Archive for February, 2010

I’m worried about the people in DC fighting over fresh vegetables and empty shelves as another 10-20 inches of snow arrives.  And I received an alarming email yesterday from someone on the Eastern Shore, saying there was no power, no hope of being dug out any time soon, and an elderly neighbor who couldn’t cope with the cold any longer.  The government will be closed again tomorrow.

The Facebook creation of a 2000-person-strong snowball fight in Dupont Circle is a good moment for social networks.  It’s hard not to love #snowpocalypse and #snowmageddon. I remember “snow-lympics” that my generation held in DC, but we probably arranged that by plodding one-off phone calls.  (I also remember the managing partner of my law firm dispairingly saying after that week-long closure:  “What happened to all those hours?  Did the clients just not need the work?”)  My favorite new tag is #snoverkill.

Meanwhile, in Ann Arbor, nothing.  Not that I’m complaining.

Comcast is the nation’s largest multichannel video programming distributor – by far the leader in this category.  It is also the largest residential high-speed Internet access provider.  It’s the third-largest phone company in the country.  Plus it owns several regional sports networks – programming that is “non-replicable” or “must have” if you’re a competing video distributor in the same area – and popular cable channels.  It has launched a service called Fancast XFINITY that ties its cable customers to online video services that it provides through its Internet access networks.

NBCU is one of the country’s top four media and entertainment companies.  It owns NBC, Telemundo, broadcast stations in some of the country’s largest markets, some very popular cable channels, and a 30% interest in hulu.com.

Yesterday’s House Energy & Commerce and Senate Judiciary hearings on the Comcast/NBCU transaction included testimony from Colleen Abdoulah of WOW!, a multi-channel video distributor in the Midwest.  WOW! needs access to popular content at reasonable prices in order to survive in the cable marketplace.  (WOW! also provides excellent customer service.)

Abdoulah makes some strong statements about current practices by dominant content providers, and suggests that this bad behavior will become far worse if Comcast is allowed to join forces with NBCU:

• Not all programming content is equal.  Content providers package programming in take-it-all-or-leave-it bundles.  MVPDs need the high-value content in order to compete and have to buy the bundles.  This forces MVPDs to use up channels for programming consumers don’t really want, and makes them use channels for cable content rather than high-speed Internet access.  Allowing Comcast to join its must-have sports content with NBC’s must-have channels will make this bundling and supra-competitive pricing even more destructive to Comcast’s competitors.
• Dominant content providers can already claim to be providing access to their must-have content while, in reality, slow-rolling negotiations, setting artificial market prices in cahoots with friendly distributors, and generally doing all they can to make de facto discrimination possible.  The joint venture will use all of these tricks and more.
• Even the remedies for contesting slow-rolling and discriminatory treatment in the program access world are tilted in favor of the dominant content providers.  It is enormously expensive and draining to fight; in many cases, it’s just not worth it.

Abdoulah said all Comcast-NBCU programming should be available on a non-discriminatory basis.  A la carte.  No more tying and bundling.  The remedies should be fixed – third party review plus binding arbitration plus the ability to continue carrying programming during pendency of the review would make sense.  Her testimony suggests that it would be good for DOJ to consider structural/divestiture remedies, as in Ticketmaster.

From the Comcast/NBCU testimony:

“The formation of the new NBCU will remove negotiation impediments by providing Comcast with control of a rich program library and extensive production capabilities that Comcast can use to develop novel video products and services that will be offered to consumers across an array of distribution platforms.”

WOW! and ACA’s point is that dominant content providers – and Comcast/NBCU would be an enormous actor in this area – have already “removed negotiation impediments.”  The negotiation appears to be simple: take it or leave it.

Here’s a USA TODAY story today about the left-right initiative demanding “question time.”  Thousands of people have signed on today.

Last week’s session between President Obama and the House Republicans was astonishing.  But it shouldn’t be a one-off.  They should do this more often.  We need regular public question-and-answer engagements – open dialogues between the President and the opposition party – as a country.

Here’s the Facebook page and the site.  Please sign the petition and let your friends know about this effort.

On Thursday the House Energy & Commerce Committee is holding a hearing on the Comcast transaction.  Some background:

1.  The transaction would give Comcast, the nation’s largest cable operator, control of one of the five large US content providers and about 30% control of Hulu.com.  If the transaction is approved, Comcast will be behind about one out of every five viewing hours in the U.S.  We are a nation of living-room watchers, and Comcast will be there.

2.  Comcast is smart to be using control over content to guarantee dominance in broadband.  There are fewer competitors in broadband – usually two in any locality, a cable company and a telco – than there are in video.  Cable is already doing better than VZ/AT&T, and prices for high-speed Internet access are staying high and bundled.  NCTA says that cable modem service is “available” to 92% of homes.  We won’t be seeing VZ or AT&T fiber reaching more than 40% of households over the next few years.  Cable has a bright future.

3.  Comcast says that this is a vertical transaction that should not trigger competition concerns.  They point out that both the Comcast and NBCU cable networks together will add up to just 12% of national cable advertising and affiliate revenue.  (Comcast wants the NBCU cable networks (CNBC, Bravo, Oxygen), which generate 60% of NBCU’s earnings.)  They also say that online video content is so wildly competitive that this deal will have no impact.

Here are questions that may come up tomorrow:

• What power will Comcast have to shape the future of online video (or “Internet TV”)?  This transaction may make it less likely that people will cut the cord and disintermediate their cable provider, moving their online video-watching from their PCs to their large living room screens.  Comcast will have no incentive to make its content available online to non-subscribers.
• Online video/Internet TV is a new market.  Right now, it’s relatively small and confined to PC-viewing.  Comcast says we shouldn’t consider potential harms to a future market.  Is that right?
• What effect will this transaction have on the prices consumers pay for cable subscriptions and high speed Internet access?

Although Comcast asserts that the media market should be considered separately from the conduit market, the interdependencies of these sectors will shape the evolution of online video.  Comcast is right that the questions being raised aren’t the traditional “media consolidation” issues.  In the old days, we were worried about separate single-purpose media distribution networks (newspapers, broadcast, cable) being jointly owned.  Now we’re in an era in which gentle broadband duopoly competition doesn’t appear to constrain what the providers want to do and broadband is the essential gateway conduit.  Comcast may want to use exclusive access to highly-valued content to ensure its place in the twosome.

We’ll find out more on Thursday.

“I’m a big believer in Net Neutrality.  I campaigned on this. I continue to be a strong supporter of it. My FCC Chairman Julius Genachowski has indicated that he shares the view that we’ve got to keep the Internet open, that we don’t want to create a bunch of gateways that prevent somebody who doesn’t have a lot of money but has a good idea from being able to start their next YouTube or their next Google on the Internet.”

“This is something we’re committed to. We’re getting pushback, obviously, from some of the bigger carriers who would like to be able to charge more fees and extract more money from wealthier customers. But we think that runs counter to the whole spirit of openness that has made the Internet such a powerful engine for not only economic growth, but also for the generation of ideas and creativity.”

Watch here.