What Does the Future Hold for the Television Industry?

by on August 16, 2005

Do you want to know what the future of television might look like? Then you need to be reading this amazing new column by Diane Mermigas on Hollywood Reporter.com. Few analysts have their finger on the pulse of the modern media industry like she does.

Mermigas begins her column by noting that “with television’s traditional food chain being shaken to its core by technological innovations, industry players on both sides of the content equation are groping for ways to use technology-driven changes to their advantage. But getting there means sifting through some fairly weighty questions that have no easy answers and rewriting the status quo.”

She notes, however, that even if traditional television operators are willing take a stab at rewriting the status quo, the challenge will be formidable in light of the radically expanding universe of media inputs from which consumers can choose. “With television becoming only one, albeit important, spoke in the multimedia wheel, broadcast and cable players are beginning to see the possibilities for leveraging the value of their content elsewhere. They must.”

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Telecom Godot: TCS Commentary on Ensign Bill

by on August 11, 2005

TechCentralStation.com ran a piece of mine today on the Ensign telecom reform bill. The gist: the proposal is a good step in the right direction. And, importantly, it gets the long-stalled telecom reform show moving. Of course, actually getting reform passed will a lot harder than some thought at the beginning of this year.

Here it is.

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“Can’t Talk Now”: FCC Hires Indecency Advisor

by on August 11, 2005

There’s been a lull in the indecency wars so far in Chairman Kevin Martin’s short tenure at the FCC–no fines have been assessed this year, compared to $7.9 million in fines in 2004. That may soon change. Mediaweek reports that the FCC has hired Penny Nance, an anti-pornography advocate and founder of the Kids First Coalition, to serve an an advisor on the issue. Nance will work from the FCC’s Office of Strategic Planning and Policy Analysis (an office that historically been focused on economics, and not involved in indecency issues.)

It’s too early to say what the appointment means. There’s some speculation that the Commission is preparing to act on a new set of indecency complaints.

When called by MediaWeek, Nance declined an interview, saying “I can’t talk now.” That leaves open the obvious question: “Who can talk now?” Stay tuned.

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“Unbundling”: Good Riddance

by on August 6, 2005

The FCC has finally put an end to the dubious 1990s experiment with “unbundling” DSL services. Or, to put it a little bluntly, the FCC has decided it will no longer expropriate the infrastructure of the Baby Bells to be used at government-mandated prices by their competitors.

Various liberal commentators, such as Matt Yglesias have painted unbundling as a noble Clinton-era experiment that was allowed to wither on the vine under the Bush administration. Had the Republicans continued the Democrats’ vigorous efforts on behalf of competition, the theory goes, we would now have a healthy, competitive broadband marketplace.

Matt points out that Southeast Asia enjoys better broadband service than the United States and suggests that Japan and South Korea pursued “open access” policies like those the FCC is now abandoning, while the United States has dropped the ball.

But that line of argument doesn’t make very much sense. If you’re Verizon, and you know that you will be required to “share” any new infrastructure you build with your competitors, you are unlikely to spend very much money upgrading your infrastructure. And if you’re one of those competitors, you have little reason to build competing infrastructure when you have guaranteed “access” to Verizon’s infrastructure at government-mandated prices. Hence, although you might have some “competition” in downstream services, “open access” policies are going to retard the build-out of new infrastructure in the “local loop.”

You can see this dynamic in Matt’s own backyard. A couple of years ago, Verizon began rolling out its fiber-to-the-premises service in select cities including Northern Virginia. They did so only after receiving assurances from the FCC that any new fiber infrastructure would not be subject to unbundling rules. You can also see it at work in the cable market: today, some cable companies are offering 6 Mbit services. When I had a cable modem 3 years ago, the best I could get is 1.5 Mbit.

Now, Matt points out that other countries have even faster service. He says we’re falling behind. I have to admit I haven’t studied the telecom markets in Japan and South Korea in any detail, so I can’t say what other differences might explain the discrepency. A couple of things come to mind. One is that, obviously, higher-density cities will have an easier time rolling out new services. Another is that, because Japan and South Korea industrialized fairly recently, the wires in the ground are likely to be newer than those in the United States, making rollout of faster services more practical. It’s also possible that cultural factors come into play. Japan and South Korea are intensely literate and gadget-happy societies. South Korea is obsessed with video games the way we’re obsessed with football. It’s possible (although I’m by no means claiming that I know enough to say it’s true) that Japan and South Korea have more broadband users because they have more nerdy people.

