Writing over at the conservative Big Government blog (part of the Breitbart.com network of blogs), someone who goes by the pseudonym “Capitol Connection” has posted an editorial about the debate over retransmission consent reform that is full of misinformation and misguided policy prescriptions, at least if you believe is truly limited government. The piece is entitled, “Big Cable Would Prefer if You Paid Their Bills,” and the problems are almost immediately evident from that headline alone.  First, what is a supposedly small government-oriented blog doing using a silly label like “Big Cable” to describe a vigorously competitive sector of our capitalist economy? Using terms like “Big Cable” is a silly lefty tactic. Second, no one in the cable industry is proposing anyone “pay their bills” except for the customers who enjoy their services. Isn’t a fee for service part of capitalism?

Anyway, that’s just the problem with the title of the essay. Sadly, the rest of the piece is filled with even more erroneous information and arguments about the retransmission consent regulatory process as well as the bill that aims to reform that process, “The Next Generation Television Marketplace Act” (H.R. 3675 and S. 2008). That bill, which is sponsored by Senator Jim DeMint (R-SC) and Rep. Steve Scalise (R-LA), represents a comprehensive attempt to deregulate America’s heavily regulated video marketplace. In a recent Forbes oped, I argued that the DeMint-Scalise effort would take us “Toward a True Free Market in Television Programming” by eliminating a litany of archaic media regulations that should have never been on the books to begin with. The measure would:

• eliminate: “retransmission consent” regulations (rules governing contractual negotiations for content);
• end “must carry” mandates (the requirement that video distributors carry broadcast signals even if they don’t want to);
• repeal “network non-duplication” and “syndicated exclusivity” regulations (rules that prohibit distributors from striking deals with broadcasters outside their local communities);
• end various media ownership regulations; and
• end the compulsory licensing requirements of the Copyright Act of 1976, which essentially forced a “duty to deal” upon content owners to the benefit of video distributors.

This represents genuine and much-needed deregulation of a market that has been encumbered with far too much top-down control and micro-management by the FCC over the past several decades. To be clear, none of these rules apply to any other segment of our modern information economy. Every day of the week, deals are cut between content creators and distributors in many other segments of the media industry without these rules encumbering the process. The DeMint-Scalise bill is an attempt to get big government out of the way and let these deals be cut in a truly free market without regulators putting their thumb on the scale in one direction or the other.

Thus, it came as a bit of a shock to me to see a blog that rails against and is self-titled Big Government suggesting that we should retain a form of big government regulation! Indeed, the author gets the intent of the DeMint-Scalise bill exactly backward. The author says the The Next Generation Television Marketplace Act:

would strip broadcasters of their ability to negotiate in the free marketplace. Some cable operators, it turns out, would love to provide Americans with the quality content American broadcast companies churn out. They just don’t happen to want to pay for it.

The author of the piece also says that cable industry representatives:

are lobbying in Washington for key provisions in legislation that would that would allow the Federal government to intervene in what is otherwise a sound, private sector marketplace that benefits consumers each and every day. And they’re doing so under the guise of “deregulation.”

This is all utter poppycock. While I am sure that the cable industry would love to get all that content free of charge, that’s not what the DeMint-Scalise bill would do. It doesn’t end free-market contracting; it bolsters it. Again, the bill would get the government out of the business of setting rules for how these deals get cut and instead allow these big boys to come to the bargaining table and hammer out these deals on their own.  That is called deregulation and true capitalism!

The author of the misguided Big Government editorial seems to be resting their case on a letter that the American Conservative Union (ACU) sent to members of Congress in late March. I addressed the claims found in that letter in this essay and pointed out that ACU had almost everything exactly backward. Both the ACU letter and the Big Government essay just keep erroneously assuming that the end of the regulatory retrans process means that “broadcasters [will] be forced to simply give away their signals and content.” Again, nothing could be further from the truth. As I noted in my response to the ACU letter:

nothing in this bill forces content creators or broadcasters to deal their content to other distributors. And nothing in the bill gives those other video distributors the right to freely distribute content without the permission of its owners. In sum, the bill does not repeal copyright law — it only repeals the compulsory licensing rules that force content owners to deal their programming against their consent on government regulated terms.  That means copyright is actually strengthened under this bill and that content owners have more bargaining power than they do today. Thus, the ACU is horribly mistaken in asserting that the DeMint-Scalise bill would “allow an uncompensated use of broadcast signals and content.” The exact opposite is the case.

Finally, if nothing else convinces the folks at the Big Government blog and the ACU of the error in their thinking, consider this: The preservation of the current retransmission consent regime and all its corresponding regulations means the preservation and growth of the Federal Communications Commission as a federal regulatory agency overseeing the information economy. Is that a truly free market-oriented position? Do we need federal bureaucrats overseeing free market contractual negotiations in this or any other sector? Because that’s what the law allows today. By contrast, the DeMint-Scalise bill offers us the chance to finally get real deregulation rolling and get FCC downsizing back on track. You will never get a smaller FCC by advocating the retention of regulation.

Thus, I think it’s pretty clear which approach is the most liberty-enhancing. I hope, therefore, that the ACU and the folks at the Big Government blog will reconsider their position.

Unshackling a market from obsolete, protectionist regulations can be a very challenging undertaking, especially when the lifeblood of a regulated industry is at stake. The latest push for regulatory reform to encounter the murky waters of modernization is the “Next Generation Television Marketplace Act.” The ambitious and comprehensive bill, introduced by Rep. Steve Scalise and Sen. Jim DeMint in their respective chambers of Congress, aims to free up the broadcast television market. The federal government’s hands have been all over this market since its inception, overseen primarily by the FCC, pursuant to the Communications Act.

The Next Generation Television Marketplace Act (“DeMint/Scalise”) is a bold and laudable bill that would, on the whole, substantially free up America’s television marketplace. But one aspect of the bill—its abolition of the retransmission consent regime—has sparked a vigorous debate among free marketers. This essay will explain what this debate is all about and why policymakers should think twice before getting rid of retransmission consent.

Toward a Free Market in Television

The DeMint/Scalise bill takes an axe to many of the myriad rules that stand in the way of a free market in television programming. As Co-Liberator Adam Thierer recently explained on these pages, the bill’s many provisions would among other things get rid of the compulsory licensing provisions in the Copyright Act that empower government to set the rates cable and satellite (“pay-TV”) providers must pay to retransmit distant broadcast signals. It would eliminate the “network non-duplication” rule, which generally bars pay-TV providers from carrying out-of-market signals that offer the same programs as local broadcasters. The bill would also end the “must-carry” rule that forces pay-TV providers to retransmit certain local broadcast signals without receiving any compensation.

These are just a few of the many provisions of the DeMint/Scalise bill that would substantially reform the Communications and Copyright Acts to foster a free video marketplace and bring television regulation into the 21st century. (For a more in-depth assessment of the positive aspects of the DeMint/Scalise proposal, see Adam’s informative Forbes.com essay, Toward a True Free Market in Television Programming; Randy May’s superb Free State Foundation Perspectives essay, Broadcast Retransmission Negotiations and Free Markets;” and Bruce Owen’s FSF essay, The FCC and the Unfree Market for TV Program Rights.)

What DeMint/Scalise Means For Retransmission Consent

While most of the DeMint/Scalise bill’s provisions are unequivocally pro-market and pro-consumer, some free marketers have criticized the bill because it would repeal the current statute that provides for “retransmission consent.” Retransmission consent, which Congress enacted by overriding President George H.W. Bush’s veto of the 1992 Cable Act, affords broadcasters an attenuated property right that entitles them to bar local pay-TV providers from retransmitting their signals without broadcasters’ permission—thus forcing negotiation over whether broadcasters should be paid for their content. Some broadcasters don’t elect to exercise this right, and instead demand that local pay-TV operators carry their signals pursuant to the “must-carry” rule. (Many unaffiliated broadcasters that transmit low-value programming elect to exercise must-carry because they recognize pay-TV operators are unlikely to pay retransmission fees.)

The current retransmission consent regime, which Congress created in 1992, is plagued with complex regulations that undermine free market negotiations. As Adam and Randy have explained, many of these regulations—including network non-duplication, syndication exclusivity, and must-carry—tilt the playing field in broadcasters’ favor, enabling them to earn hefty retransmission fees from cable and satellite providers that almost certainly exceed the fees they’d earn in a free market. This wealth transfer translates into higher monthly bills for pay-TV subscribers, and may enable some broadcasters to reap profits (economic rents) they would not otherwise enjoy.

The DeMint/Scalise bill would eliminate many of the existing rules that distort retransmission negotiations between broadcasters and pay-TV operators. In doing so, however, the bill would also eliminate the retransmission consent regime in its entirety. This has invoked the ire of some conservatives, such as the American Conservative Union (ACU), which recently sent a letter to Congress opposing the bill’s retransmission consent provisions.

But two venerable free market tech policy icons disagree with the ACU: Adam Thierer, writing on these pages, and Randy May, writing on The Free State Foundation blog. Adam argues that “ACU has mistakenly equated the retransmission consent regulatory process with an actual free market contracting process.” Randy argues that if the DeMint/Scalise bill were adopted, “[b]roadcasters would . . . continue to be paid for carriage of their signals – unless they choose to withhold the carriage rights because they don’t like the amount of compensation offered.”

I wholeheartedly agree with Adam and Randy that ACU’s characterization of the current regime as a “functioning market” is inaccurate. Nonetheless, ACU is right to worry that the retransmission consent provisions of the Next Generation Television Marketplace Act may undermine private bargaining. In particular, the bill appears to strip broadcasters of the authority to withhold carriage rights from pay-TV providers. Page 2 of the bill (PDF of bill text) states that:

Section 325 of the Communications Act of 1934 (47 U.S.C. 325) is amended . . . by striking subsections (b) and (e)

In striking these two subsections, the bill would restore 47 U.S.C. § 325 to its state prior to the enactment of the 1992 Cable Act—the law which established retransmission consent as it exists today.

On one hand, this would eliminate many onerous provisions, including the must-carry rule and the “good faith” negotiation requirement. But striking these subsections would also eliminate the legal authority that underlies broadcasters’ ability to withhold carriage rights from pay-TV operators. Under pre-1992 law, as the Senate Commerce Committee’s report on the Cable Act explained, “cable systems need not obtain consent from broadcast stations for retransmission of their signals, based on the reference in section 325 of retransmission by broadcasting stations.” S. Rep. No. 102–92, at 35 (1991). In other words, if 325(b) goes away, so does retransmission consent as we know it.

Retransmission consent is not without its critics. Some argue that broadcasters don’t deserve the right to exclude local pay-TV operators from retransmitting their signals, as subscribers can already freely watch over-the-air broadcast signals by simply putting up an antenna. Pay-TV providers simply retransmit broadcast signals without alteration and with advertisements intact, the argument goes, so why should broadcasters be able to demand compensation from pay-TV providers?

While this argument has rhetorical appeal, it ignores the economic realities of the modern television market. Today, unlike in the 1970s, a tiny percentage of viewers watch broadcast television over-the-air. The tiny minority of households with antennas pay no subscription fees, unlike the majority of viewers who pay a fee for a cable or satellite subscription. Broadcasters that demand retransmission fees from pay-TV operators are simply charging viewers who are willing to pay more than viewers who aren’t. This practice, known as price discrimination, ultimately benefits low-income families who rely on over-the-air signals by allowing them to view programming subsidized by pay-TV subscribers.

Copyright Versus Retransmission Consent

So what about content owners? Their legal rights, unlike those of broadcasters and pay-TV providers, arise primarily out of the Copyright Act, not the Communications Act.

While the DeMint/Scalise bill would eliminate the Communications Act’s retransmission consent provisions, it makes only minor changes to the Copyright Act—which, of course, prohibits most unauthorized public performances of copyrighted works, including television broadcasts. So copyright owners would retain the right to bar pay-TV providers from retransmitting their television shows without permission. (Indeed, in one sense, content owners would enjoy greater copyright protection under the bill, as it eliminates several limitations on copyright liability currently provided to secondary transmissions by cable and satellite providers.)

If the bill is enacted, therefore, pay-TV operators wishing to retransmit broadcast signals may no longer need to get permission from the broadcaster—but they’d still need permission from program owners to retransmit signals that contain copyrighted content. While broadcasters themselves own the rights to some of the programs they typically air—including local news shows and, in some cases, exclusive syndication rights for their area—the vast majority of broadcast television content is owned by third parties such as broadcast networks, production companies, syndicators, sports leagues, and the like. (Although the Copyright Act confers protection on compilations of copyrighted works in certain cases, whether broadcasters’ programming choices enjoy copyright protection is unclear. See 2 Patry on Copyright § 3:64.)

Before 1976, cable providers were free under federal law to retransmit local and distant broadcast signals without permission from the broadcaster or the rights holder. In 1976, Congress overhauled the Copyright Act to define public retransmissions of broadcast signals as “public performances” (which if containing copyrighted material generally require permission from the rights holder).

At the same time, however, Congress also created a compulsory license permitting cable providers to retransmit certain distant broadcast signals so long as they paid royalties to the Copyright Office (which in turn doles out payments to rights holders as it sees fit). The law also permitted cable providers to retransmit broadcast signals locally without paying any royalties to rights holders.

The DeMint/Scalise bill would leave intact the 1976 Copyright Act’s definition of “public performance,” while repealing not only the compulsory licensing system that currently governs retransmissions of distant signals but also the provision exempting pay-TV providers’ retransmissions of local signals from copyright liability. If the bill were enacted, owners of broadcast programs would gain the ability to freely negotiate rates with pay-TV providers, instead of relying on the rates set by the Copyright Office.

Consensual Retransmission—Or Unjust Enrichment?

How would the dynamics of the video marketplace shift if DeMint/Scalise were the law? For one thing, broadcasters would hold far fewer cards, losing the regulations that benefit them, such as syndication exclusivity, network non-duplication, and most importantly, retransmission consent. Pay-TV operators, many of which currently pay substantial retransmission fees to broadcasters, might seek out less costly sources of popular network television shows—perhaps by dealing directly with major networks. But would the networks play ball? Or would they rather leave today’s market structure intact and continue dealing exclusively with broadcasters? It’s hard to say.

Imagine that some large pay-TV providers succeed in inking deals with networks and other rights holders to publicly perform the same programs that broadcasters carry. On one hand, this disintermediation of broadcasters might benefit consumers, especially if it translates into lower fees (and, hence, more content choices and/or lower television bills). Indeed, a major selling point of the DeMint/Scalise bill is that it would enable an array of creative economic arrangements between pay-TV providers and content owners that are verboten under current law.

But disintermediating broadcasters in this manner may have a dark side.

Imagine cable provider CableCo reaches a licensing deal with commercial network NetworkCo to display the network’s primetime content to CableCo’s subscribers nationwide. CableCo, recognizing that its subscribers are accustomed to watching primetime network content originally transmitted by their local broadcaster, decides to continue retransmitting the local signals that independent NetworkCo affiliate stations broadcast in each market.

Although CableCo’s paid subscribers derive some value from these local signals, CableCo doesn’t compensate the local broadcasters whose signal it retransmits, since the Communications Act no longer enables broadcasters to demand retransmission fees. (To avoid copyright infringement liability, CableCo might replace all timeslots that contain local news shows—which are created and owned by each affiliate station—with syndicated programming.)

Is this scenario—which could conceivably occur if DeMint/Scalise were the law—an acceptable free market outcome? Absolutely, argues Professor Bruce Owen, a veteran telecommunications policy guru, who wrote the following in a recent Free State Foundation Perspectives essay:

Unlike program producers and networks, TV stations do nothing to “earn” this right, and the benefits to them are not rewards for innovation or production of valuable services. The economic value of a retransmission right comes solely from the ability of its owner to extract cash (or carriage) from cable systems and other multi-channel video program distributors (MVPDs). In fact, now that nearly everyone gets all TV signals by cable or satellite or Internet, broadcast stations are largely useless relics of a bygone technology, and the spectrum that is still reserved for their use has far better and more valuable uses.

But if Professor Owen is correct in arguing that broadcasters “do nothing to ‘earn’” the right to exclude others from retransmitting their signal, why is abolishing retransmission consent necessary? If broadcasters do nothing to enhance the value of the content they carry, the proper public policy response is to repeal the regulations (e.g., network non-duplication, syndication exclusivity, must-carry) that empower broadcasters to take a cut of exchanges that would otherwise occur directly between pay-TV providers and content owners. Without such rules in place, retransmission consent would be a dead letter (albeit technically intact) because pay-TV providers would simply obtain programming directly from the source.

What if Professor Owen is mistaken? Consider that many broadcasters work to differentiate their broadcasts from those carried by distant stations affiliated with the same network. For instance, some broadcasters overlay localized messages warning of impending perilous weather during primetime programming. Broadcasters sometimes display tickers (or “crawlers”) underneath network and syndicated shows, displaying such information as local sports scores, school closings, and election results. Some broadcasters select and display local ads during commercial breaks (in addition to national ads selected by networks). Although these alterations may in some cases enjoy copyright protection, facts cannot be copyrighted, nor can works that lack “originality” or “creativity.”

Unfortunately, we don’t know how much economic value (if any) these “signal enhancements” add to the underlying programming. Fortunately, the market can answer that question—assuming, of course, well-defined property rights exist and regulations do not mandate exclusive dealing or otherwise obstruct voluntary marketplace negotiations.

If retransmission consent is abolished, however, broadcasters’ ability to exclude others from free riding on their efforts will be severely diminished. Is this a problem? To the extent that broadcast signals possess some incremental value beyond that embodied in the programming they carry, the DeMint/Scalise bill tilts the scales in favor of pay-TV providers, and may enable them to reap economic rewards that would otherwise accrue to broadcasters.

This form of free riding offends the longstanding common law equitable principle of unjust enrichment, which holds that “[a] person who is unjustly enriched at the expense of another is subject to liability in restitution.” If pay-TV providers are free to monetize the efforts of broadcasters without permission or compensation, broadcasters may under-invest in signal enhancements. (For more on this issue, see Shyamkrishna Balganesh, The Social Costs of Property Rights in Broadcast (and Cable) Signals, 22 Berkeley Tech. L.J. 1303 (2007)).

If, as Randy May argues, consumers are best served by “[p]rivate bargaining, in which the parties know their own interests, and can contract freely,” then Sen. DeMint and Rep. Scalise should consider reforming the retransmission consent law, instead of gutting it in its entirety.

