Archive for September, 2010

With all the swirl of Internet policy back-and-forth and influence-wielding of all kinds going on these days, all the ups and downs and intrigue, I have to say that it was a total pleasure for me to be at the Department of Commerce today to witness the Department’s celebration of the arrival of September 30, 2010.

There were speeches and thank-yous galore and a real sense of exhalation and relief.  There was a terrific mood of pride in the giant echoing lobby of Commerce.  Tony Wilhelm gave a great address.  There were zillions of great addresses.  There was clapping and whooping and recognition for everyone who had worked so hard to get great grants out the door.

It is great to see such pride in public service.  Congratulations to all.

What’s the driving motivation for the Comcast merger?

There are lots of answers to this question, all of which have some truthiness to them:

• beating back the power of ESPN
• avoiding commoditization of the cable distribution infrastructure
• diversifying the company’s economic exposure by playing on the programming side
• gaining additional leverage in programming negotiations more generally
• gaining additional power to avoid bundled-services competition in the metropolitan areas that Comcast uniquely serves

One of the most compelling answers has to do with enhancing Comcast’s position in gaining a larger share of the overall television advertising dollar.  It’s a $75 billion marketplace, that ad spend, and Comcast wants more of that money.

According to an article in yesterday’s Advertising Age, Comcast’s 2009 net media revenue was $32.1 billion, making the company the nation’s largest media concern.

Read this sentence a couple of times:  “Comcast’s 2009 net media revenue is greater than the combined revenue of the [Advertising Age] 1981 report’s top 100 media companies.”  In 1981 the three broadcasting networks led the list, and half the companies listed made most of their money from newspapers.  Things have changed.  After accounting for inflation, the 2009 Comcast number is less alarming – $12.3 billion in 1980 dollars, compared to about $30 billion in 1980 dollars for the top 100 companies at that time.

Combining with NBCU will give Comcast greater power in the advertising market, and cable analysts are predicting that Comcast’s revenue sources will both grow and shift as a result – with substantially more revenue coming from advertising. That advertising will be “multiplatform” and will apparently rely on the accurate measuring of broadband data as well as traditional cable-watching habits to convince advertisers that they’re reaching the right people.  “Hypertargeting,” it’s called.

Yesterday, CableFAX Daily ran an article about the state of “interactive TV” advertising.  This is where the plans of Comcast and the rest of the cable distributors – and the programmers – get more interesting.  The article, “iTV and Advanced Advertising Update,” isn’t available online, so I can’t link to it.

As we’ve known for a while, all the big pay-TV distribution companies, led by Comcast, have been trying to figure out how to collaborate with each other and with the big programmers to reliably target ads at individual subscriber households by pulling together demographic data on all their subscribers and categorizing it.  Now this is happening – the distributors are in a position that allows them to leverage the cable broadband infrastructure and online content to sell ads.

Things are still in a primitive stage.  The first product, called RFI, isn’t terribly interactive.  It allows users to press the arrow buttons on their remote controls and thereby trigger a product sample being sent to them in the mail.  Later products will allow for polling on either side of a commercial break.  The hope is that the common specifications developed for many set-top boxes, called EBIF, will result in a huge ecosystem of applications that will work across operators (so, for both Comcast and Time Warner Cable subscribers) and will rival the Apple app store.  Comcast’s Brian Roberts hopes that consumers will be as loyal to cable as an industry as they are now to Apple.  Users, eventually, will be targeted by household.

All of this takes a lot of cooperation.  “Programmers and MSOs [pay-TV distributors] need to collaborate closely to operationalize iTV and to make it a great user experience that opens new revenue channels.  Both programmers and MSOs will need to work with advertisers to establish a value for apps so we can then agree on revenue share,” says James Mumma, executive director of iTV Product Development at Comcast.

Having a large foot in the programming world will help Comcast nudge this multiplatform advertising model along.

It is just great to see that all the NTIA broadband grants have been awarded – about $4 billion worth in all, for 233 projects that are mostly middle-mile installations or upgrades.

On time!

High-speed Internet access should be one of the top five policy issues for the nation.  It’s the essential 21st-century infrastructure for everything.  Instead, it’s often an asterisk, as someone said today.  As these projects are built out, NTIA will be gathering data about communities that have been transformed around the country.  With any luck, what we learn about these projects will, in turn, transform federal policy.

But the first step is to get the money awarded, and NTIA has pulled that off.  Just great, a shining light.

==the big numbers from NTIA:

Based on estimates provided by grant recipients, the 233 BTOP projects will:

• Fund the installation or upgrade of approximately 120,000 miles of broadband networks, including fiber-optics, wireless, microwave, and other technologies.  Of this amount, approximately 70,000 miles involve construction of new broadband facilities.

