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Breaking Up The TV Cartel Is In The Public Interest

The Justice Department is making moves toward unwinding the stranglehold that today cable cartel has on the US TV marketplace, especially with regard to anti-competitive practices against non-cable players, like Netflix, Amazon, and Apple.

Justice Department Is Said to Investigate Cable Companies Over Internet Video - Brian Stelter and Edward Wyatt via NYTimes.com

The Justice Department is quietly investigating the cable industry’s behavior toward nascent online video competitors as part of an inquiry into possible anticompetitive practices by cable companies.

The investigation raises the prospect that the government’s antitrust lawyers will intervene in the complex and rapidly changing business of entertainment distribution. In the meantime, it raises new questions about an industry that has no shortage of them already.

Answers are probably not immediately forthcoming. As is typical in cases like this, the Justice Department declined to comment on the investigation or to confirm that it is taking place. But people with direct knowledge of the investigation who were not authorized to speak publicly confirmed, as first reported Tuesday night by The Wall Street Journal, that the department was examining broad changes in the marketplace for online video, including the use of Internet data caps by cable companies.

One of the issues involves whether those limits to the amount of video, audio and other data that users can download are discriminatory against Netflix, YouTube and other new digital video competitors. Comcast, in particular, has come under scrutiny for its past use of data caps and other network management practices.

The US model for today’s Old TV distribution is based on a/ free broadcast TV (which a declining number of people take advantage of) and b/ for fee cable (and satellite) TV (that a dominant and growing proportion of the population rely on). 

Local governments grant cable companies the right to a cable monopoly (usually a duopoly) in a geographic area, allowing them to charge a fee for TV service. Likewise, the US government allows similar models for satellite companies. The Multichannel Video Programming Distributors (MVPD’s) like Comcast and DirecTV also provide internet access to their customers, which at first they saw as simply an additional source of revenue. But now that we can stream video over the web, it’s become a huge competitive threat to their entrenched interests.

One result is the intransigence of cable companies regarding unbundling channels. Many users would like to not be forced to buy 70 channels in order to watch NBA games, or would like to just watch Game Of Thrones without the rest of HBO’s lineup.

Justice Department Is Said to Investigate Cable Companies Over Internet Video - Brian Stelter and Edward Wyatt via NYTimes.com

The department is also said to be studying the ways in which distributors bundle disparate television channels together in all-you-can-watch packages. Distributors and programmers have resisted calls to unbundle channels, but Internet distribution may give consumers more choices in that area — assuming that data caps or other network management practices do not stand in the way.

It is unclear whether the government inquiry is looking solely at cable and broadband Internet providers, or whether it is also examining other types, like satellite television providers. The two largest satellite providers, DirecTV and Dish Network, declined to comment.

The inquiry is important because precedents for the digital distribution of content are being set now, said Art Brodsky, a spokesman for Public Knowledge, a public interest group based in Washington, which welcomed news of the investigation. “This is the critical moment,” he said. “If the government doesn’t step in to protect public interest now, you’re going to lose your chance.”

The review was also welcome news to those who have argued that concerns about control over digital distribution should be addressed through antitrust law enforcement, rather than through pre-emptive regulation.

[…]

There are several factors that could be motivating the government to investigate cable company practices now. For one, it is reviewing a $3.8 billion proposal by Comcast, Time Warner Cable and other companies to transfer some spectrum to Verizon Wireless. The Justice Department’s scrutiny of that arrangement is certain to include an examination of video content delivered over wired and wireless networks.

Separately, the government is also monitoring Comcast’s takeover of NBCUniversal, which took place last year after a lengthy review by regulators.

In a consent decree with the Justice Department when the acquisition took place, Comcast committed to not “unreasonably discriminate” in relation to the Web traffic of its users. As part of a follow-up, the government is studying whether Comcast is living up to its commitments, according to one of the people with knowledge of the investigation.
For years, Comcast has enforced a cap of 250 gigabytes a month for its customers as part of what it calls reasonable network management. But Comcast has exempted the use of Xfinity, Comcast’s own online video Web site, saying that use would not count against that cap. Comcast says Xfinity videos are delivered over the company’s own network, not over the public Internet, but Netflix has cried foul.