To do so, instead of repealing 47 U.S.C. § 325(b), DeMint and Scalise could rewrite the subsection to get rid of the must-carry and the good faith negotiation requirements while leaving retransmission consent intact. They could also strip the FCC of its existing authority to meddle with retransmission negotiations and instead create a private right of action for broadcasters to obtain recourse in federal court for unauthorized retransmissions. That way, if a pay-TV provider were to retransmit a broadcaster’s signal without permission, the aggrieved broadcaster could recover any profits the pay-TV provider earned as a result of the unauthorized retransmission.

The Long Run: Spectrum Liberalization

As policymakers work to liberalize the airwaves to ensure market participants put spectrum to its most highly valued uses, there may come a day when television broadcasting as we know it ceases to exist. Meanwhile, however, policymakers would be loath to lose sight of the basic principles that underlie free markets—voluntary exchange, property rights, and regulatory neutrality—in governing the television marketplace. Whatever one thinks about broadcasters’ public policy advocacy in general, two wrongs don’t make a right; the merits of protecting attenuated property rights in broadcast signals should stand on their own.

Broadcasters have long argued their efforts serve consumers and generate value for society. If they’re right, they deserve to reap the rewards of the value they create. Retransmission consent provides the means by which they may do so.

It’s high time for Congress to liberalize the television marketplace to bring it into the 21st century. Sen. DeMint and Rep. Scalise’s bill would, if enacted, mark a major step toward a freer video market. However, their bill could be improved by leaving retransmission consent intact.

Imagine the following scenario. The government passes a law that includes regulations governing “transactional consent” for retail commerce. These regulations stipulate how buyers and sellers of various goods shall do business. Some of the rules give the sellers special rights to demand that the stores carry some of their goods as well as rules stipulating that stores not carry the goods of competing sellers from other markets. On the flip side, other preexisting rules give buyers the right to demand that certain sellers deal their goods to them at regulated rates.

Now, it’s true that a contractual negotiation takes place in this “marketplace” governed by ”transactional consent” regulations, but does this sound like a truly free market to you? Most of us would say No.

Regrettably, that’s the essential error that the American Conservative Union (ACU) makes in a letter they sent to members of Congress this week in which they made the case against H.R. 3675 and S. 2008, “The Next Generation Television Marketplace Act.” That bill, which is sponsored by Senator Jim DeMint (R-SC) and Rep. Steve Scalise (R-LA), represents a comprehensive attempt to deregulate America’s heavily regulated video marketplace. In a recent Forbes oped, I argued that the DeMint-Scalise effort would take us “Toward a True Free Market in Television Programming” by eliminating a litany of archaic media regulations that should have never been on the books to begin with. The measure would:

• eliminate: “retransmission consent” regulations (rules governing contractual negotiations for content);
• end “must carry” mandates (the requirement that video distributors carry broadcast signals even if they don’t want to);
• repeal “network non-duplication” and “syndicated exclusivity” regulations (rules that prohibit distributors from striking deals with broadcasters outside their local communities);
• end various media ownership regulations; and
• end the compulsory licensing requirements of the Copyright Act of 1976, which essentially forced a “duty to deal” upon content owners to the benefit of video distributors.

Despite these clearly deregulatory provisions, in its letter to Capitol Hill, the ACU argues that the DeMint-Scalise bill would somehow interfere with what they regard as a free market in video programming. The ACU writes:

one of the major outcomes of the bill would be to strip away the negotiation process known as “retransmission consent.”  This process created a marketplace to ensure that broadcasters were compensated by pay-tv providers for the use of their signal and content. In 1992 Congress set up “retransmission consent” — a process by which broadcasters and the pay-tv industry would have to negotiate with each other for the use of the broadcast signal.  This prevented the pay-tv industry’s previous practice of using the signal for free and then profiting from its retransmission by selling the broadcasters’ content as part of their basic service. The programming that is most viewed today is still produced by broadcasting companies.  Broadcasters take risks by investing significant amounts of money into content production and marketing, and should have the right of determining its distribution.

It continues on:

The reality is that today we have a functioning market in which opposing parties are able to bring value to the negotiating table.  By stripping away the right to compensation for the use of the signal the government would be tipping the scales heavily to the side of the pay-tv companies.  It would distort the marketplace and allow an uncompensated use of broadcast signals and content and is certainly not “deregulation.”  So we urge you to oppose the retransmission consent provisions contained in HR 3675 and S 2008.

ACU has mistakenly equated the retransmission consent regulatory process with an actual free market contracting process. The two are not synonymous. Again, there are many layers of red tape that continue to encumber this marketplace and it would be incorrect to claim that the contracting process for video signals today represents a truly free and unfettered marketplace. The government has its thumb on one side of the scales with the retrans, must carry, and out-of-market signal regulations, but government simultaneously has its other thumb on the other side of the scale with the compulsory licensing requirements. And plenty of other regs litter the video landscape.  Thus, contrary to what the ACU claims, (1) a truly free video marketplace does not exist today because, by definition, a truly free marketplace would not be cluttered with so many federal regulations; and (2) the DeMint-Scalise bill absolutely does represent genuine deregulation of this marketplace since it would remove those unnecessary regulations. These are indisputable facts. No contortion of the English language can render them otherwise.

Unsurprisingly, because the ACU has made the mistake of assuming we currently live in a free market nirvana, it makes another error commonly heard in this debate. The ACU claims that an elimination of retransmission consent rules represents the end of free market contracting for video services. Indeed, the ACU’s claim that the DeMint-Scalise bill “would distort the marketplace and allow an uncompensated use of broadcast signals and content” gets it exactly backward. In reality, the DeMint-Scalise bill would end the regulatory policies that actually do currently “distort the marketplace” and then allow a truly free marketplace in video contracting to develop without any regulatory thumb on the scale in either direction.

Most importantly, nothing in this bill forces content creators or broadcasters to deal their content to other distributors. And nothing in the bill gives those other video distributors the right to freely distribute content without the permission of its owners. In sum, the bill does not repeal copyright law — it only repeals the compulsory licensing rules that force content owners to deal their programming against their consent on government regulated terms.  That means copyright is actually strengthened under this bill and that content owners have more bargaining power than they do today. Thus, the ACU is horribly mistaken in asserting that the DeMint-Scalise bill would “allow an uncompensated use of broadcast signals and content.” The exact opposite is the case.

If the ACU wants to make a case against this measure, I would respectfully suggest that they first get their terminology and facts right. And then we can have an honest debate about true video marketplace deregulation–which is exactly what the DeMint-Scalise bill represents.

I want to highly recommend everyone watch this interesting new talk by danah boyd on “Culture of Fear + Attention Economy = ?!?!” In her talk, danah discusses “how fear gets people into a frenzy” or panic about new technologies and new forms of culture. “The culture of fear is the idea that fear can be employed by marketers, politicians, the media, and the public to really regulate the public… such that they can be controlled,” she argues. “Fear isn’t simply the product of natural forces. It can systematically be generated to entice, motivate, or suppress. It can be leveraged as a political tool and those in power have long used fear for precisely these goals.”  I discuss many of these issues in my new 80-page white paper, “Technopanics, Threat Inflation, and the Danger of an Information Technology Precautionary Principle.“

Webstock ’12: danah boyd – Culture of Fear + Attention Economy = ?!?! from Webstock on Vimeo.

danah points out that new media is often leveraged to generate fear and so we should not be surprised when the Internet and digital technologies are used in much the same way. She also correctly notes that our cluttered, cacophonous information age might also be causing an escalation of fear-based tactics. “The more there are stimuli competing for your attention, the more likely it is that fear is going to be the thing that will drive your attention” to the things that some want you to notice or worry about.

I spent some time in my technopanics paper discussing this point in Section III.C (“Bad News Sells: The Role of the Media, Advocates, and the Listener.”) Here’s the relevant passage:

Fear mongering and prophecies of doom have always been with us, since they represent easy ways to attract attention and get heard. “Pessimism has always been big box office,” notes [Matt] Ridley. This is even more true in the midst of the modern information age cacophony. Breaking through all the noise is hard when competition for our eyes and ears is so intense. It should not be surprising, therefore, that sensationalism and alarmism are used as media differentiation tactics. This is particularly true as it relates to kids and online safety. “Unbalanced headlines and confusion have contributed to the climate of anxiety that surrounds public discourse on children’s use of new technology,” argues Professor Sonia Livingstone of the London School Economics. “Panic and fear often drown out evidence.” Sadly, most of us are eager listeners and lap up bad news, even when it is overhyped, exaggerated, or misreported. [Michael] Shermer notes that psychologists have identified this phenomenon as “negativity bias,” or “the tendency to pay closer attention and give more weight to negative events, beliefs, and information than to positive.” Negativity bias, which is closely related to the phenomenon of “pessimistic bias” … is frequently on display in debates over online child safety, digital privacy, and cybersecurity.

Unfortunately, as danah correctly notes in her remarks, “it’s extremely difficult to combat fear [but] it’s extremely easy to ramp it up.” Worse yet,  “it’s impossible to combat fear with statistics.”  As I note in my paper, fear-tactics are remarkably powerful rhetorical devices that can be enormously challenging to overcome. However, I remain a bit more optimistic than danah that facts and common sense can prevail eventually. After all, most panics don’t last. They fizzle out after a time. I’d like to believe that part of the reason they do is because facts, education, awareness, and reasonable discussion all combine to debunk fears and help us cope with the realities of cultural or technological change.  On the other hand, as I note in the paper, it may instead simply be the case that one panic crowds out an older one! As I note in the paper (on pgs. 42-3):

Perhaps it is the case that the unique factors that combine to create technopanics tend to dissipate more rapidly over time precisely because technological changes continue to unfold at such a rapid clip. Maybe there is something about human psychology that “crowds out” one panic as new fears arise. Perhaps the media and elites lose interest in the panic du jour and move on to other issues. Finally, people may simply learn to accommodate cultural and economic changes. Indeed, some of things that evoke panic in one generation come to be worshiped (or at least respected) in another. As The Economist magazine recently noted, “There is a long tradition of dire warnings about new forms of media, from translations of the Bible into vernacular languages to cinema and rock music. But as time passes such novelties become uncontroversial, and eventually some of them are elevated into art forms.” These topics and explanations are ripe for future study.

danah also notes that “one of the frustrating thing about my job these days is that I’m dealing with the idea that ‘protect the kids’ becomes justification for regulating the Internet in any way you can possibly imagine.” Of course, that’s nothing new. “It’s for the children!” is the mantra we hear regularly in media and Internet policy debates. [Some of you might find my mock testimony on this front to be humorous: "It’s For the Children: A Template for Hill Testimony on Child Safety Issues."] In my paper, I devote a great deal of time to explaining how generational differences and fears about the impact of technology on society–especially the young–accounts for a large part of the pessimism at work in debates over these issues.

Anyway, please listen to danah’s talk. It’s well worth your time. And I hope some of you will read my paper as well.

Note: All my TLF essays on moral panics and technopanics can be found here.

The DOJ’s recent press release on the Google/Motorola, Rockstar Bidco, and Apple/ Novell transactions struck me as a bit odd when I read it.  As I’ve now had a bit of time to digest it, I’ve grown to really dislike it.  For those who have not followed Jorge Contreras had an excellent summary of events at Patently-O.

For those of us who have been following the telecom patent battles, something remarkable happened a couple of weeks ago.  On February 7, the Wall St. Journal reported that, back in November, Apple sent a letter[1] to the European Telecommunications Standards Institute (ETSI) setting forth Apple’s position regarding its commitment to license patents essential to ETSI standards.  In particular, Apple’s letter clarified its interpretation of the so-called “FRAND” (fair, reasonable and non-discriminatory) licensing terms that ETSI participants are required to use when licensing standards-essential patents.  As one might imagine, the actual scope and contours of FRAND licenses have puzzled lawyers, regulators and courts for years, and past efforts at clarification have never been very successful.  The next day, on February 8, Google released a letter[2] that it sent to the Institute for Electrical and Electronics Engineers (IEEE), ETSI and several other standards organizations.  Like Apple, Google sought to clarify its position on FRAND licensing.  And just hours after Google’s announcement, Microsoft posted a statement of “Support for Industry Standards”[3] on its web site, laying out its own gloss on FRAND licensing.  For those who were left wondering what instigated this flurry of corporate “clarification”, the answer arrived a few days later when, on February 13, the Antitrust Division of the U.S. Department of Justice (DOJ) released its decision[4] to close the investigation of three significant patent-based transactions:  the acquisition of Motorola Mobility by Google, the acquisition of a large patent portfolio formerly held by Nortel Networks by “Rockstar Bidco” (a group including Microsoft, Apple, RIM and others), and the acquisition by Apple of certain Linux-related patents formerly held by Novell.  In its decision, the DOJ noted with approval the public statements by Apple and Microsoft, while expressing some concern with Google’s FRAND approach.  The European Commission approved Google’s acquisition of Motorola Mobility on the same day. To understand the significance of the Apple, Microsoft and Google FRAND statements, some background is in order.  The technical standards that enable our computers, mobile phones and home entertainment gear to communicate and interoperate are developed by corps of “volunteers” who get together in person and virtually under the auspices of standards-development organizations (SDOs).  These SDOs include large, international bodies such as ETSI and IEEE, as well as smaller consortia and interest groups.  The engineers who do the bulk of the work, however, are not employees of the SDOs (which are usually thinly-staffed non-profits), but of the companies who plan to sell products that implement the standards: the Apples, Googles, Motorolas and Microsofts of the world.  Should such a company obtain a patent covering the implementation of a standard, it would be able to exert significant leverage over the market for products that implemented the standard.  In particular, if a patent holder were to obtain, or even threaten to obtain, an injunction against manufacturers of competing standards-compliant products, either the standard would become far less useful, or the market would experience significant unanticipated costs.  This phenomenon is what commentators have come to call “patent hold-up”.  Due to the possibility of hold-up, most SDOs today require that participants in the standards-development process disclose their patents that are necessary to implement the standard and/or commit to license those patents on FRAND terms.

As Contreras notes, an important part of these FRAND commitments offered by Google, Motorola, and Apple related to the availability of injunctive relief (do go see the handy chart in Contreras’ post laying out the key differences in the commitments).  Contreras usefully summarizes the three statements’ positions on injunctive relief:

In their February FRAND statements, Apple and Microsoft each commit not to seek injunctions on the basis of their standards-essential patents.  Google makes a similar commitment, but qualifies it in typically lawyerly fashion (Google’s letter is more than 3 single-spaced pages in length, while Microsoft’s simple statement occupies about a quarter of a page).  In this case, Google’s careful qualifications (injunctive relief might be possible if the potential licensee does not itself agree to refrain from seeking an injunction, if licensing negotiations extended beyond a reasonable period, and the like) worked against it.  While the DOJ applauds Apple’s and Microsoft’s statements “that they will not seek to prevent or exclude rivals’ products form the market”, it views Google’s commitments as “less clear”.  The DOJ thus “continues to have concerns about the potential inappropriate use of [standards-essential patents] to disrupt competition”.

Its worth reading the DOJ’s press release on this point — specifically, that while the DOJ found that none of the three transactions itself raised competitive concerns or was substantially likely to lessen the competition, the DOJ expressed general concerns about the relationship between these firms’ market positions and ability to use the threat of injunctive relief to hold up rivals:

Apple’s and Google’s substantial share of mobile platforms makes it more likely that as the owners of additional SEPs they could hold up rivals, thus harming competition and innovation.  For example, Apple would likely benefit significantly through increased sales of its devices if it could exclude Android-based phones from the market or raise the costs of such phones through IP-licenses or patent litigation.  Google could similarly benefit by raising the costs of, or excluding, Apple devices because of the revenues it derives from Android-based devices. The specific transactions at issue, however, are not likely to substantially lessen competition.  The evidence shows that Motorola Mobility has had a long and aggressive history of seeking to capitalize on its intellectual property and has been engaged in extended disputes with Apple, Microsoft and others.  As Google’s acquisition of Motorola Mobility is unlikely to materially alter that policy, the division concluded that transferring ownership of the patents would not substantially alter current market dynamics.  This conclusion is limited to the transfer of ownership rights and not the exercise of those transferred rights. With respect to Apple/Novell, the division concluded that the acquisition of the patents from CPTN, formerly owned by Novell, is unlikely to harm competition.  While the patents Apple would acquire are important to the open source community and to Linux-based software in particular, the OIN, to which Novell belonged, requires its participating patent holders to offer a perpetual, royalty-free license for use in the “Linux-system.”  The division investigated whether the change in ownership would permit Apple to avoid OIN commitments and seek royalties from Linux users.  The division concluded it would not, a conclusion made easier by Apple’s commitment to honor Novell’s OIN licensing commitments. In its analysis of the transactions, the division took into account the fact that during the pendency of these investigations, Apple, Google and Microsoft each made public statements explaining their respective SEP licensing practices.  Both Apple and Microsoft made clear that they will not seek to prevent or exclude rivals’ products from the market in exercising their SEP rights.

What’s problematic about a competition enforcement agency extracting promises not to enforce lawfully obtained property rights during merger review, outside the formal consent process, and in transactions that do not raise competitive concerns themselves?  For starters, the DOJ’s expression about competitive concerns about “hold up” obfuscate an important issue.  In Rambus the D.C. Circuit clearly held that not all forms of what the DOJ describes here as patent holdup violate the antitrust laws in the first instance.  Both appellate courts discussion patent holdup as an antitrust violation have held the patent holder must deceptively induce the SSO to adopt the patented technology.  Rambus makes clear – as I’ve discussed — that a firm with lawfully acquired monopoly power who merely raises prices does not violate the antitrust laws.  The proposition that all forms of patent holdup are antitrust violations is dubious.  For an agency to extract concessions that go beyond the scope of the antitrust laws at all, much less through merger review of transactions that do not raise competitive concerns themselves, raises serious concerns.

