Next generation video reached critical mass at CES. From Steve Ballmer's keynote to small two-person booths, from the most established players to tiny start-ups, the question of how best to deliver the video content that people want, where and when they want it, is at the forefront of many strategies for 2010 and beyond.
The question is whether it can reach critical mass in the marketplace.
Big players like Microsoft might have the clout to run the gauntlet of licensing and certification required to gain access to traditional delivery channels, like cable. We're hoping that the FCC acts soon to standardize the way that communication with cable, satellite, and telco video services (multi-channel video programming distributers, or MVPDs) work, to allow everyone–from the world's biggest consumer electronics companies to the Linux coder in it for the glory–to create devices that can communicate with these video delivery networks on an even playing field, just as any hardware today can connect to your home broadband connection.
Most readers of this blog will know that there's another way of getting video content to a PC or a dedicated device: over-the-top video programming delivered directly over the Internet. Over-the-top video has many advantages over “facilities-based” video services like cable and satellite, that are linked to particular delivery technologies. Consumers can choose from many different over-the-top video providers, just as they can choose between going to nytimes.com or wsj.com, without having to worry about who controls the pipes the content travels over. This kind of choice is good for consumers, increases content creator's access to consumers, and ultimately enhances the value of the broadband pipe.
For over-the-top video to reach the next level, though, we need to consider what kinds of obstacles might stand in its way. As I see it, the two categories of barriers can be thought of as (1) Access to content, and (2) Access to users.
Access to Content
Content creators don't want to antagonize their distribution partners unnecessarily–that is, unless there's real money at stake. Although over-the-top video is more successful than people realize, to an industry used to almost one hundred million potential viewers, over-the-top is pretty small scale. A move to over-the-top would definitely shake up the video programming market. Just as we've seen in the growth of the Internet generally, there would be winners and losers, and simultaneous consolidation and fragmentation. In the end, a move to over-the-top would grow the market–anywhere in the world there's a broadband connection, a provider or content creator could reach eyeballs. But there's no doubt the transition would be disruptive, and some might even question whether the benefits of such change outweigh the social cost. Thus, rather than bet big on over-the-top, a lot of players in content might prefer to settle for the smaller (but more predictable) world we have now. For this reason, as we've learned from talking with a lot of people at CES, access to content is not always forthcoming. Only after over-the-top reaches a critical mass, and it becomes stupid for content providers to not make their programming available to over-the-top players, can we be reasonably sure that over-the-top will be able to offer comparable programming to MVPD services. We'll have to see if the market solves this chicken and egg problem.
No one wants to be made obsolete. Realistically, I think there's always going to be a place for the Comcasts and Time Warners of the world. But there's no doubt that over-the-top represents a substitute for MVPD services for some consumers, and a partial substitute or complement for others which, at least, reduces the amount they'd be willing to pay for something like cable. For an easy example, someone might not bother with his cable video-on-demand service if Apple offers lower prices and a better selection for digital rentals over-the-top. There are two big ways this resistance seems to be playing out. Cable companies are often in the content business themselves. “Program access” rules require them to make their channels available to their cable and satellite competitors. There are no program access protections for next-generation over-the-top services, and a cable company might decide that it would rather have fewer viewers for its programming if that means less distribution competition. Additionally, incumbent MVPDs might use their market power today to foreclose competition tomorrow, for example, by tying their own over-the-top services to their traditional offerings, even obtaining exclusive over-the-top rights to themselves. Apart from basic antitrust concerns, one of our objections to the announced TV Everywhere initiative is that is seems designed to prevent consumers from “cutting the cord” with cable, as they've done by largely supplanting wireline telephones with mobile phone. (Imagine if the only way to get a cell phone number assigned to you was to also purchase landline service!) Most people we talked to at CES seemed to agree that TV Everywhere, in the long run, is designed to ensure that the market for over-the-top video is controlled by the people who control video programming distribution today.
Access to pipes
Independent over-the-top video providers also see challenges in gaining access to the home. In our upcoming filing in the Net Neutrality proceeding, PK will address prioritization and discrimination-type concerns, where over-the-top providers fear that over-the-top video generally, or certain over-the-top video services, might be disadvantaged as compared with other Internet content passing through the broadband pipe. Of course, many ISPs are also cable companies, or are rolling out their own “managed service” video offerings (that is, video services that are based on Internet technologies but are not themselves part of the Internet), such as AT&T's U-Verse. In our filing, we will also address this perceived conflict of interest which could cause combined video providers/ISPs to disadvantage Internet content generally. Additionally, public policy should recognize that, while bundling of services (such as video and Internet services together) can be efficient in many cases, choice of providers is also good for consumers.
Talking to key players
While we had fun with the nail-printing machine, touch e-ink displays, and “3D Everywhere,” CES is a chance for us to learn from the people who make a living trying to forge new models for content distribution. Now, how do you watch Popbox video on your As Seen on TV Hat…