Last month, Comcast raised the data cap and said it would no longer enforce the limit as it explores new pricing plans based on usage.

The situation is clear, in some ways.

First, it is certainly in the public interest for cable companies to not throttle data going through their pipes. Since the companies are providing the now-essential Internet connection to the great majority of the connected population, they should not be able to step in and decide what sort of content gets what proportion of the bandwidth.

Second, it is difficult to see what public interest is served by a coercive bundling of channels, forcing the public to buy more than they want in order to get access to TV programming they want. And there is no recourse, in most cases, to much of this programming, other than piracy, which the media world holds up as a boogieman.

For these reasons, the Justice Department should require  MVPD’s to drop any throttling of bandwidth based on content (also called Net Neutrality), which is the current policy of the FCC. And they should break the monopolistic practice of coercively bundling channels, so that any channel can be accessed through a fair price, and that individual shows — like a specific basketball game, or a specific movie on HBO — can be purchased in a pay-per-view style.

Whether the Justice Department will go that far — which would make the public happy, but not the TV magnates — remains to be seen.

(via worktalkresearch)

Young people who move to an apartment or get a house for the first time don’t subscribe to any MVPD (multichannel video programming distributor) and they just… get their network programming from Hulu and they get Netflix… As an industry where people pay between $70 and $92 a month, that’s a lot of money to a young person today who is getting their first job when they can go out and watch Hulu for free and Netflix for $7.99. So it’s a threat

Charlie Ergen’s quote via The children are our future, and they’re not paying for TV — Online Video News

bijan

Nice to finally see a CEO of a pay tv network calling a spade a spade 


(via bijan)

Netflix Spins Out Qwikster

Big, long awaited news from Netflix:

Erick Schonfeld via Techcrunch

Netflix CEO Reed Hastings just dropped a bombshell. In the wake of a rapid decline in Netflix’s stock price last week, Hastings is taking a bold step by separating the DVD and video streaming services. The DVD-by-mail service will now be called Qwikster, and the streaming service will maintain the Netflix brand. That’s right: the new business (streaming) will keep the existing name.

Why people think this is a ‘bombshell’ is beyond me. It’s an obvious move, as I said two months ago when they made major price changes:

Stowe Boyd via stoweboyd.com

Since the plans changed, I realized that I had let my DVD queue go empty several times in the past months, so I just don’t need as many DVDs as I originally did. Just one at a time for the occasional movie that is not stream-configured yet.

So I think Netflix will lose some money from people like me defecting from discs, and gain some from people signing up for unlimited streaming with a disk or two at a time.

But both the DVD-only and streaming only businesses can make money at the lower tiers, which must have been a loss leader for one or both services, before.

And by breaking out the team managing the DVDs, Netflix might be preparing to spin it out:

Jessie Becker via Netflix blog

Last November when we launched our $7.99 unlimited streaming plan, DVDs by mail was treated as a $2 add on to our unlimited streaming plan. At the time, we didn’t anticipate offering DVD only plans. Since then we have realized that there is still a very large continuing demand for DVDs both from our existing members as well as non-members. Given the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs. Creating an unlimited DVDs by mail plan (no streaming) at our lowest price ever, $7.99, does make sense and will ensure a long life for our DVDs by mail offering. Reflecting our confidence that DVDs by mail is a long-term business for us, we are also establishing a separate and distinct management team solely focused on DVDs by mail, led by Andy Rendich, our Chief Service and Operations Officer and an 11 year veteran of Netflix.

And the future CEO of DVDFlix?

So, I was wrong about the name, but otherwise, this was an inevitable step to move away from the legacy tail of shipping DVDs. And Andy Rendich is the CEO, obviously part of the plan.

I don’t think Hastings was responding to market moves: he had planned this all along.