Here is what the DOJ says about Google’s commitment:

If adhered to in practice, these positions could significantly reduce the possibility of a hold up or use of an injunction as a threat to inhibit or preclude innovation and competition. Google’s commitments have been less clear.  In particular, Google has stated to the IEEE and others on Feb. 8, 2012, that its policy is to refrain from seeking injunctive relief for the infringement of SEPs against a counter-party, but apparently only for disputes involving future license revenues, and only if the counterparty:  forgoes certain defenses such as challenging the validity of the patent; pays the full disputed amount into escrow; and agrees to a reciprocal process regarding injunctions.  Google’s statement therefore does not directly provide the same assurance as the other companies’ statements concerning the exercise of its newly acquired patent rights.  Nonetheless, the division determined that the acquisition of the patents by Google did not substantially lessen competition, but how Google may exercise its patents in the future remains a significant concern.

No doubt the DOJ statement is accurate and the DOJ’s concerns about patent holdup are genuine.  But that’s not the point.

The question of the appropriate role for injunctions and damages in patent infringement litigation is a complex one.  While many scholars certainly argue that the use of injunctions facilitates patent hold up and threatens innovation.  There are serious debates to be had about whether more vigorous antitrust enforcement of the contractual relationships between patent holders and standard setting organization (SSOs) would spur greater innovation.   The empirical evidence suggesting patent holdup is a pervasive problem is however, at best, quite mixed.  Further, others argue that the availability of injunctions is not only a fundamental aspect of our system of property rights, but also from an economic perspective, that the power of the injunctions facilitates efficient transacting by the parties.  For example, some contend that the power to obtain injunctive relief for infringement within the patent thicket results in a “cold war” of sorts in which the threat is sufficient to induce cross-licensing by all parties.  Surely, this is not first best.  But that isn’t the relevant question.

There are other more fundamental problems with the notion of patent holdup as an antitrust concern.  Kobayashi & Wright also raise concerns with the theoretical case for antitrust enforcement of patent holdup on several grounds.  One is that high probability of detection of patent holdup coupled with antitrust’s treble damages makes overdeterrence highly likely.  Another is that alternative remedies such as contract and the patent doctrine of equitable estoppel render the marginal benefits of antitrust enforcement trivial or negative in this context.  Froeb, Ganglmair & Werden raise similar points.   Suffice it to say that the debate on the appropriate scope of antitrust enforcement in patent holdup is ongoing as a general matter; there is certainly no consensus with regard to economic theory or empirical evidence that stripping the availability of injunctive relief from patent holders entering into contractual relationships with SSOs will enhance competition or improve consumer welfare.  It is quite possible that such an intervention would chill competition, participation in SSOs, and the efficient contracting process potentially facilitated by the availability of injunctive relief.

The policy debate I describe above is an important one.  Many of the questions at the center of that complex debate are not settled as a matter of economic theory, empirics, or law.  This post certainly has no ambitions to resolve them here; my goal is a much more modest one.  The DOJs policymaking efforts through the merger review process raise serious issues.  I would hope that all would agree — regardless of where they stand on the patent holdup debate — that the idea that these complex debates be hammered out in merger review at the DOJ because the DOJ happens to have a number of cases involving patent portfolios is a foolish one for several reasons.

First, it is unclear the DOJ could have extracted these FRAND concessions through proper merger review.  The DOJ apparently agreed that the transactions did not raise serious competitive concerns.   The pressure imposed by the DOJ upon the parties to make the commitments to the SSOs not to pursue injunctive relief as part of a FRAND commitment outside of the normal consent process raises serious concerns.  The imposition of settlement conditions far afield from the competitive consequences of the merger itself is something we do see from antitrust enforcement agencies in other countries quite frequently, but this sort of behavior burns significant reputational capital with the rest of the world when our agencies go abroad to lecture on the importance of keeping antitrust analysis consistent, predictable, and based upon the economic fundamentals of the transaction at hand.

Second, the DOJ Antitrust Division does not alone have comparative advantage in determining the optimal use of injunctions versus damages in the patent system.

Third, appearances here are quite problematic.  Given that the DOJ did not appear to have significant competitive concerns with the transactions, one can create the following narrative of events without too much creative effort: (1) the DOJ team has theoretical priors that injunctive relief is a significant competitive problem, (2) the DOJ happens to have these mergers in front of it pending review from a couple of firms likely to be repeat players in the antitrust enforcement game, (3) the DOJ asks the firms to make these concessions despite the fact that they have little to do with the conventional antitrust analysis of the transactions, under which they would have been approved without condition.

The more I think about the use of the merger review process to extract concessions from patent holders in the form of promises not to enforce property rights which they would otherwise be legally entitled to, the more the DOJ’s actions appear inappropriate.  The stakes are high here both in terms of identifying patent and competition rules that will foster rather than hamper innovation, but also with respect to compromising the integrity of merger review through the imposition of non-merger related conditions we are more akin to seeing from the FCC, states, or less well-developed antitrust regimes.

[Cross posted at Truth on the Market]

I’m pleased to report that the Mercatus Center at George Mason University has just released my huge new white paper, “Technopanics, Threat Inflation, and the Danger of an Information Technology Precautionary Principle.” I’ve been working on this paper for a long time and look forward to finding it a home in a law journal some time soon.  Here’s the summary of this 80-page paper:

Fear is an extremely powerful motivating force, especially in public policy debates where it is used in an attempt to sway opinion or bolster the case for action. Often, this action involves preemptive regulation based on false assumptions and evidence. Such fears are frequently on display in the Internet policy arena and take the form of full-blown “technopanic,” or real-world manifestations of this illogical fear. While it’s true that cyberspace has its fair share of troublemakers, there is no evidence that the Internet is leading to greater problems for society. This paper considers the structure of fear appeal arguments in technology policy debates and then outlines how those arguments can be deconstructed and refuted in both cultural and economic contexts. Several examples of fear appeal arguments are offered with a particular focus on online child safety, digital privacy, and cybersecurity. The  various  factors  contributing  to  “fear  cycles”  in these policy areas are documented. To the extent that these concerns are valid, they are best addressed by ongoing societal learning, experimentation, resiliency, and coping strategies rather than by regulation. If steps must be taken to address these concerns, education and empowerment-based solutions represent superior approaches to dealing with them compared to a precautionary principle approach, which would limit beneficial learning opportunities and retard technological progress.

The complete paper can be found on the Mercatus site here, on SSRN, or on Scribd.  I’ve also embedded it below in a Scribd reader.

Technopanics and Threat Inflation [Adam Thierer - Mercatus Center]

[Cross posted at TechFreedom.org]

It’s hard to believe TechFreedom launched just last January. As we begin 2012, let me share with you the mantra that continues to guide our work: “Technology expands the capacity to choose; and it denies the potential of this revolution if we assume the Government is best positioned to make these choices for us.”

That’s how Justice Kennedy explained the Supreme Court’s 2000 decision to strike down cable television censorship: better that parents choose for themselves what media are appropriate for their children. In short, as technology empowers, regulation should recede.

But except where courts impose this standard, the presumption in most tech policy debates is just the opposite: only government can protect us. In 1999, Larry Lessig predicted that “Cyberspace, left to itself, will not fulfill the promise of freedom. It will become a perfect tool of control.”  That pessimism shapes how most advocates, commentators, regulators, lawmakers, and even judges think about tech policy.

It’s a seductive idea: If only the right policy “levers” can be pulled, in the right way, at the right time, perhaps cyberspace can come closer to fulfilling that “promise of freedom.” Give me a lever large enough, some regulators seem to think, and I’ll free the world!

We’re skeptical—not of their motives, but of their ability to plan a free and thriving Internet.  Just as Hayek said about the “curious task” of economics, we aim “to demonstrate to men how little they really know about what they imagine they can design.” Will those policy levers really do what those pulling them think?  What else will they do? Will cyberspace really turn out better than if it had been left to itself?

This isn’t an merely an argument for self-regulation, but for the broader, more complex process by which market forces check corporate power.  For instance, when a reporter exposes a privacy violation at an Internet company, she may rightly declare that self-regulation has failed consumers. But she, too, is part of the “invisible hand” at work: She is a vital actor in the reputation “market,” driving up or down the value of any Internet company’s most prized asset, its reputation.

In the digital world, even the mightiest fortress of market power is built on the quicksand of a constantly changing technological landscape.  Staying on top requires maintaining one’s good name—and the courage to be daring. Innovation has disrupted the dominance of countless bogeymen—from Prodigy to AOL/Time Warner to Microsoft to MySpace.  Each company thrived by mastering a particular paradigm—but was dethroned when that paradigm gave way to another.

If technological change would just slow down long enough, perhaps one of these companies could finally achieve “perfect control.” But change won’t stop—and as long as it goes on, the scramble to keep up creates a bounty of new products and services for consumers. The last thing Washington should try to do is slow things down. The very messiness and chaos of the Digital Revolution is ultimately the best guarantee that technology will indeed expand our capacity to choose for ourselves.

Government’s primary role should be to ensure our choices are respected by punishing fraud and deception. Further interventions should be narrowly targeted to remedy clear harms to consumers. Education, empowerment and the enforcement of existing laws will always be the best place to start. Antitrust is generally superior to other economic regulations, but only if it serves consumers better than would the ongoing technological churn of digital paradigms. In everything it does, government must respect constitutional limits on its power to invade our privacy, censor our speech, and coerce our behavior.

This has been our message since we launched TechFreedom last January—starting with our book, The Next Digital Decade: Essays on the Future of the Internet, a unique collection of diverse scholarship available as a free download and for purchase in hardcover. Our team has since grown to include eight leading experts in Internet, communications, media and competition law and policy.

We’re proud of the impact we’ve had. Our amicus briefs in defense of free speech over paternalistic regulations put us on the winning side of two key Supreme Court decisions: Entertainment Merchants Association v. Brown (striking down videogame censorship) and U.S. v. Sorrell (striking down censorship about health information). We’ve played a leading role in a number of coalition letters to Congress on policy debates ranging from copyright enforcement to protecting Americans’ privacy from government snooping. These letters, and our other work, have been cited in Congressional markups by Congressmen from across the political spectrum, from Marsha Blackburn (R-TN) to Jared Polis (D-CO) and John Conyers (D-MI).

You’ll see more of this kind of leadership from us in 2012 and the years beyond. Stay tuned, in particular, for a series of “Top Ten” lists looking back at 2011 and thinking forward to 2012.

Berin Szoka President, TechFreedom

P.S.  If you’re not already following us on Twitter and Facebook, or by email, please do! And why not encourage your friends to do the same?

On Friday, both Josh Wright and I spoke on a panel at the Michigan State University’s conference on “Governance of Social Media.” Our particular panel focused on emerging competition policy issues affecting social media and social networking sites. Also joining us on the panel were Nicolas Economides of NYU and Michael Altschul of the CTIA. The video of the panel can be found here and I have also embedded it down below. [My remarks begin around the 23-min mark of the video.]

At the event, I presented my forthcoming paper on “The Perils of Classifying Social Media Platforms as Public Utilities,” which is currently out for peer review. I outlined the rising calls for treating social media or social networking sites as public utilities, essential facilities, or natural monopolies. Next, I briefly discussed some basic law and economics of public utility / essential facilities regulation. Third, I detailed six specific problems with efforts to classify these services as such. Finally, I briefly discussed regulatory proposals set forth by Professors Jonathan Zittrain and Tim Wu to apply traditional antitrust or public utility remedies to social media or information platforms. Specifically, I address Zittrain’s call for “API neutrality” (which would apply net neutrality-like principles at the applications and device layer) and Wu’s call for a “Separations Principle” (which would forcibly segregate information providers into three buckets: creators, distributors, and hardware makers). Watch the video for more details and see this for more critiques of the Zittrain and Wu proposals.

At last Thursday’s FCC Open Commission Meeting, the Commission proposed to require television stations to make their “public inspection file” available online. But availability is not accessibility. If the FCC follows its usual practice of having filers submit PDFs (many of which are often scanned from printed documents), this data may be nearly useless to the small number of researchers who would really benefit from having a large set of public inspection files available online.

The public inspection file, a traditional hallmark of broadcast regulation, is a collection of documents that all radio and television stations must maintain and make available to anyone who asks to see it. Under the FCC’s existing rules, the file must contain, among other things:

1. A complete record of airtime purchases by, or on behalf of, any political candidates or political issues of national importance.
2. A quarterly report on the “programs containing [the station's] most significant treatment of community issues.”

Neither is filed with the FCC and thus both are available only directly from the station. But accessing the file shouldn’t be difficult. The FCC’s rules clearly state that the file should be “available to members of the public at any time during regular business hours.” You can even ask the station staff to make photocopies for you (though you’ll have to pay for the copies).

Although the proposal voted on yesterday hasn’t yet been released publicly, the plan as reported would require stations to submit information to the FCC, which will develop a publicly-searchable online database of the submissions. This is in marked contrast to a 2007 FCC rule which required stations to put public inspection files on their own websites. Broadcasters sued to block the implementation of the previous rule, arguing that the FCC underestimated the paperwork burden and voicing First Amendment concerns. The court sent the previous rule back to the FCC for revision, which the FCC had been silent about until today.

At yesterday’s meeting, Commissioner Clyburn complained that most public inspection files are “in the deep recesses of broadcast stations, in dilapidated filing cabinets,” but this complaint misses the point. Stations don’t bring members of the public into their “deep recesses.” They ask them to have a seat in their lobby while some station staffer retrieves the file. What could be easier? You might even see a local celebrity while you wait!

But in fact, the public inspection files of most stations are almost never requested. In 2007, Viacom stated that visits to its stations’ public inspection files were “exceedingly rare … less than one annually, virtually all of whom are college students on assignment.” That’s probably because most people don’t know of their existence.

Just putting the public inspection files online would certainly make them more accessible and might lead to more public review. But the real beneficiaries of the FCC’s new rule are researchers. The primary “research” that researchers do is comparing data across stations and/or across time to identify larger trends. But if the new system the FCC develops for the public inspection file data is like many of the FCC’s existing online databases, it will be of limited use. Most FCC databases allow users to only search for a single licensee and most of the data they contain is only available in separate PDF files for each licensee. This makes it very time-consuming to, for example, determine which station in a city receives the most political airtime purchases, or to track political airtime purchases over time.

This outdated approach to disclosure is fundamentally inconsistent with the broader efforts of the Obama Adminstration to implement Open Government through meaningful disclosure. The Open Government Directive directs agencies to

“publish information online in an open format that can be retrieved, downloaded, indexed, and searched by commonly used web search applications. An open format is one that is platform independent, machine readable, and made available to the public without restrictions that would impede the re-use of that information.”

In a 2010 memo to the heads of executive departments and agencies, Cass Sunstein, head of the Office of Information and Regulatory Affairs, explained “There is a difference between making a merely technical disclosure–that is, making information available somewhere and in some form, regardless of its usefulness–and actually informing choices.” Sunstein’s vision of transparency isn’t merely a means of opening up government, but also a less restrictive alternative to prescriptive regulation. That’s exactly why we have public files in the first place: because forced disclosure is less restrictive than limiting political advertisements or meddling (even more) with public interest programming.

The idea of transparency as an alternative to regulation goes all the way back to President Clinton’s Executive Order 12866 (1993): “Each agency shall identify and assess available alternatives to direct regulation, including … providing information upon which choices can be made by the public.” And in another memo to agency heads from just last month, Sunstein explained the benefits of Smart Disclosure, which

“makes information not merely available, but also accessible and usable, by structuring disclosed data in standardized, machine readable formats. … In many cases, smart disclosure enables third parties to analyze, repackage, and reuse information to build tools that help individual consumers to make more informed choices in the marketplace.”

Thus, if the FCC is going to require stations to collect certain information and make that information available to the public, it should make that information accessible too. That means requiring stations to submit the data in machine-readable format and ensuring that the submitted data is then made available in compliance with the 8 Principles of Open Government Data. While these principles were not developed by the Federal government, they are in keeping with the spirit of the FCC’s Data Innovation Initiative. FCC Chairman Julius Genachowski is exactly right: “public data should be accessible to the public in meaningful ways using modern digital tools.”

Fine words, Mr. Chairman. Why not start with public files?

[Cross-posted at Reason.org]

In the wake of the Department of Justice’s lawsuit to stop the merger of AT&T and T-Mobile USA, there has been some discussion about where T-Mobile would end up if the government effort proved successful.

While debate continues whether a merged AT&T-T-Mobile would harm consumers, there is no disputing that T-Mobile itself is mired in business problems. For all the DoJ’s concern that T-Mobile remain in the market as a low-priced alternative for consumers, the company is short of the cash necessary to expand infrastructure at a pace to remain technologically competitive. Blocking the AT&T deal would not necessarily keep Deutsche Telekom, T-Mobile’s German parent, from seeking other buyers. Last week, Dave Goldman of CNN Money summed the situation up in “Without AT&T, T-Mobile is a White Elephant.” The facts he lays out are among the reasons the merger makes sense.

Yet let’s assume for a minute that the DoJ is successful in stopping the merger. A number of pundits both from both the business and the policy side have suggested other potential buyers could rescue T-Mobile. Sascha Segan at PC Magazine provided a good summary here.

Segan was just one of many analysts who pointed to Google, Apple and Comcast (or a cable company consortium) as potential T-Mobile buyers. There are numerous reasons as to why these companies might or might not make a bid. Yet what I find interesting the way several critics of the AT&T deal are almost giddy with the idea that one of these companies might jump at T-Mobile, noting that the entry of a deep-pocketed non-carrier might be a good development for the consolidating wireless industry.

That may be true, but such scenarios raise issues of their own. For if the conventional wisdom is that AT&T’s acquisition of T-Mobile is anticompetitive, how can any of these of these other merger proposals be justified?

Although it’s treated as second nature, the use of antitrust to enforce a competitive status quo, as the DoJ is attempting here, is rather novel and derives more from recent European antitrust policy that U.S. jurisprudence. Together AT&T and T-Mobile would simply combine wireless network assets. Although the Feds often give similar intra-sector mergers in other industries (airlines, retail, media) a long look, in the end, they rarely withhold approval.

On the other hand, U.S. antitrust law historically has tended to frown on vertical integration, especially attempts to control key portions of the supply chain so as to create a monolithic organization that effectively monopolizes manufacturing, supply and all avenues to market.

Hence, movie studios were forced to divest theater chains. Oil and mining trusts were divorced from rail and transportation interests. Even early telecom policy attempted to structurally separate the “wholesale” network from retailing.