• Provide broadband access to approximately 24,000 community anchor institutions, including schools, libraries, government offices, health care facilities, and public safety entities.  Of these, approximately:
  • 3,000 are healthcare entities, including hospitals, clinics, and physicians’ offices
  • 5,000 are public safety entities, such as first responders, fire, police, and EMS
  • 7,000 are K-12 schools
  • 600 are community colleges
  • 2,000 are libraries
  • 5,000 are government facilities, such as City and County offices, workforce centers, Head Start locations, and other entities providing important benefits to the public
  • 700 are other institutions of higher education, including public universities

• Deploy middle mile infrastructure in areas with nearly 40 million households and 4 million businesses, many of which will benefit from new or improved broadband service provided by last-mile providers that are able to utilize the new, open infrastructure to extend or upgrade their service for consumer and business customers.

• Invest in more than 3,500 new or upgraded public computer centers in libraries, schools, community centers and other public locations.

• Invest in more than 35,000 new or upgraded public computer workstations.

• Make public computer center workstations and training available to more than 1 million new users.

These anticipated benefits will be realized over the life of each project, which must be substantially complete within two years and fully complete within three years.

Three parallel events in US communications policy today, all reported on widely – but with a common thread.

1.  Law enforcement and national security officials want to make sure that they have the same ability to execute warrants and surveillance orders online that they had in the switched-telephone-circuit age – which will mean substantial government design mandates for new software, hardware, and communications facilities.  (Fine NYT story here.)

Jim Demsey of CDT is quoted with respect to the proposal – we don’t have legislative language yet – saying, essentially, “wow, this is enormous, implications are huge, Internet is fundamentally challenged by this.”

Law enforcement responds, essentially, “No, this is business as usual, we’re just trying to preserve our ability to carry out warrants.”

2.  Sen. Leahy is introducing legislation (the “Combating Online Infringement and Counterfeits Act“) that would allow to DOJ to instruct ISPs, domain name registries/registrars, or perhaps other actors (it’s not clear) to shut down, or block access to, online sites found to be “dedicated to infringing activities.”  With respect to sites hosted outside the US, the bill would provide for orders mandating that Internet services, operators of domain name servers, financial transaction providers, and ad networks discontinue service to the designated sites.  Also, DOJ could maintain a public blacklist of websites that the Department determines “upon information and reasonable belief” to be dedicated to infringing activities – and online services (again, scope isn’t exactly clear) will be encouraged to discontinue service to these websites.

EFF says it’s “a censorship bill that runs roughshod over freedom of speech.”

MPAA says, essentially, this is just business as usual, and “we look forward to working with Chairman Leahy and the Senate and House committees to help strengthen the bill.”

3.  The Comcast/NBCU merger is steaming ahead, and even though neither DOJ nor FCC has yet approved the deal Jeffrey Zucker is out, Steve Burke will be running NBCU, and Vivendi is selling its interest in NBC for $2 billion. (Barron’s blog.)

A coalition of groups (a good odd-bedfellows story) asks for more hearings on Comcast/NBCU, saying, essentially, “wow, this is enormous, implications are huge, consumer prices will go up.”

Comcast responds, saying, essentially, this is just business as usual, the deal is pro-competitive and in the public interest, and we’ll all get better access to more content.  According to a story in the Times today, “A recent full-page ad in The Washington Post featured a smiling young couple and the quote, ‘More ways to enjoy our TV, computer and even mobile devices? Sounds good to me.’”

What’s the common thread?  As access points to the big pipe consolidate, the idea of using bottlenecks to carry out the desires of both content providers and government becomes easier to implement – and the bottlenecks know that they have the upper hand because both content and government need them.

New laws, new institutions, and new asymmetries of information are appearing, and the objection that “this is a big change” doesn’t get much attention.  It is, certainly, a big change, but there are many big actors who are perfectly happy that way.  Nothing to see here, move on, business as usual.

This week’s challenge is all about comparing the AOL/TW merger to Comcast/NBCU.   The same week in 2009 that AOL and TW went their separate ways, Comcast announced its merger with NBCU.

Both deals had something to do with layering very popular content on top of a distribution system. But it may be that the Comcast deal is really the fulfillment of the dreams AOL had way back in 2000 – and Comcast, unlike AOL, can execute.

Steve Case, greying but still boyish, beady-eyed, and fast-talking  – and fitter than he used to be – appeared on a morning financial news talk show in early January of this year to talk about the AOL/TW ten-year anniversary.  The “deal still makes sense,” he said.  “AOL helped bring the Internet to so many people. . . We were the leading company in the Internet space, but we were narrowband [dial-up].  We needed a path to broadband.  Time Warner was the largest cable operator, and also had a lot of media businesses.  They needed a path to a digital future.”