Update: 7:06am EST - Amazingly negative response on the Netflix blog, with many users complaining about the increased headaches of managing two queues. But we already were managing two queues, one for the DVD and one for the streaming titles, so I don’t get that. Personally, I have been using InstantWatcher as the UI for the streaming service, and only adding things to the DVD queue that I can’t find.

The newsonomics of Netflix and the digital shift - Ken Doctor

http://www.niemanlab.org/2011/07/the-newsonomics-of-netflix-and-the-digital-shift/

Ken Doctor via

The print world ends not with a bang, but with price increase after price increase.

These economics of transition have a second, big piece for publishers that Netflix doesn’t have to worry about: advertising. With advertising accounting for 70 percent of newspaper revenues worldwide, the huge question for publishers is how much ad revenue they can make from purely digital customers. In the U.S, newspaper publishers know they make more than $500 a year on a Sunday print subscriber. With reduced digital product cost (like Netflix’s reduced cost of streaming), newspaper and magazine publishers won’t need the same level of revenue, but they will need a substantial part of what they are getting today. Those economics are just being modeled now in 2011, as the promise of higher-priced and higher-value tablet (and smartphone) advertising looks like it may be real and buildable.

Magazine and newspapers aren’t yet ready to more forcibly shift the audience in the direction of digital-only.

Timing is a big question here. Reed Hastings is flipping the Netflix switch more heavily toward digital, even though fewer than half his revenues are yet there. For newspaper publishers, with no more than 20 percent of their overall revenues in digital, the time may be one to three years away.

When publishers flip that switch — pushing customers more heavily toward digital — they want the force to be with them, not against them. The news and feature businesses are different than Netflix’s. Yet the strategies involved — make the old business a division, model out the new business model, move to it as quickly as you can once you’ve got it figured out — all apply. In mid-2011, Netflix is a canary in a (circulation) coalmine, with lessons to be learned.

I bet the future is unequally distributed (as Gibson said), and we will see some — like the Guardian — adopting the Netflix one-two punch pretty quickly.

Netflix Introduces New Plans and Announces Price Changes

http://blog.netflix.com/2011/07/netflix-introduces-new-plans-and.html

Leaving aside the new plans (which are window dressing), Netflix has announced that they are breaking the streaming and DVD services apart:

[…] we are separating unlimited DVDs by mail and unlimited streaming into separate plans to better reflect the costs of each and to give our members a choice: a streaming only plan, a DVD only plan or the option to subscribe to both. With this change, we will no longer offer a plan that includes both unlimited streaming and DVDs by mail.

So for instance, our current $9.99 a month membership for unlimited streaming and unlimited DVDs will be split into 2 distinct plans:

Plan 1: Unlimited Streaming (no DVDs) for $7.99 a month
Plan 2: Unlimited DVDs, 1 out at-a-time (no streaming), for $7.99 a month.

The price for getting both of these plans will be $15.98 a month ($7.99 + $7.99). For new members, these changes are effective immediately; for existing members, the new pricing will start for charges on or after September 1, 2011.

Basically a doubling of price, which will simply accelerate the transition to streaming only, which is probably fine with Netflix.

It doesn’t look like Netflix is just trying to make more money here. They are offering unlimited streaming for $7.99/mo for the first time, and a plan with unlimited DVDs (one at a time) for $7.99. So they are making considerably more money in the lower tiers of the new plan. So the threshold for getting started is higher, but when you get out to the 5 DVDs at a time and unlimited streaming it’s only $2/mo more.

In my case, I opted to downgrade: a 1 DVD at a time plan and an unlimited streaming plan. So I will pay around $15/mo, instead of the $36/mo I might have paid for unlimited streaming and 5 DVDs out at a time, but which was $34.99/mo until this month.

Since the plans changed, I realized that I had let my DVD queue go empty several times in the past months, so I just don’t need as many DVDs as I originally did. Just one at a time for the occasional movie that is not stream-configured yet.

So I think Netflix will lose some money from people like me defecting from discs, and gain some from people signing up for unlimited streaming with a disk or two at a time.