Most of the alternative T-Mobile tie-ups raise these supply chain issues. Like it or not, current tech policy demands we apply an “ifs, ands or buts” test to all industry activity. That is, any possibility, no matter how remote, that a merger, partnership, agreement or innovation might lead to unfair market domination must be regarded as an inevitable outcome, and therefore, pre-emptively regulated or blocked.

With this is mind, I offer the following thoughts on three potential suitors for T-Mobile if the AT&T is squelched.

Google:

Google is already under the Federal Trade Commission’s antitrust microscope because it owns applications that can be bundled with search. In particular, the FTC wants to know if Google is structuring search results to rank its own services higher. Then there’s the ongoing debate over the degree to which Google controls the online ad space. Recall the uproar over its purchase of Doubleclick.

So, if DoJ says AT&T and T-Mobile creates an antitrust problem, how could it then sanction T-Mobile’s sale to a company that: 1) is the leader in organizing the presentation of information on the Web; 2) Is a de facto gateway to numerous sites and applications; 3) Is the developer and owner of Android, a leading smartphone operating system, and 4) is buying the mobile device business of Motorola?

“If, ands and buts:”  Assuming the Google’s acquisition of Motorola goes through, adding T-Mobile will create a company that makes a proprietary operating systems for handsets, owns a handset manufacturer, and controls a national mobile network over which its OS and handsets conceivably could be engineered to its advantage (at least you make the case). With T-Mobile’s wireless assets, Google could also influence the way its search engine and applications run over the network, locking out T-Mobile customers from other search sites and other apps.

Apple:

An Apple deal would run into much of the same problems as Google. Apple manufactures a proprietary handset, the iPhone. It also owns the on-line iPhone store, and has come under fire for keeping too close a rein on the distribution third-party applications for the device, as well as for eschewing certain software, such as Adobe Flash. Steve Jobs, its outgoing CEO, is the majority shareowner of Disney, a media and content giant. Apple fails the “ifs, ands and buts” test because ownership of T-Mobile would give it a means to hijack conventional Internet channels to the detriment of other content providers. This could be viewed as unfair competition, even a potential network neutrality violation. Apple would be able to engineer iPhones to wireless network specifications that it would not share with other smartphone makers. As with Google, an Apple-T-Mobile tie-up, if we use current DoJ standards, creates more antitrust problems than AT&T does.

Comcast:

Only the cable companies exceed the phone companies in political unpopularity. Comcast is the leading cable provider in the U.S., owner of NBCUniversal (which was competed despite protest form that same activists trying to block AT&T-T-Mobile), an owner of sports franchises and a sports arena. Already activists complain that Comcast and its brethren aim to use their cable network assets to hobble Netflix, Hulu and other video programming competitors that use their infrastructure to deliver video content.

“Ifs, ands and buts:” You could easily charge that Comcast poses the same threat to any video applications and content that can be delivered wirelessly. Why would it even want to invest in 4G wireless if all this would do was provide more bandwidth for video competitors? How could Comcast be given control of billions of dollars of spectrum and a mobile network alongside an extensive landline fiber network and not use that power to threaten competition?

This is more than a snarky exercise. As a supporter of free market solutions, I don’t have too many misgivings about any of these scenarios. What concerns me is that the DoJ’s intervention in the AT&T-T-Mobile deal carries with it a temptation to direct the market toward an outcome the current more favorable to the current political prejudices. We’ve already seen administration’s overt favoritism in the energy sector.

I’m not saying this is the DoJ’s desired aim, but the question hangs there: Given T-Mobile’s precarious state–if the government deems AT&T is an unacceptable buyer–who, then, is acceptable? When most other buyers also raise similarly provisional antitrust concerns, rejecting one in favor of another will appear arbitrary and smack of central planning.

Although it may not be popular to say so, shareowners have rights, including the right to sell their stock at the best offer. We’ve given the government the power to overrule these rights if they deem the sale is in the public interest. That’s why the DoJ has to mind the consequences of a blocked sale, for if AT&T-T-Mobile does not serve the public interest, neither, by its own reasoning, do any of the other scenarios outlined above. If it rejects one, it needs to reject the others. Anything else turns its exercise into one of industrial policy rather than protection of the public.

Milton Mueller responded to my post Wednesday on the DOJ’s decision to halt the AT&T/T-Mobile merger by asserting that there was no evidence the merger would lead to “anything innovative and progressive” and claiming “[t]he spectrum argument fell apart months ago, as factual inquiries revealed that AT&T had more spectrum than Verizon and the mistakenly posted lawyer’s letter revealed that it would be much less expensive to expand its capacity than to acquire T-Mobile.”  With respect to Milton, I think he’s been suckered by the “big is bad” crowd at Public Knowledge and Free Press.  But he’s hardly alone and these claims — claims that may well have under-girded the DOJ’s decision to step in to some extent — merit thorough refutation.

To begin with, LTE is ”progress” and “innovation” over 3G and other quasi-4G technologies.  AT&T is attempting to make an enormous (and risky) investment in deploying LTE technology reliably and to almost everyone in the US–something T-Mobile certainly couldn’t do on its own and something AT&T would have been able to do only partially and over a longer time horizon and, presumably, at greater expense.  Such investments are exactly the things that spur innovation across the ecosystem in the first place.  No doubt AT&T’s success here would help drive the next big thing–just as quashing it will make the next big thing merely the next medium-sized thing.

The “Spectrum Argument”

The spectrum argument that Milton claims “fell apart months ago” is the real story here, the real driver of this merger, and the reason why the DOJ’s action yesterday is, indeed, a blow to progress.  That argument, unfortunately, still stands firm.  Even more, the irony is that to a significant extent the spectrum shortfall is a product of the government’s own making–through mismanagement of spectrum by the FCC, political dithering by Congress, and local government intransigence on tower siting and co-location–and the notion of the government now intervening here to “fix” one of the most significant private efforts to make progress despite these government impediments is really troubling.

Anyway, here’s what we know about spectrum:  There isn’t enough of it in large enough blocks and in bands suitable for broadband deployment using available technology to fully satisfy current–let alone future–demand.

Two incredibly detailed government sources for this conclusion are the FCC’s 15th Annual Wireless Competition Report and the National Broadband Plan.  Here’s FCC Chairman Julius Genachowski summarizing the current state of affairs (pdf):

The point deserves emphasis:  the clock is ticking on our mobile future. The FCC is an expert agency staffed with first-rate employees who have been working on spectrum allocation for decades – and let me tell you what the career engineers are telling me. Demand for spectrum is rapidly outstripping supply. The networks we have today won’t be able to handle consumer and business needs.

* * *

To avoid this crisis, the National Broadband Plan recommended reallocating 500 megahertz of spectrum for broadband, nearly double the amount that is currently available.

* * *

First, there are some who say that the spectrum crunch is greatly exaggerated – indeed, that there is no crunch coming. They also suggest that there are large blocks of spectrum just lying around – and that some licensees, such as cable and wireless companies, are just sitting on top of, or “hoarding,” unused spectrum that could readily solve that problem. That’s just not true.

* * *

The looming spectrum shortage is real – and it is the alleged hoarding that is illusory.

It is not hoarding if a company paid millions or billions of dollars for spectrum at auction and is complying with the FCC’s build-out rules. There is no evidence of non-compliance. . . . [T]he spectrum crunch will not be solved by the build-out of already allocated spectrum.

All of the evidence suggests that spectrum suitable for mobile broadband is scarce and growing scarcer.  Full stop.

It is troubling that critics–particularly those with little if any business experience–are so certain that even with no obvious source of additional spectrum suitable for LTE coming from the government any time soon, and even with exponential growth in broadband (including mobile) data use, AT&T’s current spectrum holdings are sufficient to satisfy its business plans (and its investors and stockholders).  You’d think AT&T would be delighted to hear this news–what we really need is a shareholder resolution to put Gigi Sohn on the board!

But seriously, put yourself in AT&T’s shoes for a moment.  Its long-term plans require the company to deploy significantly more spectrum than it currently holds in a reasonable time horizon (even granting Milton’s dubious premise that the company is squatting on scads of unused spectrum–remember that even if AT&T had all the spectrum sitting in its proverbial bank vault it would still be just about a third of the total amount of spectrum we’re predicted to need in just a few years).  Considering the various impediments of net neutrality regulation, congressional politics, presidential politics (think this had anything to do with claims about job losses from the merger, by chance?), reluctant broadcasters, the FCC, state PUCs, environmental groups and probably 10-12 others . . . the chances of being able to obtain the necessary spectrum and cell tower sitings in any other reasonable fashion were perhaps appropriately deemed . . . slim.

With the T-Mobile deal, on the other hand, “AT&T will gain cell sites equivalent to what would have taken on average five years to build without the transaction, and double that in some markets. AT&T’s network density will increase by approximately 30 percent in some of its most populated areas.” (Source).  I just don’t see how this jibes with the claim that the spectrum argument has fallen apart.

But there is a larger, “meta” point to make here, and it’s one that policy scolds and government regulators too often forget.  Even if none of that were true, as long as we don’t know for sure what is optimal and do know the DOJ is both a political organization made up of human beings operating not only under said ignorance but with incentives that don’t necessarily translate into “maximize social welfare” and also devoid of any actual “skin in the game,” I think the basic, simple, time-tested, logical and self-evident error cost principle counsels pretty firmly against intervention.  Humility, not hubris should rule the roost.

And that’s especially true since you know what will happen if the DOJ (or the FCC) succeeds in preventing AT&T from buying T-Mobile?  T-Mobile will still disappear and we’ll still be left with (according to the DOJ’s analysis) the terrifying prospect of only 3 national wireless telecom providers.  Only, in that case, everyone’s going to think a lot harder about investing in future developments that might warrant integration or cooperation or . . . well, the DOJ will challenge anything, so add to the list patent pools, too much success, not enough sharing, etc., etc.  And you wonder why I think this might constitute an assault on innovation?

Now, as for Milton’s specific claims, reminiscent of Public Knowledge’s and Free Press’ talking points, let me quote AT&T’s Public Interest Statement discussing its own particular spectrum holdings:

Because of the high demand for broadband service, AT&T already has had to deploy four carriers (for a total of 40 MHz of spectrum) for UMTS [3G] in some areas—and it will need to deploy more in the near future, even if doing so squeezes its GSM spectrum allocation and compromises GSM service quality . . . .  AT&T expects that, given the relative infancy of the LTE ecosystem and the time needed to migrate subscribers, it will need to continue to allocate spectrum to UMTS services for a substantial number of years—indeed, even longer than AT&T needs to continue allocating spectrum for GSM services.

* * *

AT&T has begun deployment of LTE services using its AWS and 700 MHz spectrum and currently plans to cover more than 250 million people by the end of 2013

* * *

AT&T projects it will need to use its 850 MHz and 1900 MHz spectrum holdings to support GSM and UMTS services for a number of years and, in the meantime, will not be able to re-deploy them for more spectrally efficient LTE services.

* * *

AT&T’s existing WCS spectrum holdings cannot be used for this purpose either, because the technical rules for the WCS band, such as limits on the power spectral density limits, make it infeasible to use that band for broadband service.

In other words, I don’t think AT&T has been (nor could it be, given the FCC’s detailed knowledge on the subject) hiding its spectrum holdings.  Instead, the company has been making quite clear that the spectrum it has is simply insufficient to meet anticipated demand.  And, well, duh!  Anyone who uses AT&T knows its network is overloaded.  Some of that’s because of tower-siting issues, some because it simply didn’t anticipate the extent of demand it would face.  I heard somewhere that no matter how hard they try to account for their perpetual under-accounting, every estimate by every mobile provider of anticipated spectrum needs in the past two decades or so has fallen short.  I’m quite sure that AT&T didn’t anticipate in 2007 that spectrum usage would increase by 8000% (yes, that’s thousand) by 2010.

Moreover, there will always (in any sensible system) be excess capacity at times–as it happens, at (conveniently) the times when spectrum usage is often counted–in order to deal with peak loads.  It is no more sensible to deploy capacity sufficient to handle the maximum load 100% of the time than it is to deploy capacity to handle only the minimum load 100% of the time.  Does that mean the often-unused spectrum is “excess”?  Clearly not.

Moreover (again), not all spectrum is in contiguous blocks sufficient to deploy LTE.  AT&T (at least) claims that is the case with much of its existing spectrum.  Spectrum isn’t simply fungible, and un-nuanced claims that “AT&T has X megahertz of spectrum and it is plenty” are just meaningless.  Again, just because Free Press says otherwise does not make it so.  You can simply discount AT&T’s claims if you like–I’m sure it’s possible they’re just lying; but you should probably be careful whose “information” you believe instead.

But, no, Milton, the spectrum argument did not “fall apart months ago.”  Gigi Sohn, Harold Feld and Sprint just said it did.  There’s a difference.

“Letter-Gate”

As for the infamous letter alleged to show that AT&T could expand LTE service from its previously-planned 80% of the country to the 97% it promises if the merger goes through for significantly less than it would cost to buy T-Mobile:  I don’t know exactly what its import is—but no one outside AT&T and, maybe, the FCC really does, either.  But I think a little sensible skepticism is in order.

First, for those who haven’t read it, the letter says, in relevant part:

The purpose of the meeting was to discuss AT&T’s current LTE deployment plans to reach 80 percent of the U.S. population by the end of 2013…; the estimated [Begin Confidential Information] $3.8 billion [End Confidential Information] in additional capital expenditures to expand LTE coverage from 80 to 97 percent of the U.S. population; and AT&T’s commitment to expand LTE to over 97 percent of the U.S. population as a result of this transaction.

That part, “$3.8 billion,” between the words “Begin Confidential Information” and “End Confidential Information” was supposed to be redacted, but apparently wasn’t when the letter was first posted to the FCC’s website.

While Public Knowledge and other critics of the deal would have you believe that this proves AT&T could roll-out nationwide LTE service for 1/10 of the cost of the T-Mobile deal, it’s basically impossible to tell what this number really means–except it certainly doesn’t mean that.

Claims about its meaning are actually largely content-less; nothing I’ve seen asks (or can possibly answer) whether the number in the letter was full cost, partial cost, annualized cost, based off of what baseline, etc., etc.  Moreover, unless I’m mistaken, nothing in the letter said anything at all about $3.8 billion being used to relieve congestion, meet future demand, increase speeds, reduce latency, expand coverage in urban areas, etc.  It seems to me that it’s referring to “additional” (additional to what?) capital expense to build infrastructure to make it even possible to offer LTE coverage to 97% of the U.S. population following the merger.  AT&T has from the outset said (bragged, more like it, because it’s supposed to bring lots of jobs and that’s what the politicians care about) that it planned to spend an “additional” $8 billion–additional to the $39 billion required to buy T-Mobile, that is–to build out its infrastructure as part of the deal.  But neither this letter nor any of AT&T’s statements (nor anyone with any familiarity with the relevant facts) has ever said it could or would have full-speed, LTE service available and up and running to 97% of the country for $3.8 billion or even $8 billion–or even merely $39 billion.  In fact, AT&T seemed to be saying that it was going to cost at least $47 billion to make that happen (and I can assure you that doesn’t begin to account for all the costs associated with integrating T-Mobile with AT&T once the $39 billion is out the door).

As I’ve alluded to above, deploying LTE service to rural areas is probably not as important for AT&T as increasing its network’s capacity in urban areas. The T-Mobile deal allows AT&T to alleviate the congestion problems experienced by its existing customers in urban areas more quickly than any other option–and because T-Mobile’s network is already up and running, that’s still true even if the federal government was somehow able to make tons of spectrum immediately available.  Moreover, with respect to the $3.8 billion, as I’ve discussed at length above, without T-Mobile’s–or someone’s!–additional spectrum and the miraculous removal of local government impediments to tower construction, pretty much no amount of money would enable AT&T to actually deliver LTE service to 97% of the country.  Is that what it would cost to build the extra pieces of hardware necessary to support such an offering?  That sounds plausible.  But actually deliver it? Hardly.

And just to play this out, let’s say the letter did mean just that — that AT&T could deliver real, fine LTE service to 97% of the country for a mere $3.8 billion direct, marginal outlay, even without T-Mobile.  It is still the case that none of us outsiders knows what such a claim would assume about where the necessary spectrum would come from and what, absent the merger, the effect would be on existing 3G coverage, congestion, pricing, etc., and what the expected ROI for such a project would be.  Elsewhere in the letter its author states that AT&T considered whether making this investment (without the T-Mobile merger) was prudent, and repeatedly rejected it.  In other words, all those armchair CEOs are organizing AT&T’s business and spending its money without the foggiest clue as to what the real consequences would be of doing so–and then claiming that, although, unlike them, actually in possession of the data relevant to such an assessment, AT&T must be lying, and could only justify spending $39 billion to buy T-Mobile as a means of securing its monopoly power.

And I think it’s important to gut check that claim, as well, as it’s what critics claim to fear (The Ma Bell from the Black Lagoon).  Unpacked, it goes something like this:

Given that:

1.  AT&T is going to spend $39 billion to buy T-Mobile;
2. It is going to spend $8 billion to build additional infrastructure;
3. Having bought T-Mobile, it is going to incur some ungodly amount of expense integrating T-Mobile’s assets and employees with its own;
4. It is going to incur huge, ongoing additional costs to govern a now-larger, more-complex organization;
5. It is going to continue to be regulated by the FCC and watched carefully by the DOJ and its unofficial consumer watchdog minions;
6. It will continue to face competition from its current largest and second-largest competitor;
7. It will continue to face entry threats from the likes of Dish and Lightsquared;
8. It will continue to face competition from fixed broadband offered by the likes of Comcast and Time Warner;
9. It will do all this quite publicly, under the watchful eyes of Congress and its union to whom it has made all manner of politically-expedient promises;

 Then it follows that:

1. Although it can’t muster the gumption to risk $3.8 billion to legitimately (it is claimed) extend full LTE coverage to 97% of the U.S. population, it nevertheless thinks it’s a sure bet that it will be able to recoup all of these expenditures, in this competitive and regulatory environment, by virtue of having thus taken out not its largest, not even its second-largest, but its smallest “national” competitor, and thereby having converted itself into an unfettered monopolist. QED.

The mind boggles.