But what was AOL when it came knocking at Time Warner’s door?  It had an extremely profitable dial-up ISP business, with extraordinary cash flows and more than 20 million customers.  But AOL’s longterm strategy seemed to be limited to doing more deals for advertising and sponsorships, and it wasn’t obvious why an independent ISP would survive in a world where connectivity was being supplied by cable modems.

Time Warner had a visionary CEO and a desire to be relevant in the Internet era.  It also had some cable distribution capacity, covering about 15% of the US population.  But what it really had was an enormous collection of relatively independent fiefdoms commanding extraordinarily powerful media brands.

To Jeff Bewkes, the rising star at Time Warner and head of HBO at the time of the AOL merger, the deal didn’t make sense then and still doesn’t make sense now.  He was ascerbic on the subject in an October 2009 interview:

“The argument given for [the AOL/Time Warner merger] was that somehow the content brands of People magazine/HBO/CNN were going to go into the AOL subscription service. . . [so that] the AOL service can have content from the content company that it owns. . . . [But Time Warner content brands like] People and CNN, Harry Potter, have to go to all people through all avenues.  That is the definition of an available content brand.  And if it’s on the “Internet,” it needs to be available through every and all Internet platform… But if you take something like an AOL or Yahoo!, there is competition there, what they compete on is the functional ease and quality of connecting you, as a user, to any and all content or things on the Internet.  So none of that has anything to with rights-holding, exclusivity, preferred access, or any kind of discriminatory presence for content through a distribution medium like AOL or Yahoo!   And that’s why [the deal] made no sense at all.”

Since 2000, the cable world has consolidated significantly, through swaps of systems and other transactions that have allowed for regional clustering of cable.  Now the idea of rights-holding, exclusivity, and preferred access (the elements that Bewkes suggests are essential for the success of content companies) can be successfully implemented in the distribution mechanism itself.  With no more competing ISPs, a strong dominant presence in wired access on the part of the cable companies, and a strong sense of collaboration among the cable operators, brands can find their audiences – just by ensuring high-quality preferred carriage by the few large carriers.

The clash of cultures between AOL and TW was extreme.  And the accounting scandals at AOL and the crash of the stock market when the dotcom bubble collapsed made AOL’s stock price collapse – many TW employees had their savings in TW and lost enormous amounts of money, which made them even less likely to collaborate with AOL (not that AOL even understood, as far as I can tell, how irritating their habits were to TW).  So the integration plan, such as it was, wasn’t very thoughtful and couldn’t be implemented.  Big disaster.

Comcast has undoubtedly learned the lessons of AOL/TW.  They will integrate smoothly, keep the ship afloat, and respect the ever-shrinking NBC broadcast business as they bolster NBCU’s cable channel brands.  They won’t be hyperbolic; they won’t be destructive (internally, at least); and they will ensure that their plans are carried out.

Busy week here at the Susan Crawford Blog.  So for your weekend reading, take a look at the Atlantic Tech Canon – and Mark Twain on the weirdness of hearing one side of a telephone call.

Two intersecting stories today:

Pew (can I say again how much I love Pew?) says that apps users and downloaders skew heavily male, young, and well-educated.  The rest of us need to get with it:  Many “adults who have apps on their phones, particularly older adults, do not use them, and one in ten adults with a cell phone (11%) are not even sure if their phone is equipped with apps.”

Heading right towards the app-aware, younger, male, well-educated set, Rupert Murdoch has been singing the praises of apps and the iPad for some time.  Why battle the open web?  All that linking and confusion.  Why not put everything into a glossy app channel?

And now Apple is rumored to be rolling out an iPad newspaper-subscription special project.  Apple would be the middleman, aggregating data about subscribers and taking a substantial cut of both subscription revenue and advertising fees.  Newspapers could get a guaranteed channel and a new lease on life, with huge growth potential.  A post-Web culture, without a browser, beckons – for newspapers, at least, if the papers can get those young, male, well-educated downloaders to sign up.

Welcome, all of you who got here from Gigaom (Comcast’s NBC-U Dreams May Be Online Video’s Nightmare).

The comments to that column include these paragraphs:

More critically, it is programmers that are raising prices right now, much more so than are cable operators. Just look at the latest round of carriage and retransmission negotiations as reported right here on GigaOm. The consistent theme has been content owners extracting higher fees from cable/sat operators in exchange for online distribution rights (i.e. TV Everywhere). Those price hikes, ultimately, pose a greater threat to aspiring online distributors’ ability to offer a competitive service than anything cable operators could do.

It short, it’s the content owners that are raising the price of entry right now, not the incumbent service providers. If anything, Comcast’s acquisition of NBC Universal could actually work to arrest that trend by readjusting the balance of power between programmers and distributors.

I’m glad this was said.  It gives me a chance to spell out the story a bit more.

Both programmers and the cable distributors have power.  TV Everywhere allows them to collaborate in ways that are good for them but will result in higher prices for consumers.