But both the DVD-only and streaming only businesses can make money at the lower tiers, which must have been a loss leader for one or both services, before.

And by breaking out the team managing the DVDs, Netflix might be preparing to spin it out:

Jessie Becker via Netflix blog

Last November when we launched our $7.99 unlimited streaming plan, DVDs by mail was treated as a $2 add on to our unlimited streaming plan. At the time, we didn’t anticipate offering DVD only plans. Since then we have realized that there is still a very large continuing demand for DVDs both from our existing members as well as non-members. Given the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs. Creating an unlimited DVDs by mail plan (no streaming) at our lowest price ever, $7.99, does make sense and will ensure a long life for our DVDs by mail offering. Reflecting our confidence that DVDs by mail is a long-term business for us, we are also establishing a separate and distinct management team solely focused on DVDs by mail, led by Andy Rendich, our Chief Service and Operations Officer and an 11 year veteran of Netflix.

And the future CEO of DVDFlix?

TDG: Proclivity to Downgrade PayTV Services Increasing among Netflix Streamers

http://tdgresearch.com/blogs/press-releases/archive/2011/06/09/tdg-proclivity-to-downgrade-paytv-services-increasing-among-netflix-streamers.aspx

According to The Diffusion Group’s (TDG’s) latest analysis of Netflix Streamers—those that stream Netflix content to their net-connected devices—the inclination to downgrade PayTV services has doubled in just the last 12 months.

In March 2011, TDG queried a random sample of adult broadband users that subscribe to cable, satellite, or telcoTV service as to the likelihood they would downgrade their PayTV service in the next six months—that is, “…move from a higher service tier to a lower one, or cancel a premium service of some kind.” In general, the percentage of Netflix Streamers to varying degrees likely to downgrade their PayTV service increased from 16% in 2010 to 32% in 2011.

Though Netflix has gone to great lengths to reassure PayTV operators that its offerings are additive to regular TV viewing and thus not a competitive threat, research now suggests that the ‘Netflix Effect’—that is, growing use of Netflix will lead to PayTV service downgrades and even cancellation—is gaining momentum.

D’uh.

Hollywood in turmoil as DVD sales drop and downloads steal the show -- Dan Sabbagh

http://www.guardian.co.uk/business/2011/may/03/film-industry-turmoil-as-dvd-sales-drop

The sale of DVDs has been falling since 2007, but the Digital Entertainment Group (DEG) reported that physical sales collapsed 19% to $2.2bn (£1.3bn) in the first quarter, while high-street rental also plunged by 36% to $440m, in a period when Blockbuster was in Chapter 11 bankruptcy protection. Online downloads and streaming through services such as Netflix, by contrast, grew quickly, although not enough to avert a 10% decline in the total home entertainment market to $4.2bn.

Ephemeralization of movies will lead to huge swaths of the entertainment marketplace collapsing, like Blockbuster. Redbox and its competitors have a way to go, but they are strictly transitional, too.

Just as big will be the death of DVD/Blu Ray players, as streaming becomes the principal distribution, and then TVs, as more and more of streamed movies and entertainment is watched on mobile devices and PCs.

Sell everything, like Sony, Panasonic, and all the others. They are walking dead.

According to the DVD and online video rental king Netflix’s last quarterly report, Netflix now has more subscribers than Comcast, the largest cable U.S. TV operator. 7% of all U.S. citizens now subscribe to Netflix. That’s great for Netflix but what about the Internet, on which it increasingly relies for its video transport?

Back in October, Netflix, and other video content were already taking up more bandwidth than any other single Internet service Gaming, Peer-to-Peer (P2P) file sharing, and Web surfing were all falling behind. It’s only gotten worse since then. When I recently looked at how much traffic IPv6 was transporting on the Internet, I found that Netflix, all by itself, was taking up 20%–the largest single share-of all Internet traffic.

Steven J. Vaughan-Nichols, Netflix: Bigger than cable. Too big for the Internet?

(via underpaidgenius)

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