So.  Back to Milton and his suggestion that I was wrong to claim that the DOJ’s action here is a threat to innovation and progress and his assertion that AT&T’s claims surrounding the benefits of the transaction fail to stand up to scrutiny:  C’mon, Miltons of the world!  Where’s your normally healthy skepticism?  I know you don’t like big infrastructure providers.  I know you’re angry your iPhone isn’t as functional as it is beautiful.  I know capitalists are only slightly more trustworthy than regulators (or is it the other way around?).  But why give in so credulously to the claims of the professional critics?  Isn’t it more likely that the deal’s critics are just blowing smoke here because they don’t like any consolidation?  It doesn’t take much research to understand (to the extent anyone can understand something so complex) the current state of the U.S. broadband market and its discontents–and why something like this merger is a plausible response.  And you don’t have to like, trust, or even stand the sight of any business executive to know that, however stupid or evil, he is still constrained by powerful market forces beyond his ken.  And “Letter-Gate” is just another pseudo-scandal contrived to suit an agenda of aggressive government meddling.

We all ought to be more wary of such claims, less quick to join anyone in condemning big as bad, and far less quick to, implicitly or explicitly, substitute the known depredations of the government for the possible ones of the market without a hell of a lot better evidence to do so.

[Cross posted at Truthonthemarket]

As Josh noted, the DOJ filed a complaint today to block the merger. I’m sure we’ll have much, much more to say on the topic, but here are a few things that jump out at me from perusing the complaint:

• The DOJ distinguishes between the business (“Enterprise”) market and the consumer market. This is actually a good play on their part, on the one hand, because it is more sensible to claim a national market for business customers who may be purchasing plans for widely-geographically-dispersed employees. I would question how common this actually is, however, given that, I’m sure, most businesses that buy group cell plans are not IBM but are instead pretty small and pretty local, but still, it’s a good ploy.
• But it has one significant problem: The DOJ also seems to be stressing a coordinated effects story, making T-Mobile out to be a disruptive maverick disciplining the bigger carriers. But–and this is, of course an empirical matter I will have to look in to–I highly doubt that T-Mobile plays anything like this role in the Enterprise market, at least for those enterprises that fit the DOJ’s overly-broad description. In fact, the DOJ admits as much in para. 43 of its Complaint. Of course, the DOJ claims this was all about to change, but that’s not a very convincing story coupled with the fact that DT, T-Mobile’s parent, was reducing its investment in the company anyway. The reality is that Enterprise was not a key part of T-Mobile’s business model–if it occupied any cognizable part of it at all– and it can hardly be considered a maverick in a market in which it doesn’t actually operate.
• On coordinated effects, I think the claim that T-Mobile is a maverick is pretty easily refuted, and not only in the Enterprise realm. As Josh has pointed out in his Congressional testimony, a maverick is a term of art in antitrust, and it’s just not enough that a firm may be offering products at a lower price–there is nothing “maverick-y” about a firm that offers a different, less valuable product at a lower price. I have seen no evidence to suggest that T-Mobile offered the kind of pricing constraint on AT&T that would be required to make it out to be a maverick.

• Meanwhile, I know this is just a complaint and even post-Twombly pleading standards are lower than standards of proof, but the DOJ does seem t make a lot out of its HHI numbers. In part this is a function of its adoption of a national relevant geographic market. But (as noted above even for most Enterprise customers) this is just absurd. As the FCC itself has noted, consumers buy cell service where they “live, work and travel.” For most everyone, this is local.
• Meanwhile, even on a national level, the blithe dismissal of a whole range of competitors is untenable. MetroPCS, Cell South and many other companies have broad regional coverage (MetroPCS even has next-gen LTE service in something like 17 cities) and roaming agreements with each other and with the larger carriers that give them national coverage. Why they should be excluded from consideration is baffling. Moreover, Dish has just announced plans to build a national 4G network (take that, DOJ claim that entry is just impossible here!). And perhaps most important the real competition here is not for mobile telephone service. The merger is about broadband. Mobile is one way of getting broadband. So is cable and DSL and WiMax, etc. That market includes such insignificant competitors as Time Warner, Comcast and Cox. Calling this a 4 to 3 merger strains credulity, particularly under the new merger guidelines.
• Moreover, the DOJ already said as much! In its letter to the FCC on the FCC’s National Broadband Plan the DOJ says:

Ultimately what matters for any given consumer is the set of broadband offerings available to that consumer, including their technical characteristics and the commercial terms and conditions on which they are offered. Competitive conditions vary considerably for consumers in different geographic locales.

• The DOJ also said this, in the same letter:

[W]ith differentiated products subject to large economies of scale (relative to the size of the market), the Department does not expect to see a large number of suppliers. . . . [Rather, the DOJ cautions the FCC agains] striving for broadband markets that look like textbook markets of perfect competition, with many price-taking firms. That market structure is unsuitable for the provision of broadband services.

Quite the different tune, now that it’s the DOJ’s turn to spring into action rather than simply admonish the antitrust activities of a sister agency!

I’m sure there is lots more, but I must say I’m really surprised and disappointed by this filing. Effective, efficient provision of mobile broadband service is a complicated business. It is severely hampered by constraints of the government’s own doing — both in terms of the government’s failure to make available spectrum to enable companies to build out large-scale broadband networks, and in local governments’ continued intransigence in permitting new cell towers and even co-location of cell sites on existing towers that would relieve some of the infuriating congestion we now experience.

This decision by the DOJ is an ill-conceived assault on innovation and progress in what may be the one shining segment of our bedraggled economy.

If you’ve been following Reason.com or Reason.tv for the past 48 hours you will know that Jim Epstein, a Reason TV reporter, was one of two journalists arrested Wednesday for videotaping a meeting of the Washington D.C. Taxi Commission.

Epstein and Pete Tucker, who blogs for TheFightBack.org, a site that spotlights local D.C. issues that affect minorities and low-income residents, were reporting from what was expected to be contentious meeting as the Taxi Commission was set to address a plan to introduce a medallion system for the District. The proposal had generated considerable opposition from the city’s large base of cab drivers, many of whom attended the meeting to voice their opposition. They essentially believe a medallion system will concentrate cab ownership among a handful of large fleet operators and likely result in the loss of their livelihood.

The arrests were regrettable all around. Epstein’s video, which shows Tucker, dressed neatly in a white shirt and tie, being handcuffed and led away, captures a deeply uncomfortable “it-can’t-happen-here” moment. Epstein was arrested next. Epstein’s video and statement can be found here.

Aside from the fact Epstein and Tucker were released a few hours later, the best thing that can be said is that the arrests were ordered by someone who can charitably be described as a low-level local government functionary, namely Dena Reed, interim chairman of the Taxi Commission. But that doesn’t excuse it. Reed emerges from this affair looking like a third-grade hall monitor who’s allowed that modicum of authority to go to her head.

What triggered Reed to have Epstein and Tucker arrested was Tucker’s request to place a microphone near her chair. It was clear from the beginning that Reed did not want the meeting videotaped, although any journalist—make that any individual—had every right to under open meeting laws. Furthermore, in this day and age of Internet-based news and blogging, video is a legitimate means of documentation. Reed may as well have had the reporters arrested for taking notes.

Reed cited a policy that allows Commission officials to ban taping at their discretion. Policies like this need to change. When daily newspapers are giving their reporters camcorders with an eye toward Web media, there is no line between print and electronic media. A policy that bars video recording amounts to direct interference with modern newsgathering. If local officials insist on banning video, more reporters are going to push the issue. Good for them, because these acts of civil disobedience end up embarrassing the government far more than the reporter.

And let’s not forget the Streisand Effect. Reed’s power play to shut out news coverage resulted in D.C. medallion issue receiving much more attention than it would have if she had allowed Epstein and Tucker to do their jobs unmolested. Instead, now on a national stage, she validated critics’ claims that the commission is arbitrary, unfair and incompetent.

It’s also worth noting that the incident comes just two weeks after the Federal Communications Commission, in its “Future of Media” report, said that local news media does not need a government lifeline. The matter has been raised in Congress and in some state legislatures who see local newspapers and TV stations facing declining readers, viewers and advertisers as more people turn to the Web for news. The FCC itself, in its National Broadband Plan, raised the idea of subsidizing local media via the Universal Service Fund. Yet, after examining the issue, noted the potential of the Web to pick up the slack. Others have noted that more specialized sites, like TheFightBack.org, would improve local news coverage by tailoring coverage to narrower interest groups broadcasters overlook. Case in point here. No local TV stations were at the Taxi Commission meeting, but TheFightBack.org and ReasonTV were. Moreover, Tucker and his site are not outliers. The cab drivers were aware of his coverage of the mediallian issue and showed their outrage by walking out the meeting after the arrest.

But the primary lesson here is for all those petty bureaucrats and officials who still think they have a say in who covers their little part of the political mechanism and how they do it: Video is a part of everyday news reporting. Deal with it.

Last week the Senate Commerce Committee passed–with deep bi-partisan support–the Public Safety Spectrum and Wireless Innovation Act.

The bill, co-sponsored by Committee Chairman Jay Rockefeller and Ranking Member Kay Bailey Hutchison, is a comprehensive effort to resolve several long-standing stalemates and impending crises having to do with one of the most critical 21st century resources: radio spectrum.

My analysis of the bill appears today on CNET. See “Spectrum reform, public safety network move forward in Senate.”

The proposed legislation is impressive in scope; it offers new and in some cases novel solutions to more than half-a-dozen spectrum-related problems, including:

1. Voluntary incentive auctions – The bill authorizes the FCC to coordinate “voluntary incentive auctions” (VIA) of under-utilized spectrum from over-the-air TV broadcasters to better uses, including mobile broadband. Broadcasters giving up some or all of their licensed spectrum would share the proceeds with the government. The FCC has been asking for this authority for two years.

2. Public safety network – The bill would break the logjam over the long-desired nationwide interoperable public safety network. It would create a new non-profit public-private partnership to build the network, with an outright grant of the D-block of 700 Mhz. spectrum. (That block, freed up as part of the 2009 transition to digital TV, has sat idle since a failed auction in 2008.) Financing for the build-out would come from proceeds of the VIAs. The public safety network has been in limbo since it was first proposed soon after 9/11. (The proposed bill is S. 911.)

3. Spectrum inventory - The FCC would be required to complete a comprehensive inventory of existing licenses (which, amazingly, doesn’t exist) within 180 days. President Obama ordered the agency to complete the inventory over a year ago, but so far only a “baseline” inventory has been created.

4. Secondary markets – The FCC would be required to begin a rulemaking to review current limits to secondary spectrum markets that interfere with liquidity, in the hopes of making them more robust. (VIAs could take years to organize and conduct.)

5. Public spectrum - The National Telecommunications and Information Administration would be required to identify significant blocks of underutilized federal spectrum allocations and make them available for auction by the FCC.

6. Spectrum innovation - The National Science Foundation and other grant-making agencies would be required to accelerate research grants for new technologies that would make spectrum use more efficient.

7. Repacking – While the FCC can’t require broadcasters to participate in VIAs, it can force them to move to nearby channels if doing so would free up more valuable blocks of spectrum for auction. A fund would be created to compensate stations for the disruption of switching channels.

The range of issues that S.911 deals with suggests the breadth of the current spectrum crisis. Here it is in a nutshell. Radio frequencies are a limited public resource. Up until recently, however, there’s been more than enough to go around. Following the advice of Nobel prizewinning economist Ronald A. Coase, the FCC has used auctions to find the best and highest use for this resource, generating significant revenue in the process.

But the digital age has changed the dynamics of spectrum. Mobile uses are exploding, as are mobile devices, mobile applications, mobile users and mobile everything else. Moore’s Law is rapidly overtaking FCC law once again. Existing wireless networks are groaning under the strain of volume that has increased 8000% since the launch of the iPhone.

Last year’s National Broadband Plan, for example, predicted that 300 Mhz. of additional spectrum would need to be found in the next five years to keep mobile broadband on track.

But the government’s current processes of finding and allocating more spectrum are simply too slow to keep pace with the current wave of technological innovation. It will get worse as 3G moves to 4G and from there–well, who knows? All we can safely predict is that the “G”s will keep coming, and arrive faster all the time. So radical re-thinking of spectrum management is urgent. We need serious spectrum policy reform, and we need it yesterday.

Part of the solution will come from technology itself, including innovation to make more efficient use of existing allocations, expanding the range of usable spectrum for more uses, capabilities to dynamically share spectrum and rebalance loads, and so on. There are impressive developments in these and other strategies for coping with the potential of spectrum exhaustion, but no one can say with confidence that the solutions will outpace the problems.

The bigger issue underlying spectrum exhaustion is the glacial pace with which current regulatory systems work to rebalance allocations.

Once a license is granted, the licensee can largely rely on keeping it indefinitely. If they operate in a stable or shrinking market (such as over-the-air broadcast, which the Consumer Electronics Association said recently has shrunk to only 8% of U.S. households), there’s no incentive to optimize the property, which, for the licensee, is a sunk cost.

Given the limits of secondary markets, there’s also little incentive to find more efficient uses of the allocation and free up spectrum that is no longer needed for its licensed purpose. Indeed, even for operators who want to exit the market in part or in whole, use limitations on existing allocations make transfer through secondary markets cumbersome if not impossible.

Even if the FCC unblocks these markets, game theory problems may constrain the effectiveness of either the VIAs or the secondary markets.

Federal users, of course, feel no competitive threat to optimize their allocations, and fall back to the conversation-ending “national defense” excuse whenever the possibility emerges of giving up some of the frequencies they are warehousing.

And then there are state and local authorities, who also share jurisdiction over communications. Limits on cell tower construction, use, and other technical improvements aren’t addressed in the proposed legislation. But they are equally to blame for the crisis mentality.

S. 911 is a good start toward removing some of the institutional barriers that limit our flexibility in rebalancing spectrum needs and spectrum allocations. But it’s only a start. If the information revolution is to continue uninterrupted, we need a lot more improvements.

And soon.

This morning, the Federal Communications Commission (FCC) released its eagerly-awaited “Future of Media” report. The 475-page final report is entitled, “The Information Needs of Communities: The Changing Media Landscape in a Broadband Age.”  [Here's a 2-page summary and the official press release.]  The report is a bit overdue; the effort was supposed to be wrapped up late last year. Comments in the proceeding were filed over a year ago. Here are some of the major ones. Also, here is the 80-page monster filing that I submitted with my former PFF colleagues Berin Szoka and Ken Ferree.

Quick refresher… Federal policymakers have been taking a greater interest in the health of media and journalism in recent years. In 2009, the Senate held hearings about “the future of journalism,” and Senator Benjamin L. Cardin (D-MD) introduced the “Newspaper Revitalization Act,” which would allow newspapers to become tax-exempt non-profits in an effort to help them stay afloat. In 2010, the Federal Trade Commission hosted two workshops asking “How Will Journalism Survive the Internet Age?” and also released a staff report on “Potential Policy Recommendations to Support the Reinvention of Journalism.” (As I noted here and here, the FTC was blasted for that report and quickly backed off the issue. The agency has since gone radio silent on the issue.) The FCC also launched its “Examination of the Future of Media and Information in a Digital Age” in 2010, and today’s report wraps up their work on this front.

My first reaction after scanning the FCC’s final report is one of relief. For those of us who care about the First Amendment, media freedom, and free-market experimentation with new media business models, it feels like we’ve dodged a major bullet. The report does not recommend sweeping regulatory actions that might have seen Washington inserting itself into the affairs of the press or bailing out dying business models.

By contrast, when the FCC and FTC started their respective proceedings, things looked very grim from a policy perspective. The discussion was being completely dominated by groups like Free Press and their founders, the neo-Marxist media scholar Robert W. McChesney and Nation editor John Nichols.  Here are some old essays and papers that summarize the radical “media reform” agenda they set forth over the past few years:

• A “Public Option” for Media? The Free Press Plan to Put Journalists on the Public Dole
• Free Press, Robert McChesney & the “Struggle” for Media
• Socializing Media in Order to Save It
• The Wrong Way to Reinvent Media, Part 1: Taxing Devices & Networks to Subsidize Media, by Adam Thierer & Berin Szoka, March 24, 2010
• The Wrong Way to Reinvent Media, Part 2: Broadcast Spectrum Fees for Public Media, by Adam Thierer, March 29, 2010
• The Wrong Way to Reinvent Media, Part 3: Media Vouchers, by Adam Thierer & Berin Szoka, April 14, 2010
• The Wrong Way to Reinvent Media, Part 4: Expanding Postal Subsidies, by Adam Thierer & Berin Szoka, April 20, 2010
• The Wrong Way to Reinvent Media, Part 5: Media Bailouts & Welfare for Journalists, by Adam Thierer & Berin Szoka, April 30, 2010

To the FCC’s great credit, the agency’s final report didn’t fall for most of these gimmicks or those radical calls for state intervention. The report’s recommendations are actually quite limited in scope and relatively innocuous in nature (although some of them are extremely amorphous and could be open to expansionist interpretations later on). Here are the major recommendations:

• Accelerate move from paper to online disclosure. Disclosure information required by the FCC should be moved online from filing cabinets to the Internet so the public can more easily gain access to valuable information.  FCC should eliminate burdensome rules and streamline disclosures about local programming by moving files online.
• Remove barriers to innovation and online entrepreneurship by pushing for universal broadband deployment and adoption.  Achieving this goal would remove cost barriers,strengthen online business models, expand consumer pools and ensure that the news and information landscape serves communities to the maximum possible benefit of citizens.
• Target existing federal spending at local media.  Existing government advertising spending, such military recruiting and public health ads, should be targeted toward local media whenever possible. Each year, the federal government spends roughly $1 billion in advertising without maximizing potential benefits to local media.
• Repeal Fairness Doctrine, terminate localism proceeding and replace “enhanced disclosure” with a new streamlined system of online disclosure. Broadcasters would disclose amount of programming about the community and other important information.
• Discourage “pay-for-play” arrangements – in which TV stations allow advertisers to dictate on-air content without disclosing to viewers – by requiring online disclosure of such arrangements.
• Re-assess whether the satellite TV’s set-aside for educational programming and cable TV leased access systems are working; put satellite disclosure online.
• There should be state-based C-SPAN in every state. Cable and satellite operators, public broadcasters and PEG channels should work toward that goal, and policymakers should consider offering incentives for those media organizations that take such steps, or to those that provide support for local cable news operations.
• Re-establish tax certificate program for small businesses including minorities and women.
• Policymakers should consider clarifications or changes in tax rules that would make it easier for nonprofit news operations to develop sustainable business models.
• Focus on historically underserved when policymakers craft strategies and rules.