If programmers don’t make deals with Comcast, they’ll miss out on 25% of Americans.  That’s a huge share – for some economists, that’s enough to be a “foreclosure share” – significant enough to ensure that Comcast will get whatever terms it wants as a condition of carriage.  Comcast is working with Time Warner on TV Everywhere, which means that the programmers will miss out on 37% or more of Americans unless they agree to what Comcast requires.

Programmers want to make these deals.  The cable industry is paying tens of billions of dollars to programmers every year.  So they’ll find a way to get along.

One of those conditions of carriage on Comcast could be an agreement not to distribute programming online independently – outside the TV Everywhere umbrella.  It is likely worth it for a programmer who wants the sure thing (tens of billions in fees) to give up on going it alone.

With the addition of NBCU programming, Comcast (now wearing BOTH distribution and programming hats) will be able to work with its collaborators in the programming and cable giant world to ensure that everyone gets the payments they desire.

As Comcast’s Steve Burke said during an April 2010 earnings call:

“I also think without getting into in great specificity, we’ve all read and seen a lot of transactions involving retransmission consent in the last six months, and there is real I think understanding that there is cash being paid and value being created and we hope to play a constructive role in finding a way that that can happen over the industry, and over at least our share of Comcast and not be super disruptive.”

The emergence of online distributors of must-have content not tied to Comcast or Time Warner is inherently disruptive of both the programming and cable distribution models:  if over-the-top video distribution succeeds, Comcast will lose its cable subscribers and will become just a pipe; programmers will lose their guaranteed and ever-increasing payments from Comcast.  Both industry segments lose if over-the-top video succeeds; both win if they can act together to slow its progress.

So my point is that TV Everywhere, made much more powerful by the merger, allows several giants to work together.  It’s in their interest to cooperate to allow prices for bundles to stay high and continue to climb.  It’s not necessarily good for consumers.

I was on a conference-call-to-plan-a-conference today.

The organizers had proposed a Twitter channel for the conference, to be displayed on a screen that speakers might be able to see (or might not, depending on the configuration of the room).  There was some discussion of this.

Real concerns were raised:  What if it’s distracting?  What if the group in the room starts to giggle and the speaker doesn’t know why?  What if it doesn’t work?

My own experience with backchannel screens has been mostly positive.  When I’m speaking, I’m usually trying to focus on communicating as clearly as possible.  Once in a while, I’ll look up and see what’s being said.  When I’m not the one speaking at a particular moment, I love the backchannel.  The audience can have a conversation of its own, silently, while whoever is speaking attempts to grab their attention.  It doesn’t feel novel any more.

Last weekend I was at a sort-of-conference that featured a lively chat function.  The presenter was talking about the brutally fascinating habits of a particular subset of small (non-human) creatures.  This was probably supposed to be useful to us in some thoughtful sociological way.  And, of course, it was.

But the small non-human creatures were so brutal, and the presenter clearly so obsessed with their habits, that the chat took on an irrepressible, bubbling, helpless laughter of its own.  Meanwhile, the presentation technology itself broke down.  To fill the gap and to keep itself awake, the group made even more jokes appear on the chat screen in the front of the room.

Meanwhile, the presenter plowed on, oblivious, which in itself was (in the state the group was in) funny.

This isn’t novel, the backchannel.  If a talk is going well, the backchannelers can cheer and ask questions that their fellow channelers can answer; if a talk has broken down in some way, the channelers can complain.  It seems to be part of most conferences today.

It can certainly be distracting, in every sense of the word.

I was really bugged by Monday’s Times article reporting on corporate contributions to legislators’ favorite charities.  Here’s the chart.  Today’s Times editorial makes the link between – in particular – Comcast and legislators.

The Elijah Cummings Youth Program in Israel sounds like a lovely idea: a charitable foundation that sends inner-city high school students from Baltimore to Israel to learn about the country and develop leadership skills. The program has undoubtedly been of benefit to many teenagers, but deeper pockets have benefited as well. Comcast, the cable company, has given generously to the foundation, prompting Representative Elijah Cummings, a Democrat from Baltimore, to urge the Federal Communications Commission to approve Comcast’s proposed merger with NBC. His charity even wrote its own letter to the F.C.C., saying it supports the merger in part because Comcast gives it money.

I can’t stand the appearance of a quid pro quo.  There’s nothing illegal about this activity, according to the people quoted in the Times piece on Monday.  But it fits with an overall culture of comfort with the representatives of these enormous companies that should be a problem.  The culture is seamless, friendly, easy, even kind. Genial.  Giving.  A warm bath of civic engagement and familiarity, all well-known faces meeting and saying hello in contexts that are meaningful to them – plus, once in a while, a discussion of policy that has implications for the rest of America.