The Television Wars

There are huge bandwidth battles raging in the courts, our regulatory bodies, and if our Congress could actually pass a controversial piece of legislation, we might have seen a massive spillover into this formerly-esteemed body. It’s all about the future of how you watch “television.” Companies have spent decades building terrestrial television networks, local stations and station groups, have weathered the transition from over-the-air analog to digital transmission… the struggle to create, build non-broadcast networks (loosely, “cable networks” or “pay-TV”) via your friendly regional carrier, where cable and satellite delivery space is limited, has cost billions.

And the rage of “digital networks,” the Netflix, Hulu, Amazon, YouTube/Google, etc. types, is now pressing against the competitive dominance of those more traditional broadcast and cable networks. You hear the words: “a la cart television,” “bundling,” “net neutrality,” “retransmission rights,” to name just a few. With over a quarter of Americans not even having Internet access, and 30% of the population not able to receive “rich media” transmissions because they lack the necessary bandwidth, we are facing a scramble that may lead to “digital polarization” to add to the economic splits we have recently witnessed.

The Supreme Court is scheduled to hear a case (American Broadcasting Companies, Inc. v. Aereo, Inc.) about whether a local digital network (Aereo) can pick up “free-over-the-air” network broadcast and retransmit for pay the identical telecast to the exact same footprint of an audience in the name of a clearer signal without the consent of the originating networks. Aereo is saying they are simply going to the same audience for which the networks are providing free content (advertiser-supported), which doesn’t contract or impair what the networks were trying to do in the first place. The networks think they are stealing their copyrighted programing without permission or compensation.

The networks faced conflicting lower-court decisions and pledged that if they lost the case, they might well abandon the airways and migrate entirely to the Web or cable universe. They were smug in their quest for resolution by the highest court in the land… Until the Silicon Valley chimed in, filing their amicus briefs, saying that the networks’ position was a severe threat to the evolution of consumers’ use of cloud storage systems and personal rights to time-shift content. Ugly!

The net neutrality war is about high-bandwidth users who want carriers to allow their signals on an open and non-restricted road, and the carriers claiming they need the right to require high-bandwidth users to pay extra money and to prioritize their signals and use that excess digital capacity. As Time Warner Cable and Comcast are trying to implement a mega-merger of such cable carriers – a defense to changing consumer habits and perhaps a migration from cable television to the Internet – Netflix makes a reluctant bandwidth deal with these cable giants. Europe has passed legislation requiring net neutrality, but the United States is still struggling with the concept.

But wait, there’s more. While about a million households a year (less than 1%) “cut the cord” – switch their television viewing patterns from paid cable/satellite services to free over-the-air and/or Web-delivered channels – the incumbent cable/satellite carriers continually report to the press that they’re not concerned at such a minimally erosive trend. They tell the world that their requiring consumers to buy “bundles” of channels, many that they will never watch (consumers tend to watch less than 10% of the channels they are required to buy), encourages content diversity and consumer choice – choice consumers really do not want when you calculate actual viewing practices. Analysts tell us that jumping to a system where all programming is based on individual a la cart choice could cost the cable industry $70 billion and decimate their future.

But you only have to look at those “kids in college,” where they don’t have a cord to cut – it’s all on the Web (and mobile) – and they seem to be taking this practice into their post-college lives. This part of our population is the big erosion that the networks fear most. With ABC, NBC, CBS and Fox having average viewers in and around 50-years-of-age, the future does not augur well for these lingering incumbents, each struggling to embrace younger viewers… each failing year-in and year-out to bring those viewers back to traditional television. But the incumbents also know what their television networks have that still addicts consumers to these archaic delivery systems: event programming where the joy is seeing real time competitive results (the Academy Awards and just about any sports) that loses value in a time-delayed viewing. More on this part of the war below.

And now there are tech companies offering digital alternatives with smart televisions and web-driven set-top boxes pushing individual consumer choice at rock-bottom prices. “In theory, at least, a set-top box should be pretty compelling when compared with cable… ‘Instead of spending $80 a month for 500 channels of nothing on,’ said Bill Rosenblatt, president of GiantSteps Media Technology Strategies, a consultant firm, ‘you get to pick what you want to watch when you want to watch it.’

“But if it were really that simple, he added, on-demand entertainment would have already triumphed. There are two big hold-ups, though. ‘First, on-demand TV is something that consumers don’t understand, because they have no experience of it. It’s like on-demand music services (Spotify, Rhapsody, Beats Music): great idea, but it’s a new consumer behavior,’ he said. ‘On-demand music with full major label licensing has been around since 2002 but even now there are, I’m guessing, barely 10 million users of it in the U.S. Introducing new consumer media behaviors is very hard and takes a very long time.’