While I can’t endorse all of these recommendations — especially those that involve more spending or tax code tinkering — I think most of these policy proposals are relatively unobjectionable. Again, this is pretty far removed from the radical Free Press / McChesney agenda that guided the Federal Trade Commission’s controversial report.  I will likely have more to say about the FCC’s specific policy recommendations after getting through the entire 475-page report this weekend.

Even without having finished the entire report, I feel comfortable saying this: The FCC’s “Information Needs of Communities” report is an impressive achievement and will be used as a reference document for decades to come.  The report offers an excellent overview of the state of the media marketplace and provides a relatively balanced assessment of both the good and bad trends shaping media and journalism today.

I congratulate Steve Waldman and the entire team experts that the FCC brought together to compile this report. But most of all I am relieved to see that the agency generally restrained itself here and avoided going down the dangerous path I once feared it might.

Finally, I am just a happy camper any day I see the Federal Communications Commission send out a Tweet like this:

I’ve written two articles on the Protect IP Act of 2011, introduced last week by Sen. Leahy (D-Vt.).

For CNET, I look at some of the key differences, better and worse, between Protect IP and its predecessor last year, known as COICA.

On Forbes this morning, I have a long meditation on what Protect IP says about the current state of the Internet content wars.  Copyright, patent, and trademark are under siege from digital technology, and for now at least are clearly losing the arms race.

The new bill isn’t exactly the nuclear option in the fight between the media industries and everyone else, but it does signal increased desperation.

I’m not exactly a non-combatant here.  Increasingly, everyone is being dragged into this fight, including search engines, ISPs, advertisers, financial transaction processors, and, in Protect IP is passed, anyone who uses a hyperlink.

But as someone who earns his living from information exchanges–what the law anachronistically calls “intellectual property”–I’m not exactly an anarchist either (or as one recent commenter on CNET called me, a complete anarchist!).

The development of an information economy will stabilize and mature at some point, and, I believe, the new supply chain will be richer, more profitable, and give a greater share of the value than the current one does to those who actually create new content.  (Most of the cost of information products and services today is eaten up by middlemen, media, and distribution.)

But it’s not an especially smooth or predictable trajectory.  Joseph Schumpeter didn’t call it creative destruction for nothing.

In my latest Forbes column, “Keeping The Video Revolution Going Strong,” I argue that we’ve been blessed to live through a veritable information revolution but that “many scarcity-era regulations remain on the books and threaten this ongoing revolution — especially in the video marketplace. So long as Washington continues to enforce regulations dating to the days of I Love Lucy, the old regulatory norms and edicts threaten to roll over onto emerging video technologies, stifling innovation and consumer choice.”

I go on to briefly discuss a few flashpoints in the ongoing video wars, including: the fights over “retransmission consent,” so-called “AllVid” tech mandates, and the broader battle to liberalize spectrum. “While the video revolution will hopefully continue apace, a light-touch from Washington will be essential to keep it going strong,” I conclude. “To the extent policymakers are looking to ‘level the (regulatory) playing field’ between the old and new video worlds, they should do so in the direction of freer markets, not more tech mandates.”

Anyway, read the whole thing over at the Forbes site.

In the rush of ink that flowed yesterday over AT&T’s announced merger with T-Mobile USA, I posted a long piece on CNET calling for calm, reasoned analysis of the deal by regulators, chiefly the Department of Justice and the FCC.

Since the details of the deal have yet to be fleshed out, it’s hard to say much about the specifics of how customers will be affected in the short or long term. My CNET colleague Maggie Reardon, however, does an excellent job laying out both the technical and likely regulatory issues in a piece posted today from the CTIA conference.

My point was simpler. Within hours of the deal’s announcement, and without any relevant facts, public interest groups including the Media Access Project, Public Knowledge and Free Press had already issued press releases condemning it–Public Knowledge, in fact, called the merger “unthinkable.”

That, I’m sure, was just rhetorical excess, but it does underscore a modern tendency among some advocates to react emotionally rather than rationally to any kind of asset combination. They assume any change in the competitive landscape that reduces competition in the literal sense (fewer competitors) is by definition an antitrust violation, and conflate that with what is in fact much more complex antitrust analysis that regulators undertake.  No need to think about it–it’s just evil.  (Please re-read Adam Thierer’s paper on merger terror, “A Brief History of Media Merger Hysteria.”)

What will be significant in this deal, I suspect, is who takes the lead. The Department of Justice has repeatedly indicated it believes there is robust competition in mobile services, and that an accelerated push to 4G (the point of this merger) could improve competition overall by creating a viable alternative to wireline broadband.

(See the DoJ’s letter to the FCC as part of the National Broadband Plan–which also, by the way, found robust competition in wireless, though the FCC has since back-tracked in an unconvincing manner.)

The FCC, on the other hand, has gone off the rails recently in its antitrust analyses, as evidenced by the painful, drawn-out review of Comcast’s takeover of NBC Universal and the crazy quilt of largely-unrelated conditions imposed on the deal in a nearly 300-page Order.

Worse, there’s still that nagging Paragraph 78 of the Open Internet order, where a majority of Commissioners explicitly rejected the idea that traditional antitrust measures of harm to consumers would guide their application of the net neutrality rules. (They offered no alternative criteria, even worse.)

Left to the FCC, the AT&T/T-Mobile deal will take forever to complete, and will be left shouldering regulatory pet projects for years. Left to the Department of Justice, something more reasonable and timely might happen.

But that’s just more thinking about the “unthinkable.” Pardon my logic.

What I hoped would be a short blog post to accompany the video from Geoff Manne and my appearances this week on PBS’s “Ideas in Action with Jim Glassman” turned out to be a very long article which I’ve published over at Forbes.com.

I apologize to Geoff for taking an innocent comment he made on the broadcast completely out of context, and to everyone else who chooses to read 2,000 words I’ve written in response.

So all I’ll say here is that Geoff Manne and I taped the program in January, as part of the launch of TechFreedom and of “The Next Digital Decade.“   Enjoy!

[UPDATE Feb. 2012: This little essay eventually led to an 80-page working paper, "Technopanics, Threat Inflation, and the Danger of an Information Technology Precautionary Principle."]

In this essay, I will suggest that (1) while “moral panics” and “techno-panics” are nothing new, their cycles seem to be accelerating as new communications and information networks and platforms proliferate; (2) new panics often “crowd-out” or displace old ones; and (3) the current scare over online privacy and “tracking” is just the latest episode in this ongoing cycle.

What Counts as a “Techno-Panic”?

First, let’s step back and define our terms. Christopher Ferguson, a professor at Texas A&M’s Department of Behavioral, Applied Sciences and Criminal Justice, offers the following definition: “A moral panic occurs when a segment of society believes that the behavior or moral choices of others within that society poses a significant risk to the society as a whole.” By extension, a “techno-panic” is simply a moral panic that centers around societal fears about a specific contemporary technology (or technological activity) instead of merely the content flowing over that technology or medium. In her brilliant 2008 essay on “The MySpace Moral Panic,” Alice Marwick noted:

Technopanics have the following characteristics. First, they focus on new media forms, which currently take the form of computer–mediated technologies. Second, technopanics generally pathologize young people’s use of this media, like hacking, file-sharing, or playing violent video games. Third, this cultural anxiety manifests itself in an attempt to modify or regulate young people’s behavior, either by controlling young people or the creators or producers of media products.

While protection of youth is typically a motivating factor, some techno-panics transcend the old “It’s For the Children” rationales for information control. What all panics share in common, however, is a general desire by the public, media pundits, and policymakers to “do something” to rid ourselves of the apparent menace. Thus, an effort to control the particular content or technology in question is what really defines a true “panic.”

It’s impossible to be scientific about this but there seems to be a cycle of such moral panics or techno-panics at work in our society.  Indeed, looking back over the past few decades, it seems that we experience a new panic roughly every 3 to 5 years. Consider this chronological breakdown of some notable techno-panics since the 1980s on:

• mid-1980s: music lyrics and music videos
• early to mid-1990s: violent video games
• mid- to late 1990s: Internet porn
• late 1990s to early 2000s: browser cookies + kids privacy
• mid-2000: TV & movie violence
• mid- to late 2000: online predators / “stranger danger”
• late 2000s to present: cyberwar
• late 2000s to present: online privacy / web “tracking”

Of course, there were other “mini-panics” that occurred during this stretch and, again, some of them did not involve child safety rationales. There was a brief panic over RFID chips and even the Y2K scare in the late 1990s, for example. Some might argue we also had a bit of panic with copyright and file-sharing back in the early 2000s, and perhaps even one back in the early 1980s when the VCR came on the scene, although that seemed to be more industry-driven. Wireless geo-location and geo-tagging has also been getting more attention recently and still may blossom into a full-blown techno-panic.   And you could make the case that we experienced a different type of techno-panic last year over the supposed “Death of the Web,” although few took that one all that seriously.

Why Do Techno-Panics Pass?

To be clear, there are no clear boundaries with techno-panics.  They do not just suddenly begin and end, and it is impossible to gauge their relative severity since no metric or yardstick exists to measure them against.  Nonetheless, these techno-panics certainly seem to have peaks and valleys in terms of public / political / media attention.

Just a few years ago, for example, the online predator panic reached a fever pitch and “stranger danger” reports were all over the media. As a result, legislation banning social networking sites in publicly funded schools and libraries was introduced, and state attorneys general proposed mandatory online age verification schemes for the Internet to segregate adults and children online. And then, it seems, the fever passed. I couldn’t tell you exactly what week or month it happened — and in many ways some of those fears still exist out there — but it’s clear that the panic about online predation has subsided greatly. I’d like to think that education and awareness helped debunk some of the myths that were fueling that particular panic, just as I’d like to believe that education and awareness helped deflate the fear bubbles that surrounded previous panics.

While I don’t want to entirely discount that possibility, I’m convinced another more cynical explanation may exist: New techno-panics simply crowd-out old techno-panics. There may be several explanations for this:

• Perhaps there is only so much fear-mongering our minds can handle at any given time.
• Perhaps it is becuase the media gets myopically focused on one panic and then hammers it till all the fear has been squeezed out of it such that they have to move on.
• Perhaps it is because a new technology comes along that spooks politicians and the media even more than the previous one they were demonizing.
• Or perhaps all of those factors combine to limit the duration of panics.

Regardless, it seems evident that moral panics and techno-panics have always been with us and will always be with us. From the waltz to rock and roll to rap music, from movies to comic books to video games, from radio and television to the Internet and social networking websites — every new media format or technology spawns a fresh debate about the potential negative effects it might have on society or our kids in particular. An excellent recent report by the U.K. government entitled Safer Children in a Digital World noted that “New media are often met by public concern about their impact on society and anxiety and polarisation of the debate can lead to emotive calls for action.” Indeed, each of the media technologies or communications platforms mentioned above was either regulated or threatened with regulation at some point in its history.

The Cycle is Accelerating but is the Severity of Each Panic Diminished as a Result?

However, it seems like these cycles are now accelerating somewhat.  They peak and fizzle out faster, that is. Perhaps that is a natural outgrowth of the technological explosion we have witnessed in recent years.  Digital innovation is unfolding at a breakneck pace and each new development gives rise to a new set of concerns. Going forward, this could mean we experience more “mini-panics” and fewer of those sweeping “the-world-is-going-to-hell” type panics.

This brings me to the current debate over online advertising, web “tracking,” and personal privacy. What’s interesting about this debate is that, unlike many of the other moral or techno-panics mentioned above, this debate is not being driven by the mantra that “It’s For the Children.”  Today’s privacy panic reflects a more widespread unease with the notion that our digital footprints are somehow being “tracked” for nefarious purposes.  In reality, there isn’t anything nefarious going on here at all. Online sites and service providers are simply using data collection to improve our web experience and better target ads to us in an attempt to cross-subsidize all that wonderful free stuff we enjoy online today. This is truly one of the great pro-innovation, pro-consumer success stories of modern times.  Yet, irrational fears about data collection and targeted marketing have given rise to the second major privacy techno-panic of the past dozen years. (Again, the first privacy-related panic was the “cookie craze” that took place back in the late-90s but then subsided). It is also somewhat ironic that many of the same people and groups who have done yeoman’s work debunking techno-panics in other contexts are driving this modern privacy panic.

I want to make it clear that I am not oblivious to the fact that there are occasionally some legitimate concerns behind some of these moral panics or techno-panics.  For example, I certainly don’t want my young children (ages 9 & 6) viewing hard-core porn, playing extremely violent video games, or even reading graphic comics. And I understand that some forms of personal information are quite sensitive and a legitimate topic for policy discussions.  But, again, these concerns are typically greatly over-hyped, and to the extent that they represent more legitimate concerns, I would argue that education and empowerment-based solutions typically represent a more sensible approach than regulation. Although I sometimes question whether the “harm” that people fear is legitimate, I would hope we could work together to find more sensible ways to address people’s concerns without calling for comprehensive control of the media, content, technology, or the Internet more generally.

Resiliency, Responsibility & Common Sense

Finally, in these discussion, I believe many people overlook the importance of human adaptability and resiliency.  The amazing thing about humans is that we adapt so much better than other creatures. When it comes to technological change, resiliency is hard-wired into our genes.  “The techno-apocalypse never comes,” notes Slate’s Jack Shafer, because “cultures tend to assimilate and normalize new technology in ways the fretful never anticipate.” We learn how to use the new tools given to us and make them part of our lives and culture.  Indeed, we have lived through revolutions more radical than the Information Revolution.  We can adapt and learn to live with some of the legitimate difficulties and downsides of the Information Age. [See my recent book chapter on, "The Case for Internet Optimism, Part 1: Saving the Net From Its Detractors."]

A healthy does of humility, patience, personal responsibility, and good ‘ol common sense will usually get us through these things. Quite literally, there is no need to panic!

Related Reading

• Techno-Panic Cycles (and How the Latest Privacy Scare Fits In)
• Against Techno-Panics
• Collier on “Why Technopanics are Bad”
• Kids, Media, Commercialism & Moral Panic
• The Next Great Technopanic: Wireless Geo-Location / Social Mapping
• Technopanics and the Great Social Networking Scare
• Sen. Klobuchar Stirs Up Facebook Child Safety Technopanic
• A Rarity: Newspaper Argues Against Techno-panic, Cites Constitution
• Google Street View/Wi-Fi Privacy Technopanic Continues
• Digital Sensors, Darknets, Hyper-Transparency & the Future of Privacy

It was my pleasure today to debate the future of public media funding on Warren Olney’s NPR program, “To The Point“.  I was 1 of 5 guests and I wasn’t brought into the show until about 29 minutes into the program, but I tried to reiterate some of the key points I made in my essay last week on “‘Non-Commercial Media’ = Fine; ‘Public Media’ = Not So Much.”  I won’t reiterate everything I said before since you can just go back and read it, but to briefly summarize what I said there as well as on today’s show: (1) taxpayers shouldn’t be forced to subsidize speech or media content they find potentially objectionable; and (2) public broadcasters are currently perfectly positioned to turn this federal funding “crisis” into a golden opportunity by asking its well-heeled and highly-diversified base of supporters to step up to the plate and fill the gap left by the end of taxpayer subsidies.

Just a word more on that last point. As I pointed out on the show today, it’s an uncomfortable fact of life for NPR that their average listener is old, rich, highly-educated, and mostly white.  Specifically, here are some numbers that NPR itself has compiled about its audience demographics:

• The median age of the NPR listener is 50.
• The median household income of an NPR News listener is about $86,000, compared to the national average of about $55,000.
• NPR’s audience is extraordinarily well-educated.  Nearly 65% of all listeners have a bachelor’s degree, compared to only a quarter of the U.S. population.  Also, they are three times more likely than the average American to have completed graduate school.
• The majority of the NPR audience (86%) identifies itself as white.

Why do these numbers matter? Simply stated: These people can certainly step up to the plate and pay more to cover the estimated $1.39 that taxpayers currently contribute to the public media in the U.S.  But wait, there’s more! There are plenty of other existing corporate and foundational supporters out there who already make sizable contributions to NPR. Down below, I have attached a list that appeared in the NPR’s 2008 annual donor list of just the corporations who currently support NPR and it includes only those companies who support at a level greater than a half million per year. There are many others who offer annual support for less than that and then there are the hundreds of foundations and wealthy families who give major gifts of varying amounts.

Again, these individual benefactors could all probably be prodded to give a bit more, and plenty of others out there would likely step up to the plate to meet the challenge of filling the small gap left by ending taxpayer support.  For God’s sake, just look at that list of current top-dollar corporate supporters for NPR down below!  It reads like a “Who’s Who” of the Fortune 500 giants and it must leave all of NPR’s competitors stinging with jealous about how smart it was for non-commercial media to diversify its base of philanthropic support so long ago.

Thus, there’s no reason that public media operators can’t take the next step and find alternative means of support to fill the 16% of their budgets that currently comes from taxpayers.  In these tight fiscal times, it’s only fair.

$1 Million + Supporters of NPR in 2008

• Angie’s List
• CITGO Petroleum
• Corporation CSX Corporation
• Feeding America
• Fox Searchlight Pictures
• General Motors Corporation
• Institute for Supply Management
• Insurance Company
• Intel Corporation
• Johnson Controls
• Kashi Company
• Lindamood-Bell Learning Systems
• Lumber Liquidators
• MasterCard
• MGM
• National Association of Realtors
• Netflix
• Northwestern Mutual Foundation
• Novo Nordisk
• Overture Films
• Pabst Brewing Company
• Paramount Home Entertainment
• Paramount Pictures
• Prudential Financial
• PBS Raymond James Financial Services
• Philips Healthcare
• POM Wonderful REI
• Progressive Casualty Insurance
• Scotts Miracle-Gro Company
• State Farm Mutual Automobile
• Travel Guard
• U.S. Bank Vestas
• Universal Pictures
• Visa Warner Home Video
• Walden University Yahoo!
• Wind Systems

$500,000-$999,999 Supporters of NPR in 2008

• Cargill
• Citibank
• Constant Contant
• Constellation Energy
• Focus Features
• iShares
• Leanding Tree
• Lenovo
• Lionsgate
• Entertainment
• CNetApp
• Pajamagram Company
• Saturn
• Sit4Less.com
• Subaru
• T. Rowe Price
• UPS
• Vanguard Group

[Read rest of the list of this impressive list of NPR corporate and foundational supporters here.  Has there ever been a more well-diversified base of support for any media operation in American history?  I think not. As Jill Lawrence points out on Politics Daily, public media's extremely loyal -- and rich -- fan base are not about let NPR and PBS die.]

