington. The industry is threatened with regulation on numerous fronts–local governments are fighting for the right to regulate its Internet and telephone services, the new FCC chairman is talking of regulating cable tiering, and Congress is pushing to extend indecency censorship to cable.
Faced with these threats, McSlarrow–in his opening speech at NCTA’s recent annual convention–argued favor of regulation. Moments after making the case for minimal regulation of cable as it moves into the telephony business, saying that “we must avoid reflexively applying the traditional rules of the road” to this new service, he turned around and called for reflexively applying the traditional rules of the road to telephone companies who want to provide video. Specifically, he said, should be “required to make service available to all residents.” NCTA’s VP was even more direct, saying providers “must abide by certain social obligations, including building out entire communities, and not red-lining or cream-skimming.” (Reported in Tech Daily, April 13).
Such requirements, of course, have long discouraged new entrants into cable, and could end prospects for telco’s to provide video. Since telco franchise areas don’t track cable franchise areas, imposing these requirements could add billions to the cost of telco video, making it cost-prohibitive.
NCTA of course, knows that. But the strategy will likely boomerang. By arguing for regulation in this case, it will only encourage politicians to wield a stronger regulatory hand in other areas too–to cable’s detriment. Moreover, if potential competition to cable is thwarted, cable loses its best substantive argument against regulation of its business.
Of course, NCTA’s inconsistency is nothing new in Washington. As anyone who’s followed telecom lobbying for more than a week or so knows, industry lobbyists routinely argue for policies that help them gain a “fair advantage” over their rivals. It’s probably too much to expect industries to support free-markets policies (however rational) when it conflicts with their self-interest. But it is puzzling to see them supporting policies that will end up hurting them.
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