“He continued, ‘By comparison, cable is the same as broadcast – just more channels and you don’t have to adjust an antenna. And similarly, iTunes is just like a record store – except bigger selection and you don’t have to leave your house. (Ditto Amazon and bookstores.) Eventually one of the Internet video services is going to figure out continuous programming (think Pandora for TV) and that will make a big difference, but rights are a big obstacle to that happening.’

“The second problem…: ‘Cable companies are very slow in offering ‘bare’ Internet service because they know that once they do, their subscription pay-TV businesses will go into free fall.’ Mr. Rosenblatt said. ‘Paying $80 a month for cable versus $8 a month for Netflix – it’s not quite an apples-to-apples comparison in terms of programming, but it’s pretty scary to pay-TV providers nonetheless.’” New York Times, April 4^th.

Regulation (mostly over pricing) rises and falls with the level of local competition, and clearly Time Warner & Comcast want a pretty open and free pricing structure. But exactly what is truly competitive with the elegant capacity of cable access? “In the petitions [filed with the Justice Department and the F.C.C.], Comcast argued that the nation’s two satellite television companies, DirecTV and Dish Network, meet those requirements [to release the regulatory limitations] in many markets by accounting for at least 15 percent of television service. While a few markets also have telecoms, usually AT&T or Verizon, competing to provide television service, most of the petitions cite only the satellite companies as rivals.

“But satellite companies do not offer high-speed Internet service, as the technology prevents it. The time required for a television signal to travel to a satellite and back to Earth are significant enough to create untenable delays… That means that in those markets, Comcast is usually the only provider of high-speed broadband using a cable modem — the fastest service going, next to fiber optic cable, which is not widely available in the United States.

“Comcast said those F.C.C. filings did not refer to broadband speeds directly and said it did face competition in most markets from other broadband providers. ‘In most of those areas, DSL is available’ from the local phone company, and wireless broadband is available through mobile phone companies, said Sena Fitzmaurice, a spokeswoman for Comcast… But DSL service, which is delivered over traditional copper phone lines, does not measure up to the speeds of cable Internet service. The most recent F.C.C. figures available, from mid-2012, show that only 8 percent of DSL connections in the United States transmit at a speed of at least 10 megabits per second. Seventy percent of cable modem service travels that fast.” New York Times, April 7^th. So without first rate Internet speed at reasonable rates, cable companies can raise rates for bandwidth such that cable television doesn’t seem that much more expensive.

Not only are cable companies significantly raising their prices for the exceptionally high-levels of bandwidth needed for flawless transmission of high-quality television resolution to multiple household televisions, but they have one other trick up their sleeves that I alluded to above. Event programming, which mostly means “sports.”

A third of consumer cable dollars come from sports. No sports and you might expect cable/satellite services to lose customers faster than the Titanic took on water. Sports are the glue that holds a huge pile of customers to their angry world of outrageous monthly cable bills. For years, the major college and professional sports teams – and their leagues and conferences – entered into television licensing agreements with all kinds of telecasters. Local teams were usually available (but not always) on basic cable services or broadcast stations, but out-of-market games required specific subscription from consumers who wanted that extra. And license fees, generally renegotiated every three or four years, generally rose at the top end of inflation numbers plus a bit.

But then the teams, leagues and conferences (notice that there are few more college conference these days making deals!) figured out that they were necessities for cable systems to survive. 2013-2014. And now, knowing the value of sports, their “asks” for going-forward renewals or new licenses were now multiples of their old license fees. Double and triple even. For DirecTV viewers, wonder why there are no Los Angeles Dodger games even if you live in LA?

Will this backfire, force consumers to buy these sports packages a la cart from the Web, and kill the cablecasters who don’t, forgive the expression, step up to the plate? For those cable providers who have accepted these new license fees, to moderate the cost-impact on their over-stretched customers, they have dropped marginal networks, lessening the diversity of choices as predicted.

In the end, it appears as if the tradition of “television” delivery through bundles of aggregated networks over cable, the airways or satellite is a dying concept. You are watching big companies buying nascent online networks, buying access to what they see as the new path to consumers. What do you want to happen? A la cart choices without access to all those channels you don’t watch? A la cart with individual programming choices? How important are sports choices to you? What would it take for you to cut the cord… assuming you haven’t already? How much is television worth – cash on cash – to you?

   I’m Peter Dekom, and the big questions are how long the incumbents can keep the Titanic afloat and if they can buy their way into the big “next.”