Video services

Content Discontent

FCC chairman Kevin Martin may have failed with his 70/70 jihad, but he bounced back by imposing a 30 percent ownership cap on cable operators. (See FCC Caps Cable .)

A key Martin policy rationale for both efforts at cable MSO constraint is to ensure "video programming diversity."

While a laudable goal, in this case the FCC is simply using its regulatory muscle to shore up crumbling business models for legacy linear television delivery. It's a Luddite approach that ignores the power of the Internet, which offers the greatest video programming diversity consumers have ever seen. And it's an example of government meddling in free markets in general, and the FCC once again bending over backward for the broadcast lobby, in particular.

As the FCC trumpeted in its release about the 30 percent cable cap:

    Today's action will increase competition in the multichannel video programming market and provide consumers with greater programming choices and diversity... The 30 percent cable horizontal ownership limit set by the Commission will ensure that no single cable operator can create a barrier to a video programming network's entry into the market or cause a video programming network to exit the market simply by declining to carry the network. In devising a limit to achieve this goal, the Commission first determined the minimum number of subscribers a network needs in order to survive in the marketplace, and then estimated the percentage of subscribers a network is likely to serve once it secures a carriage contract.
The Commission's logic on this issue is strange. At the same time Martin pushed through the 30 percent cap, he is hoping to require MSOs to move to an à la carte programming model, where consumers can pick and choose the channels they buy and watch, rather than subscribing to massive channel bundles. (That's not a terrible idea, by the way.)

However, were à la carte implemented, all classic assumptions about the "subscribers a network is likely to serve once it secures a carriage contract" would be annihilated.

Even in today's channel package world, the FCC's thesis seems to be is that what prevents carriage of new networks is the number of subscribers an MSO serves. In actual practice, though, the dominant gating factor for the launch of new linear programming networks is not one MSO's distribution footprint, but their financial and channel capacity limitations.

For example, say the new "Frank Sinatra Channel" wants cable operators to make shelf space available for its product 24/7, and then pay them licensing fees per subscriber, per month. Unfortunately, the MSO is running short on channel capacity because the FCC has required dual-carriage of broadcast cable TV channels. Furthermore, the MSO wants to maintain margins while working to keep customers' monthly cable bills from spiraling out of control (another FCC priority). So, they say, "No thanks" to Frank, and a dozen other niche channels like them, unless the economics dictate otherwise. It's not that cable operators won't carry new programming, it's that they won't shell out more for it.

This is not to say that concentration of distribution control is not a legitimate concern. But where is the line drawn? Should the government start regulating supermarket shelf space to ensure the newest flavor of breakfast cereal is available to consumers? Or what about the video selection at the local Blockbuster? The situation with cable is not much different.

The issue at hand is not really about protecting consumer access to video content. If the Frank Sinatra Channel -- or any new programming service -- desperately wants to reach consumers, all they need to do is launch a Website and start streaming. Or, make a DVD and sell it through Amazon. If that's too much work, perhaps Martin has seen YouTube Inc. ?

Want to talk about video programming diversity? Anyone with a Handycam, a computer and a broadband Internet connection can now make their video content available to a global audience. (By the way, you can thank the cable industry for helping to make this even possible -- see Broadband Thanksgiving.)

Why is it that Martin views cable MSO carriage of linear TV networks in particular as some sort of inalienable right for developers of video programming?

Even if one argues that cable TV carriage is of the utmost importance, there are ways of getting the job done besides adding more full-time TV channels.

For example, with their video-on-demand (VOD) infrastructure, MSOs have vast capacity for delivering new content to consumers. The same will be true with switched digital video (SDV) infrastructure, once it's widely deployed. (See A Switch in Time? )

Ironically, MSOs are actually rolling out SDV in the first place to reclaim bandwidth from the long-list of unwatched cable channels by only transmitting them when actually viewed. The FCC wants more unwatched channels wasting bandwidth?

The bottom line is that – thanks to VOD, and soon SDV – programmers can get their content to consumers through cable, but that's not really what they want. What they are after is a guaranteed rate of return for it. It seems many programmers aren't interested in making the entrepreneurial effort required to pioneer new video business models with MSOs. Instead, they want to find a way to plug into the classic cable TV network per-sub/per-month licensing fee gravy train. The antics of the NFL Network and Big Ten Network offer ample evidence for this entitlement mindset. And by the way, why isn't the FCC actively backing MSOs like Comcast Corp. (Nasdaq: CMCSA, CMCSK) for making the NFL Network an à la carte offering, rather than embedding extra costs for pro football in every cable subscriber's monthly bill?

If the FCC is really interested in video programming diversity, and à la carte, why not go a step further and issue a dictum ending television "networks"? Why even have networks aggregate content for distribution? Cut out the middle man. Prohibit networks from broadcasting non-live content in a time-based, channel format. Require that all TV shows be offered on-demand, liberating video producers from the tyranny of broadcast and cable TV programmer behemoths.

Aren't they as formidable content gatekeepers as cable MSOs, if not more so? Why does SpongeBob SquarePants need to be watched on Viacom's Nickelodeon channel? Why isn't the show distributed on-demand directly through the MSO? Why not set SpongeBob free?

Or better yet, why not just get out of the way and let the market decide?

— Michael Harris, Chief Analyst, Cable Digital News

paolo.franzoi 12/5/2012 | 2:57:04 PM
re: Content Discontent
That given your view of content that they could make CMP Media remove the buttons for LR, LR-Europe, Cable Digital News, Unstrung, etc from the banner of this page?

Video is just one form of content. Portions of it are declining.

As I am picking on you for this, I would have to add that I am not clear what the purpose of our regulatory structure is at the moment. It is so twisted by the pace of change in the technology, that I think we need to scrap the entire structure.

Michael Harris 12/5/2012 | 2:57:01 PM
re: Content Discontent 7,

As you may have guessed the dictum ending television networks idea is facetious, and as ridiculous as the FCC logic on the 70/70 and 30% issues.

Ironically, the FCC approved same-market broadcast and newspaper cross-ownership this week, seeing no possibility of it impacting content diversity.

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