I’m not one of those libertarians who incessantly rants about the supposed evils of National Public Radio (NPR) and the Public Broadcast Service (PBS).  In fact, I find quite a bit to like in the programming I consume on both services, NPR in particular. A few years back I realized that I was listening to about 45 minutes to an hour of programming on my local NPR affiliate (WAMU) each morning and afternoon, and so I decided to donate $10 per month. Doesn’t sound like much, but at $120 bucks per year, that’s more than I spend on any other single news media product with the exception of The Wall Street Journal. So, when there’s value in a media product, I’ll pay for it, and I find great value in NPR’s “long-form” broadcast journalism, despite its occasional political slant on some issues.

In many ways, the Corporation for Public Broadcasting, which supports NPR and PBS, has the perfect business model for the age of information abundance. Philanthropic models — which rely on support for foundational benefactors, corporate underwriters, individual donors, and even government subsidy — can help diversify the funding base at a time when traditional media business models — advertising support, subscriptions, and direct sales — are being strained.  This is why many private media operations are struggling today; they’re experiencing the ravages of gut-wrenching marketplace / technological changes and searching for new business models to sustain their operations. By contrast, CPB, NPR, and PBS are better positioned to weather this storm since they do not rely on those same commercial models.

Nonetheless, NPR and PBS and the supporters of increased “pubic media” continue to claim that they are in peril and that increased support — especially public subsidy — is essential to their survival.  For example, consider an editorial in today’s Washington Post making “The Argument for Funding Public Media,” which was penned by Laura R. Walker, the president and chief executive of New York Public Radio, and Jaclyn Sallee, the president and chief executive of Officer Kohanic Broadcast Corp. in Anchorage. They argue:

The CPB’s federal appropriation this fiscal year is $430 million – about $1.39 per American. More than 70 percent of that funding goes to local stations around the country, accounting for, on average, nearly 16 percent of their annual budgets. For some, such as New York Public Radio, CPB funding is a smaller – although important – part of the operating budget because their audience size and urban location enable them to rely on a mix of membership, foundation and underwriting support. For stations in rural or economically hard-hit areas that aren’t able to attract as much other support, CPB funding is their lifeblood.

But regardless of whether the federal subsidy to local stations is trivial or substantial, like most other supporters of “public media,” Walker and Sallee jump right past the moral discussion of whether it is right to force citizens to subsidize media they may not find to their liking. Again, as it pertains to NPR at least, I am not one of these people, but I am entirely sympathetic with those — mostly of a conservative persuasion — who find it offensive to be forced to use their tax dollars to support programs they find objectionable for whatever reason.  And while I do not believe that NPR and PBS are as hopelessly biased as some conservatives suggest, I think it’s fair to say that there’s more than a hint of liberal bias in many of their programs and reporters. (Personally, I do not mind some of that bias, but I do find it silly that some of these reporters, editors, and their defenders continue to pretend no such bias exists. Even with a liberal slant to some of their reports, they are still great reports.)

The reason this is important is because forcing citizens to fund even more media content they might find objectionable will lead to endless political controversy and increased public tensions. My former PFF colleague Randy May, now president of the Free State Foundation, correctly argues that:

when government-supported media—that is, media supported with our tax dollars—decide what content should be filtered or amplified regarding issues of public importance… government’s involvement tends to exacerbate public tensions in a way that makes civil discourse more difficult. This is because government content decisions are seen by many as tilting the public policy playing field in a way inconsistent with their beliefs.

Sure, I understand that we taxpayers are forced to subsidize many things we don’t like or even find offensive.  But that’s hardly a good argument for forcing to subsidize even more, especially when it comes to speech and media. Should liberals be forced to help fund the next Fox News or Rush Limbaugh? Should conservatives have to support the next Keith Olbermann or Bill Moyers?  Should independents or libertarians have to subsidize any of this?  As Thomas Jefferson famously put it in the 1786 Virginia Act for Establishing Religious Freedom, “to compel a man to furnish contributions of money for the propagation of opinions which he disbelieves, is sinful and tyrannical.” That is, we naturally — and rightly — resent subsidizing speech that is antithetical to our own values.

But won’t public media wither and die without taxpayer subsidy, as Walker and Sallee suggest?  I don’t think so. First, to reiterate, public media is already well-diversified and has multiple funding streams to fall back on such that the 16% that comes from taxpayers could be replaced by other sources as it is phased out. Moreover, as the defunding process unfolds, it presents public media with the perfect opportunity to lock in long-term funding from those other sources. Public media supporters like to claim that $430 million (or $1.39 per taxpayer) per year isn’t that big of a burden.  OK, sure, but that argument cuts both ways. If they really feel it isn’t such a huge expense, then certainly we can find other sources to cover that $1.39 per year!  In fact, I can imagine a massive CPB/PBS/NPR fundraising campaign based entirely on “Doing Your Part to Cover the Gap” or other such gimmicks.

What I am getting at here is that the time has come to make a firm break with “public media” notions but to simultaneously embrace “non-commercial media” as a viable and important part of our modern media marketplace. “Public media” will always be a contentious term and be subjected to endless politicization.  “Non-commercial media,” by contrast is more value-neutral and should be easier for citizens of all ideological stripes to accept since it implies media that is not supported by advertising or subscriptions but which is also free of forcible taxpayer subsidy.

Again, CPB is already 84% of the way there! We can find creative ways to bridge the gap and cover that remaining 16%.  I’d happily double my annual contribution to my local NPR affiliate today if they agreed to drop federal subsidies.  And I bet plenty of other people and organizations would step up to the plate and meet this challenge, too.

Last week, it was my great honor to speak at the 2011 State of the Net 2011 event, where I participated in a panel discussion about the future of the online video marketplace.  In an earlier essay, I mentioned how some of the discussion that day revolved around the Comcast-NBCU merger, which had just been approved by the FCC, but with unprecedented strings being attached.  The heart of the panel discussion, however, was a debate about the future of online video and regulation of the video marketplace more generally. Also joining me on the panel were Susan Crawford of Cardozo Law School, William Lehr of MIT, Marvin Ammori of Nebraska Law School, and Richard Bennett of ITIF.

During my response time on the panel, which begins around 28:45 of the video, I made a couple of key points:

• We’re living in the golden age of video. In considering the state of the video marketplace, we need to put things in some historical context. We should appreciate just how far we’ve come from the “age of scarcity,” in which we only had access to a handful of VHF and UHF broadcast channels in most communities, compared to present day. Indeed, we are today blessed today to live in a world of information abundance. By the FCC’s last count, 565 cable or satellite channels exist today and those channels and programs are available over more platforms (cable, satellite, telco, online, mail, etc) than ever before.
• Deregulation (or light-touch) rules helped. Video distribution and program diversity thrived as the FCC gradually loosened the regulatory chains or forebore from regulating emerging video platforms or programs.  By contrast, in the highly-regulated past, innovation, competition, and diversity were stagnant.
• “Gatekeeper” control fears are bunk. Content continues to flow over multiple platforms in an unprecedented manner. That only makes sense since content creators and distributors have every incentive to get as much content pushed out on as many platforms as possible in order to make money! No one ever got rich in this space by locking up all their content. Moreover,  vertical integration of programming by MVPDs is at its lowest point in the past 20 years. The percentage of channels owned by video distributors has fallen from 50% in 1990 to around 15% today.
• Youngsters today don’t “watch TV” anymore. They watch YouTube, Hulu, Netflix, Apple TV, Google TV, Amazon, XBox Live, PlayStation, Roku, etc.  The video market is highly dynamic and subject to seemingly constant disruptive technological change.
• Level the playing field in favor of more freedom. To the extent there is a regulatory asymmetry at work between the old media marketplace and the online or Internet video world, and to the extent policymakers are looking to “level the regulatory playing field” between them, I argued we should level the playing field in favor of freedom.
• Clean up the old mess now. Therefore, the old rules need to go. Those rules would include must carry mandates and other carriage requirements / compulsory licensing rules, retransmission consent rules, “localism” and other program content mandates, set-tob box regs, advertising limitations, etc.
• Or, at least don’t extend old mess to new world. If lawmakers refuse to get rid of the old rules, however, we should erect a high and tight firewall between the old and new worlds and not muck up the new online video ecosystem with rules and regulations that would stifle the wonderful developments and diversity we are witnessing today.

See the entire State of the Net 2011 panel on YouTube here.

At this week’s excellent State of the Net 2011 event, I participated in a panel discussion about the future of the online video marketplace.  Unsurprisingly, a great deal of time was spent discussing the Federal Communications Commission’s (FCC) recent approval of the proposed merger of Comcast and NBC Universal (NBCU). On Tuesday, the agency voted 4-1 to approve the deal with myriad conditions and “voluntary” concessions being attached.  The FCC voted on the matter and issued a short press release and late today issued its final 279-page order.

The Commission’s Comcast-NBCU order represents an unprecedented regulatory shakedown of a company that obviously would have done just about anything to gain approval of the deal.  I believe the conditions the FCC has imposed on the deal, which are to run for seven years, are tantamount to a death by a thousand cuts for the deal and, ultimately, could lead to its failure.  That’s because the requirements placed on the new entity make it practically impossible for Comcast to leverage the content it is acquiring from NBCU and profit from it such that they can recoup the significant costs associated with the deal.

In essence, Comcast-NBCU was forced to preemptively surrender much of its intellectual property rights by agreeing to share most of their content properties with others on terms someone else will determine.  That’s a recipe for disaster.  If Comcast-NBCU doesn’t have the right and ability to cut deals on terms that they find advantageous to the company and its shareholders, then why go through with this deal at all? Isn’t the whole point of such a deal with get some additional in-house content properties — something Comcast almost completely lacked previously — such that it would have some content gems to highlight and leverage in an attempt to attract new customers (or just keep old ones)? If someone else is constantly setting the terms of their deals, it will limit the inherent value of the IP owned by Comcast-NBCU and sap most of the value from the deal.

Particularly concerning in this regard is the language of the FCC’s order dealing with online video marketplace. As a condition of approval, the FCC’s plan requires that Comcast-NBCU:

• Provides to all MVPDs, at fair market value and non-discriminatory prices, terms, and conditions, any affiliated content that Comcast makes available online to its own subscribers or to other MVPD subscribers.
• Offers its video programming to legitimate OVDs [online video distributors] on the same terms and conditions that would be available to an MVPD.
• Makes comparable programming available on economically comparable prices, terms, and conditions to an OVD that has entered into an arrangement to distribute programming from one or more of Comcast-NBCU’s peers.
• Offers standalone broadband Internet access services at reasonable prices and of sufficient bandwidth so that customers can access online video services without the need to purchase a cable television subscription from Comcast.
• Does not enter into agreements to unreasonably restrict online distribution of its own video programming or programming of other providers.
• Does not disadvantage rival online video distribution through its broadband Internet access services and/or set-top boxes.
• Does not exercise corporate control over or unreasonably withhold programming from Hulu.

The first thing to note about this language is that, through a merger proceeding, the FCC has just inserted itself into the online video marketplace in a major way and began regulating it.  Not so long ago, the idea of the FCC regulating the Net and online video would have been scoffed at and rejected as outlandish.  But here we are now with the FCC knee-deep into the daily workings of the online marketplace without Congress ever having passed a law authorizing such a thing.

The second thing to note about those online video provisions is that they potentially foreshadow the rise of a compulsory license for online video distribution.  In essence, to use antitrust parlance, Comcast-NBCU has a “duty to deal” its content to others on terms that regulators will police.  Of course, we already have many compulsory licenses in place in America, including one for traditional cable television, so it will be tempting for some to say, ‘why not one for online video, too?’  But it seems like this would have been a good time to give good ol’ fashion market competition and contractual negotiations a chance instead.  After all, where is the harm here?  If NBC’s content is supposedly so valuable that Comcast will exploit it in future online video negotiations, why hasn’t NBC been exploiting that content for years already?

Of course, this exposes the real irony of all this hand-wringing about the Comcast-NBCU deal: It’s a fight about supposedly “Must See TV” that not everyone feels they must see anymore!  Don’t get me wrong, NBCU does have some wonderful content in its stable of properties, and Comcast is no doubt happy to have something better than the Golf Channel under it’s corporate umbrella now.  But, seriously, would the Earth spin of its axis tomorrow if Comcast suddenly decided to try to lock up all its new NBC content and refuse to deal with anyone else on equal terms?  That would be highly unlikely, of course, since it would be economic suicide to restrict access to a single platform. But if they did, would anyone really care?   In the modern world of content abundance and distribution platform diversity, it’s hard to image most consumers would.  Comcast has bet the farm on the opposite theory — that NBCU content is still hotly demanded and will add real value to the company — and yet, even without the onerous conditions it has been forced to agree to here, the firm must know just how risky this move is for them and their shareholders.  Those who lost their shirts on the failed AOL-TimeWarner and NewsCorp-DirecTV deals can attest to how illusive those so-called “synergies” can be when two very different media operations and cultures are merged. [Read my old paper on "A Brief History of Media Merger Hysteria" for all the grim details on those deals and how they went south so quickly.]

Finally, perhaps the most interesting provision in the FCC’s order is the requirement that Comcast-NBCU “makes comparable programming available on economically comparable prices, terms, and conditions to an [online video distributors] that has entered into an arrangement to distribute programming from one or more of Comcast-NBCU’s peers.” As I read it, what this means is that when competing content companies — such as Disney, News Corp., Viacom, etc. — cut deals with an online video distributors, it establishes a precedent for what is expected of Comcast-NBCU when they go to strike terms and prices with OVDs.  How long will it be before this provision leads to accusations of collusion among major content companies?!  Moreover, this provision is somewhat insulting since it basically assumes all content is created equal when that is most definitely not the case.  When Disney is negotiating with an OVD to carry ESPN, should that deal really have any bearing on Comcast cutting a deal with someone for the Golf Channel or Versus?

There are many other provisions and conditions that I haven’t bothered detailing here, including program “localism” mandates, broadband deployment and pricing requirements, program “diversity” requirements, children’s television mandates, more “PEG” programming requirements, and more.  But wait, you ask: won’t all these provisions and the others discussed above benefit consumers?  It’d be nice to imagine that the FCC could work such magic by waving its regulatory wand and trying to mandate consumer benefits into existence by decree. And perhaps some of these requirements will help some consumers in a marginal way.  In reality, however, healthy companies are the better way to serve customers with new and better services.  Hamstringing merging entities with layers of red tape like this is particularly misguided in light of how much money is being spent to make the deal happen.  Finally, regulators should just be happy that someone out there wanted to take over NBC and help the struggling media operator rebound!  If regulators are really concerned about the future of  “localism” or the health of traditional media operators like NBC more generally, asking for a pound of flesh through a set of “voluntary” concessions like these isn’t a good way to achieve that goal.

I reported for CNET yesterday on highlights from the State of The Net 2011 conference.  Though I didn’t attend last year’s event, I suspect much of the conversation hasn’t changed.

For an event that took place nearly a month after the FCC’s “final” vote on net neutrality, the issue seems not to have quieted down in the least.  A fiery speech from Congresswoman Martha Blackburn promised a “Congressional hurricane” in response to the FCC’s perceived ultra vires decision to regulate where Congress has refused to give it authority, a view supported by House and Senate counsel who spoke later in the day.

There seemed to be agreement from Republicans and Democrats that undoing the Open Internet Report and Order was the Republicans’ top priority on the tech agenda.  Blackburn has already introduced a bill, with at least one Democratic co-sponsor, to make clear (clearer?) that the FCC has no authority to regulate any Internet activity.  And everyone agreed that the Republicans would move forward with a resolution of disapproval under the Congressional Review Act, and that the resolution would pass the House and probably the Senate.  (Such resolutions are filibuster-proof, so Senate Republicans would need only a few Democrats.)

House Energy and Commerce senior counsel Neil Fried had mentioned the CRA resolution at CES a few weeks ago.  But now it’s been upgraded from a possibility to a likelihood.

The disagreement comes over whether President Obama would veto the resolution. Speculating in a vacuum, as many participants did, doesn’t really help.   The answer will ultimately depend on what other horse trading is in progress at the time.  (See:  tax cuts, health care, etc.)  Much as those of us who follow net neutrality may think it’s the center of the political universe, the reality is that it could easily become a bargaining chip.

That’s especially so given that almost no one was happy with the rules as they were finally approved.   Among advocates, opponents, and even among the five FCC Commissioners, only Chairman Genachowski had any enthusiasm for Order.  (He may be the only enthusiast, full stop.  On a panel on which I participated on the second day, advocates for net neutrality were tepid in their support of the Order or its prospects in court.  I think tepid is being generous.)

And everyone agreed that there would be legal challenges based on the FCC’s dubious statutory authority.  Amy Schatz of the Wall Street Journal said she knew of several lawyers in town shopping for friendly courts, and that pro-regulation advocates may themselves challenge the rule.  Timing could be important, or not.

Beyond net neutrality, which seems likely to dominate the tech agenda for the first six months of the new Congress, bi-partisan words were flung over the need to resolve the imminent (arrived?) “spectrum crisis,” and to reform the bloated and creaky Universal Service Fund.  These, it’s worth remembering, were two of the top priorities from last year’s National Broadband Plan, which sadly disappeared into the memory hole soon after publication.

Other possible agenda items I heard over the course of the two day event, but much farther down the list:  revival of COICA (giving DHS new powers to seize domains used for trademark and copyright violations), privacy, cloud computing, cybersecurity, ECPA reform, retransmission, inter-carrier compensation, and Comcast/NBC merger.  I missed a few panels, so I’m sure there was more.

What are the chances any of these conversations will actually generate new law?  Anybody?

I am so gonna retweet this.

So now you can pay Netflix $7.99 a month and stream all the video you want? Damn cool if you ask me!

What does the Netflix decision mean for consumers—two words: More choice! This is what functional markets deliver. There was a time when if you missed an episode of your favorite show, that was it. You might have gotten lucky and caught it on its single rerun, but that was hit or miss. These days, I can watch The Office at 8 p.m. on Thursday nights. Or I can record on my DVR and watch it later that night. Or I can watch it the next day on my PC by visiting nbc.com. Or I can watch it on-demand from my cable box. Or I can wait a few months and watch it on DVD. Or, soon, via Netflix stream.

