Time Warner and Comcast have announced a new pilot program for their TV Anywhere initiative. The 5,000 customers in the pilot will get access to cable programming content not otherwise available online — as long as they prove they subscribe to a subscription video service — or “MVPD” — like cable or FIOS. (MVPD stands for “multichannel video programming distributor” and means anything that sells you a whole bunch of cable channels. Forgive my jargon but it's just an easier term to fling around for this.)
The supporters of this initiative (which the <a href=”http://www.nytimes.com/2009/06/24/business/media/24pay.html?_r=1&ref=television>New York Times notes is also known in the industry by the more accurate but less friendly names as the “Authentication Program” and the “Entitlement Program”) point out that its just a bunch of broadband ISPs, who also happen to be MVPDs, coming together with the handful of other vertically integrated content companies like Viacom and DIRECTV/Liberty Media to create a common standard so that everyone who has already paid for this content can now also get it online. Ultimately, as long as you subscribe to any MVPD, you will get access to the programming through any internet provider. How could this possibly be anti-competitive?
Some of us old codgers with media regulatory backgrounds have long memories. For example, did you know that the FCC first authorized the direct broadcast satellite (DBS) service in 1982, and that we used to have something called “wireless cable?” Why didn't DBS manage to get going until the mid-1990s and wireless cable died on the vine? Answer: Because cable operators used control over programming (either direct control by owning the programming outright or indirectly by threatening to kick off programmers who sold programming to potential competitors) to keep these services from emerging. In 1992, Congress created the program access rules and made it illegal for cable operators to demand exclusive deals from independent programmers. That allowed satellite companies (and overbuilders like RCN and telcos like AT&T) to get “must have” video programming to offer competing video subscription packages.
So while everyone and his brother is fixated about cable operators trying to keep customers from “cutting the chord,” and noting how this ties in with the efforts to impose metered pricing and capacity caps, the anticompetitive impact goes way, waaaayyy beyond locking subscribers into obscenely profitable video bundles. As I noted when I blogged on this a few months ago, it works to (a) prevent the emergence of “virtual cable” competitors such as Netflix, and (b) protect the current cable programming network business model (as explained by Mark Cuban). It also jeopardizes innovation and further fragments internet content, as demonstrated by the Hulu/Boxee.tv dust-up back in February.
This therefore goes a lot deeper than cable operators trying to save their video subscription fees. What we have here is a classic case of two industry cartels (the MVPD/broadband access cartel and the content providers) working together to shut out potential new competitors and keep prices for all services to consumers high. The reason it is possible to lock up the content and make this work is because a handful of companies control the vast majority of video subscribers, broadband access subscribers, and video content. If Comcast (largest MVPD, vertically integrated with programming), DIRECTV (second largest MVPD, controls major content through Liberty Media), Verizon (MVPD), AT&T (MVPD), Viacom (content), NBC Universal (content), Time Warner (content) and News Corp (content) all agree to play, that pretty much sews up the broadband access market and the “must have” video programming. Who will subscribe to a Netflix or a TiVo “over the top” video service if they can't get the programming they want, and have the convenience of online through the “Entitlement Program?” The remaining content and broadband access players will have no choice but to play along, especially if the content providers make this part of the negotiation for programming generally (as Disney as begun to do with ESPN360.com).
Which is why my first choice to take a nice hard look at this is not the FCC, but the two antitrust agencies. Whereas under Bush, the antitrust agencies acquired the reputation as lapdogs to industry, both Christine Varney at DOJ and Jon Leibowitz at FTC have made it clear they see rigorous antitrust enforcement as important to the future of innovation and vital to consumer protection and the health of our economy as a whole. The DOJ and FTC have a history of going after cable's anticompetitive behavior, so acting here to protect competition is perfectly appropriate.
Mind you, I also hope that the FCC will look at this as well once the Senate finally gets around to confirming Julius Genachowski. As I noted awhile back on Wetmachine, a recent decision by the D.C. Circuit has potentially expanded the FCC's authority to regulate cable anticompetitive behavior. Indeed, nothing stops Acting Chairman Copps from taking up the matter. But the FCC is much less likely to act with an interim Chairman, particularly in the absence of any kind of formal complaint. DOJ and FTC, however, have a tradition of conducting independent investigations without requiring third parties to put themselves at risk by filing a complaint and essentially prove the case in advance to even trigger an investigation.
The biggest problem, of course, is that we don't have enough information to know what's really going on, and by the time we get enough information, it's likely to be too late. That's why we need the antitrust agencies to be proactive here rather than reactive. If the cable and content cartels know they're being watched, they will play fair and avoid anything dodgy. But if they think they can slip this by, then history will surely repeat itself. If we don't want Netflix online video service to go the way of ASkyB, wireless cable and VDC, then we cannot wait to “see if it really becomes a problem.”