In any event, if your goal is to spur investments in new infrastructure, the first step must be to insure that the company that invests capital reaps the profits from that investment. It’s hard to see how “open access” rules could possibly accomplish that. Once the dust has settled from the well-deserved death of “unbundling,” we should have a thorough debate about how best to lower barriers to entry to the broadband market, so that companies can more easily build infrastructure (especially wireless infrastructure) to compete with the incumbents. But the debate must start with the principle that the government should respect the rights of companies who invest in infrastructure to profit from their investments, rather than “unbundling” them and giving “access” to other companies who have not bothered to make such investments.

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Analysis of Internet backbone competition

by on August 2, 2005

Econ professor Marius Schwartz just wrote a short, yet incredibly useful analysis of competition in the Internet backbone space. You can find the AEI-Brookings publication here, but if you want the summary version it’s this: there is tons of competition and the SBC/AT&T merger won’t change that.

And here’s one bit you won’t want to miss regarding the Verizon merger:

Thus SBC/AT&T and Verizon/ MCI together would have less than 30% of Internet traffic. To put this in context, at the time of the Sprint merger, MCI by itself had a larger share–but still was unable to impose interconnection charges on fully eleven competitors!

Cross-posted from Sonia Says.

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A Sin Tax for Online Porn?

by on July 26, 2005

We all know how governments enjoy levying “sin taxes” on alcohol and tobacco, so it shouldn’t be at all surprisingly that someone is now proposing to impose one on online porn viewing. Sen. Blanche Lincoln, (D-Ark.) is apparently going to drop a bill next week that would impose a federal excise tax on transactions with for-profit adult Web sites.

I am not about to pen a defense for those people who spend endless hours looking at dirty pictures online, but I really do believe this bill has got to be the silliest idea to come out of Congress in a long time. Specifically, it once again proves that most members of Congress have absolutely no appreciation for what sort of enforcement difficulties they are up against in terms of regulating the Net and online content.

After all, just because a website is for-profit, it doesn’t mean it will be easy to impose such a tax scheme. The tax evasion possibilities here are endless, especially considering how much activity originates overseas. How will the tax be reported? What kind of enforcement regime will be necessary to even collect a small percentage of these taxes? In a world of anonymous electronic transactions, I just can’t see how enforcement would work. I guess Congress could force credit card companies to somehow become their deputized policemen and make them figure out when people are viewing online porn. Of course, there are some serious privacy issues at stake there and there’s still little chance that even the financial intermediaries will be able to track everybody down. Moreover, why should financial intermediaries be forced to become the henchmen of the State in terms of enforcing morality?

Of course, I’m just focusing on the enforcement problems with this measure. I haven’t said a word about the many ways in which this is likely unconstitutional as well. The courts have struck down just about every other effort to regulate online content, so I have a difficult time believing that they’ll allow this one to stand for very long. Taxes on speech have been found to be every bit as unconstitutional as direct speech controls. So this bill is doomed in my opinion.

(By the way, time for a shameless plug… This issue was the subject of my fourth book, Who Rules the Net? Internet Governance and Jurisdiction. Make sure to check our Robert Corn-Revere’s chapter in this book if you are interested in learning more about this subject: “Caught in the Seamless Web: Does the Internet’s Global Reach Justify Less Freedom of Speech?” Here’s another version of it online.)

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A La Carte Nonsense

by on July 26, 2005 · 6 comments

I’m not too surprised to see populist interest groups on the right and left jump on an intellectually incoherent but crowd-pleasing proposal like “a la carte” cable, but Matt Yglesias should know better.

What everyone seems to miss in this debate is that a cable channel isn’t like a banana. If every grocery store somehow forced you to buy a banana with every orange, the banana-orange bundle would be more expensive than a banana or an orange alone, and a lot of bananas and oranges would end up in the garbage.

But a cable channel is a non-rivalrous good. The marginal cost of providing it to another consumer is zero. The goal of the cable company is to recover it’s rather large fixed costs in equipment, programming, etc. It will price its products so that it is able to recover those costs along with a profit margin.

To simplify things, let’s imagine that a cable company has only two channels, Spike TV and Women’s Entertainment, and only two kinds of customers, men and women. Men value STV at $10 and WE at $4. Women value WE at $10 and STV at $4. The cable company might bundle the channels together and charge $12 for the bundle. Each consumer would be getting $14 of TV for $12.