I can’t help but wonder if this makes moot all the handwringing about the FCC’s desire to place conditions on the online services a merged Comcast-NBC Universal can offer. Come on, Netflix has blown up the whole cable TV model.

Remember when everyone from Congress down to city utility commissions were demanding the cable industry create “a la carte” pricing plans, allowing subscribers to pick the channels they wanted and pay only for those. Netflix, as the ultimate video-on-demand service, has come close to doing so, absent any government mandate.

I don’t consider myself a TV junkie, but I’ll allow that I watch my fair share. Yet except for sports and news, I rarely watch regular programming at the time it airs. I timeshift nearly everything with my DVR.

In the past couple of years, I find myself doing a more dramatic form timeshifting. Thanks to DVDs, I can wait a year or two for a series to really prove itself before committing the time to watch. My wife and I came to “The Office” and “Burn Notice” late, catching up on past seasons on disk before (recording and) watching shows as they regularly air now.

Do I still pay for cable? Sure. But I dropped premium services such as HBO because I know I can eventually get “The Pacific” and “Big Love” on DVD. If Netflix pulls Web streaming off to the extent it hopes, all I may need is basic cable.

Naturally, Netflix’s streaming service is disruptive enough to stir up the usual “concern” in legislative circles as to whether something or other about it is unfair. You can bet someone’s going to accuse Netflix of trying to monopolize streaming licenses, just like you can bet that Congress or one of the federal watchdog agencies is going to insist Web streaming constitutes an individual market, and is not one of many business models for entertainment distribution. The Federal Trade Commission exhibited this mentality when it blocked the merger between Blockbuster and Hollywood Video. It ignored the measurable threat Netflix posed to both companies’ survival and persisted in seeing brick-and-mortar video rental as its own sector, distinctly separate from video rental via the mail. Although the FTC desired to preserve consumer choice, both companies ended up in bankruptcy.

That’s why the best thing regulators can do now is let this play out.

The big question is whether Netflix will be able to stock enough streaming titles to encourage people to use their service instead of DVD or on-demand cable. Cable companies have the right to protect their investment in programming. They should not be forced to yield licenses or programming exclusivity to Netflix. Similarly, the government should not prevent Netflix from seeking competitive advantageous content agreements with studios and distributors. Regulators should also avoid the temptation to “encourage competition,” namely by propping up failing business models to protect favored companies and segments. They’re big boys now. Let ‘em play.

Today, the U.S. Supreme Court will hear arguments in Schwarzenegger v. EMA, a case that challenges California’s 2005 law banning the sale of “violent” video games to minors. The law has yet to take effect, as rulings by lower federal courts have found the law to be an unconstitutional violation of the First Amendment.

There’s little doubt that banning the sale of nearly any content to adults violates the protections of Free Speech, including, as decided last year, video depictions of cruelty to animals.

But over the years the Court has ruled that minors do not stand equal to adults when it comes to the First Amendment. The Court has upheld restrictions on the speech of students in and out of the classroom, for example, in the interest of preserving order in public schools.

And in the famous Pacifica case, the Court upheld fines levied against a radio station for airing the famous George Carlin monologue that, not-so-ironically, satirizes the FCC for banning seven particular words from being uttered over the public airwaves.

The basis for that decision was that children could be negatively influenced from hearing such language. And children have easy access to radio and TV, while parents had no effective way to keep particular broadcasts out of the house.

In today’s argument, California’s legal arguments center largely on another case, the Supreme Court’s 1968 decision in Ginsberg. There, the Court upheld state restrictions on the sale of pornography to minors, even though the material was protected speech for adult purchasers.

In Schwarzenegger v EMA, California is urging the Court to extend Ginsberg’s reasoning to include content that meets it definition for violent video games. The statute defines “violent video games” as those “in which the range of options available to a player includes killing, maiming, dismembering, or sexually assaulting an image of a human being, if those acts are depicted” in a manner that “[a] reasonable person, considering the game as a whole, would find appeals to a deviant or morbid interest of minors,” that is “patently offensive to prevailing standards in the community as to what is suitable for minors,” and that “causes the game, as a whole, to lack serious literary, artistic, political, or scientific value for minors.”

Ginsberg, the state argues in its brief, upheld a ban the sale of sexual content to minors because such content is dangerous to their development. So too, they argue here, with violent video games. (Parents and other adults, of course, could still buy the games for minors if the statute were to go into effect.)

Indeed, the state argues that such material has as much if not more of a negative impact on the development of children than does sexual material.

That, of course, is a question open to considerable debate. After the fact, the state cites a number of academic studies that find a correlation between violent video game exposure (including games, such as Super Mario Brothers, well outside the the California definition) and anti-social behavior. But, as excellent reply briefs from the Entertainment Merchants Association and a joint brief from the Progress and Freedom Foundation and the Electronic Frontier Foundation point out, the methodology in these studies has been roundly criticized.

Moreover, California doesn’t seem to understand that the statistical significance of a correlation does not necessarily translate to real-world behavior—correlation is not the same as causation, no matter how strong the statistics. And even the authors of the studies most relied on by the state recognize that it isn’t clear in which direction the correlation moves—are children who play violent video games more likely to have violent thoughts because they played the game, or are pre-existing violent thoughts what attracts them to the games?

Why Video Games? Why Now?

The Court may focus on those studies in its decision, but I have a different question. Why are California and other states picking on video games, and why now? That, to me, is the more interesting problem, one that gets little attention in the briefs and, I would guess, in the Court’s eventual decision.

Perhaps the why is obvious: as EMA’s brief points out, similar attacks have accompanied the rise in popularity of every new form of media to emerge throughout U.S. history.

The California statute … is the latest in a long history of overreactions to new expressive media. In the past, comic books, true-crime novels, movies, rock music, and other new media have all been accused of harming our youth. In each case, the perceived threat later proved unfounded. Video games are no different.

The PFF/EFF brief goes farther, accusing California legislators of succumbing to “moral panic, as lawmakers have so often done when confronted with the media of a new generation.”

Examples as varied as Greek classics, the Bible, the Brothers Grimm and Star Wars all suggest, EMA points out, that extreme–even gruesome–violence has always been a favorite subject of literature, often aimed specifically at children. As federal appellate judge Richard A. Posner wrote in rejecting a similar Indiana law, “Self defense, protection of others, dread of the ‘undead,’ fighting against overwhelming odds—these are all age-old themes of literature, and ones particularly appealing to the young.”

But why now? The answer is, not surprisingly, Moore’s Law. Laws regulating the content or distribution of video games are a classic example of the conflict I described in The Laws of Disruption.

As technology has made video game graphics more realistic and lifelike, they have captured the attention—and here the nightmares—of regulators in the real world who equate what they see on the screen with behaviors that would clearly violate laws and norms of the real world. They don’t like what they see in games including Grand Theft Auto and Resident Evil, and their impulse is to find a way, somehow, to stop it, even if it’s only a simulation.

It was not that long ago—in my life time, in any case—that video games were still in their Neolithic Era. Consider Pong, the first home video game from Atari in 1975. It would take an imagination greater than mine to think of the batting of a block of monochrome pixels by a bar of pixels to be violent enough to corrupt youth; likewise the breaking of a wall of pixels one at a time in the follow-on game Breakout.

But a few years later, consider the commercial (courtesy of YouTube) for Activision’s ice hockey game.

The game promises to be one of the “roughest” video games ever, “battling for the puck” with “fierce body checking” and “ruthless tripping.” Just watching the players fight it out drives a meek-looking Phil Hartman into a frenzy; within a few seconds he seems ready to attack the clerk who teases him that he’s not yet ready for it.

But despite an ad that explicitly suggests a connection between playing (or even watching the game) and becoming violent, the actual graphical quality of the violence is so disconnected from visual reality that it never occurred to any state legislature to ban or otherwise restrict it.

Now fast-forward just a few short decades later to the imminent release of Xbox 360’s Kinetics and one of the games that takes advantage of it called Kinectimals.

Using Microsoft’s new sensor technology, realistically-rendered animals can be controlled simply by issuing voice commands or by mimicking the desired movements by standing in front of the images. It hardly seems possible that the same beings who invented Pong could have advanced to Kinectimals within the span of one human lifetime. But we did.

Coupled with new 3D technology and increasingly large, high-fidelity displays, video games have in the course of only a few decades and a few cycles of Moore’s Law, advanced to the point of challenging the cinematic qualities of movies. Indeed, games and films are converging, and now use much of the same technology to produce and to display. A new sub-genre of user-produced content involves taking the cinematic interludes within the games and using them to produce original films. After all, video game users today not only control game play but also lighting, camera angles, and point of view.

Why not? As Nicholas Negroponte would say, bits are bits.

So now that video games offer fidelity in imagery and movement that is comparable to film, the law has awakened to both their positive and negative impacts on those who interact with them. Since the First Amendment clearly doesn’t allow interference with the sale of violent content to adults, California focused on children. But it’s clear from the tone of the state’s brief that they just plain don’t like certain video games, just as they didn’t like certain movies and certain books in an early age of mass-market technologies. As before, they would like, if they could, to turn the clock back.

Of course that is always the response of the law to new technologies that challenge our conceptions of reality. The only difference between the comic book burnings of the 1950’s and the emotional responses of legislators today is the speed with which those new technologies are arriving. The killer apps come faster all the time. And with them, the counter-revolutionaries.

Frozen in Time, Lost in Relevance

Which is why the California statute suffers from another common and fatal flaw of laws attempting to hold back new technologies: early obsolescence. Even if the Supreme Court upholds the law, its effect will be minimal at best.

Why? Lost in the legal arguments (and reduced to a mere footnote in the EMA brief) is the impending anachronism of the California statute. It assumes a world, disappearing almost as quickly as it arrived, in which video games are imported into California as physical media in packages, and sold in retail stores.

Consider, for example, Section 1746.2:

Each violent video game that is imported into or distributed in California for retail sale shall be labeled with a solid white “18″ outlined in black. The “18″ shall have dimensions of no less than 2 inches by 2 inches. The “18″ shall be displayed on the front face of the video game package.

But sales of video games in media form are rapidly declining as broadband connections make it possible for game developers and platform manufacturers to transport the software over the Internet. So even if the law is ruled constitutional, it will apply to an ever-shrinking portion of the video game market. There will soon be no “retail sale” and no “front face” of a “package” onto which to put a label in the first place.

These industry changes, of course, aren’t being made to evade laws like California’s. Digital distribution reduces costs and eliminates middlemen who add little or no value (the retailers, the packagers, the truckers). More to the point, they allow the companies to establish on-going relationships with their customers, which can be leveraged to selling add-on chapters and levels, on-line play, and the sale of related product and content, including films and movies.

The industry, in other words, is not only evolving in terms of sophistication and realism of the product. The same technologies are also scrambling its supply chain. And what is emerging as the new model for “games” is something in which California and other states have almost no regulatory interest.

So it seems an odd time to target legislation at a particular and disappearing version of the industry’s content and retail channels. Even if the Court upholds the California law, it will likely have little impact on the material at which it is aimed.

But that’s often the case with laws trying to manage the unpleasant social side effects of new technologies just as they become visible to the outside world. The pace of legal change can’t hope to keep up with the pace of technological change, making this law, like many others, out-of-date even before the ink is dry.

Which is not to say that the Supreme Court’s decision in this case won’t matter. Another feature of statutes like this, unfortunately, is a high likelihood of unintended consequences. The potential for the Court’s decision—pro or con–to do mischief in the future, however, to unrelated industries and dissimilar content, is legion.

For example? As the PFF/EFF brief points out, California and other states may try to extend the ban on sales to minors to online channels. But it isn’t so easy to determine the age of an online buyer as someone in your brick-and-mortar store. “Applying the law online would likely require mandatory age verification of all online gamers because the law prohibits any sale or rental to a minor,” PFF/EFF argues, “even if the vendor had no evidence that the buyer was a minor.” That feature of an earlier federal effort to control pornography online was the undoing of the statute.

But in the Supreme Court, and the lower courts who interpret its decisions, anything can happen, and usually does.

I sincerely hope it was a Washington Post editor, and not New America Foundation president Steve Coll, who picked the title for his editorial today, “Why Fox News Should Help Fund NPR.”  After all, Coll certainly must be smart enough to know that there is no law or regulation on the books today that gives the Federal Communications Commission (FCC) or any other agency the ability to force private media providers to fund their public media competitors.  Moreover, it takes a lot of chutzpah to try to spin NPR’s recent Juan Williams fiasco into an excuse for private media providers like Fox News to fund NPR, but, shockingly, that’s exactly what Coll does. “The Williams imbroglio is teachable, but its lessons actually point in the opposite direction: America’s public media system, including NPR, requires more funding, not less.”  Hmm… that’s not exactly the lesson most of the rest of the world took away from this episode!

Coll first argues it makes sense for private media funds to be transferred to NPR becuase “In this time of niche publications and cable networks that thrive on ideological anger, we should be seeking to strengthen NPR’s role as a convener of the public square, a demagogue-free zone where all political and social groups — including conservatives and others opposed to federal funding of public media — should be welcome on equal terms.”  This is indicative of the all-too-common “progressive” impulse to force media upon us that we don’t want or even find offensive.  To be clear, I am not one of those people who finds NPR to be a hopelessly biased bastion of Leftist thinking.  While I think it’s clear to everyone that many of NPR’s stories and reporters do lean that direction, I also think there’s some outstanding reporting to be found there.  But if Steve Coll and his colleagues at the New America Foundation want to see NPR get more funding, they should do the same thing I do:  Open up their wallets and make the voluntary choice to fund it. To force everyone else to do so is despicable.

Second, Coll wants to pretend he’s doing private media providers a favor by forcing them to fund NPR.  “Continuing to force profit-seeking licensees to tack public interest work onto their commercial enterprises is a fool’s errand. It would be far more rational to let commercial enterprises respond to market incentives as they see fit, while leaving the construction of public interest journalism to organizations and leaders who want to do nothing else – among them, NPR.”

How arrogant. Coll is basically saying there’s no other good news out there besides what’s on NPR.  Perhaps he’s just not listening to anything else?  Moreover, to suggest that private media providers should welcome the opportunity to fund their public media competitors because that will take a burden off their shoulders is absurd.  That’s not Steve Coll’s decision to make and it certainly shouldn’t be the government’s either. Whether he feels his preferred mix of views is accurately represented elsewhere is utterly irrelevant.  That does not justify forcing those other media providers to fund the one outlet he feels does provide the right mix.

Astonishingly, Coll never addresses the fundamental unfairness of his proposal to private providers.  After all, in case he didn’t notice, many private media operators are fighting for their lives right now in the hyper-competitive modern media marketplace.  Coll not only ignores that but he then somehow rationalizes what would, in essence, be a new discriminatory media tax that would undercut private media operations at a time when they can ill afford it.  This raises fundamental fairness issues. Not only has public broadcasting and non-commercial media been siphoning off more and more market share from private news media in recent years, but, by placing such a tax on private media to fund its competitors, Coll’s proposal would essentially put private operators in double jeopardy.  It’s hard to see how that’s in “the public interest.”  It’s like the government signing the death warrant for private media.

Elsewhere, I’ve written much more about how such discriminatory private media taxes are seriously misguided.  See, for example, this paper I wrote on what’s wrong with using broadcast spectrum fees as a slush fund for public media.  Also, similar discriminatory tax and regulatory schemes are critiqued in this 79-page filing that my former colleagues Berin Szoka, Ken Ferree, and I submitted to the FCC as part of its “Future of Media” proceeding.

Needless to say, their won’t be much of a “future of media” — at least for private media providers — if Congress took Steve Coll’s advice and imposed this massive media income redistribution scheme on the market.  Again, fund your own media.  Make your own choices.  Don’t try to impose your choices on others.

I’ve grown increasingly tired of the fight over not just retransmission consent, but almost all TV regulation in general.  Seriously, why is our government still spending time fretting over a market that is more competitive, diverse and fragmented than most other economic sectors?  It’s almost impossible to keep track of all the innovation happening on this front, although I’ve tried here before. Every metric — every single one — is not just improving but exploding. Just what’s happening on the kids’ TV front is amazing enough, but the same story is playing out across other programming genres and across multiple distribution platforms.

More proof of just how much more diverse and fragmented content and audiences are today comes in this excellent new guest editorial over at GigaOm, “The Golden Age of Choice and Cannibalization in TV,” by Mike Hudack, CEO of Blip.tv. Hudack notes that, compared to the Scarcity Era, when we had fewer choices and were all forced to watch pretty much the same thing, today’s media cornucopia is overflowing, and audiences are splintering as a result.  “Media naturally trends towards fragmentation,” he notes.  “As capacity increases so does choice. As choice increases audiences fragment. When given a choice people generally prefer media that speaks to them as individuals over media that speaks to the ‘masses.’”

Indeed, he cites Nielsen numbers I’ve used here before illustrating how the top shows of the 50′s (like Texaco Star Theater) netted an astonishing 60-80% of U.S. television households while more recent hits, like American Idol is lucky if it can manage over 15% audience share. He concludes, therefore, that:

While American Idol remains strong, the trend is clear. Americans have been abandoning broadcast television in favor of cable’s niche shows for thirty years.  Historical trends like these do not disappear, they accelerate. Internet video is growing at a significant pace. It has not yet taken a chunk out of the broadcast and cable audiences, but the trend is there. Shows on the web are infinitely more targeted than the shows broadcast and cable companies deliver. [...] The broadcast distribution model, which dictates that only one show can air at any given time, makes it impossible for a niche show to thrive. The opportunity cost is too high. And the corporate structures, cost structures, business models and cultures of the network and cable companies make change far too difficult. Thus the Internet will do to broadcast and cable what cable did to broadcast. It’s inevitable. And it’s already beginning to happen.

Too bad nobody bothered telling Washington policymakers that the world has changed so radically.

[Update 11:00 pm: Ironically, just caught another piece along these lines from TechCrunch entitled, "Internet TV and The Death of Cable TV, really."  I don't agree with all it's conclusions, but includes many good facts and anecdotes pointing to the revolutionary changes underway in the television marketplace.]