Now, people like Yglesias seem to assume that in an a la carte world make each channel would cost, say, $6. In that case, men would buy only STV, women would buy only WE, and consumers would save a bunch of money.

But that’s absurd. The cable company would lose half of its revenue in that scenario, and would be unlikely to even be covering its fixed costs. More likely, it would set the price for each channel at $10. The cable company would still be losing a lot of revenue, but that might be enough to keep it in business.

But notice that both the consumer and the cable company loses in this scenario. Before, the cable company was getting $12/subscriber, now it’s getting $10. The male consumer, meanwhile, went from getting $14 of TV for $12 to getting $10 of TV for $10. There might be a show he likes on WE, but not that he likes enough to pay twice as much for his cable bill.

Bundling increases consumer welfare by distributing low-marginal-cost goods to wider audiences. A la carte cable wouldn’t save consumers money. It would simply reduce the number of channels on their TVs. Buying twice as many cable channels isn’t like buying twice as many bananas.

It might be objected that the cable company does pay a per-viewer fee to the studio for those channels. But that’s just the same phenomenon one step removed. How do the studios price their channels when selling them to the cable company? Their marginal costs are also close to zero, so the same bundling argument above applies to them. If they gave their customers the option of buying channels a la carte, they’d have to dramatically raise their per-subscriber rates to cover their fixed costs. Consumers would be the loser–paying about the same for a much smaller variety of channels.

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The Economist’s Bad Language

by on July 22, 2005

The lead sentence of an editorial in this week’s Economist includes five words not normally found in a news magazine (they are *****, *******, ***, *******, and *****) A desperate ploy for circulation? No, the magazine is merely quoting from an FCC decision on what can and can not be said over U.S. airwaves. The article, which argues for scrapping–rather than extending–FCC indecency rules, is worthwhile reading (as is a related analysis). The conclusion:

There is one strong argument against scrapping indecency regulation for television. Kids not lucky enough to have responsible parents might end up being exposed to more adult sex and profanity. But people should weigh the risk of that outcome against the harm of allowing each incoming administration to decide what everyone can and cannot watch. The current government has shown that it can easily broaden the country’s definition of what is indecent. Under pressure from Congress, the FCC has cracked down and has overruled its own precedents. What might future governments do? Technology has offered the chance to scale back censorship and America, long a champion of free speech, should seize it.

Well said.

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Grokster: No Impetus for New Copyright Legislation

by on July 21, 2005

At the Congressional Internet Caucus Advisory Committee panel discussion on Tuesday, most people seemed to agree on one point about the Grokster decision – we don’t need new copyright legislation (at least not yet).

This general consensus concurs with my recent article on Grokster. It’s just too early to tell how the courts will apply the court’s active inducement test. And I’ve heard it said somewhere that it takes three years to feel the effects of a Supreme Court decision (not including grants of habeas corpus petitions of course).

Yet some groups want action now. According to EFF’s Fred von Lohmann, “the Supreme Court left too many unanswered questions, von Lohmann said, adding, “I don’t believe that uncertainty is balance. We need clear, bright-line rules so that technology companies can know in advance what they are and are not allowed to build.”

According to the CNET article in which he was quoted, von Lohmann suggested two possible ways to legislate:

First, Congress should implement a “collective licensing” system for peer-to-peer file sharing, wherein users would pay a “reasonable fee,” which would in turn be passed on to the copyright holders. Second, lawmakers should scrap the idea of statutory damages–that is, money awarded to copyright owners because of provisions in the law–but leave open the option of awarding actual damages and injunctions through the court action.

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Are Parents Powerless to Self-Censor Media Content?

by on July 20, 2005

One of the most common arguments in favor of government censorship of media–whether it’s TV, radio, movies, or video games–is that parents are simply powerless to stop the onslaught of objectionable content that their children might be able to access. As a parent, there are times when I can sympathize with those who feel this way, but I always point out that this is never a good excuse to call in Uncle Sam to dumb down all media to that which is only fit for a child. Let us as parents make choices for our own families.

Luckily, many new tools and technologies are available to help parents make decisions about what their children see, hear and play. But until today, I had not found a single resource that collected all these self-help tools in one spot. Well, I finally found it! It’s called “Pause-Parent-Play” (PauseParentPlay.org) and it formally launches today with a kick-off event on Capitol Hill in Washington.

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