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Free Press Position on TV Everywhere is Anti-Commerce

By 4 January 2010 One Comment

In an odd move, Free Press today called on the Federal Trade Commission to investigate what it calls “collusion” and “illegal agreement” by cable, satellite, and telephone companies to provide TV Everywhere. Their argument, in a nutshell, is that the service could not possibly exist without secret and nefarious backroom deals and agreements between competing multichannel video providers and programmers. Further, they claim the very existence of TV Everywhere will thwart competition in the online video space.

NCTA’s Kyle McSlarrow has a solid takedown on cable’s blog. I’ll let his word stand on the merits of their collusion claims.

[T]he TV Everywhere concept involves a multitude of competing program networks, most of which distribute their content on competing cable, satellite, telephone and online platforms. As publicly announced, TV Everywhere envisions separate, bilateral agreements between one content company and one or more individual distributors. It is purely vertical in nature – like any arrangement between a content company and a distributor. As online video evolves, various distributors and content companies may – and likely will – come to widely varying bilateral arrangements.It is no wonder that developing and implementing this concept isn’t easy, given the vast numbers of possible participants; however, calling any of this “collusion” is, to be kind, strange. The fact that distribution of content requires a number of differing and competing parties to enter into a multitude of bilateral agreements is normal. Contrary to Free Press’ suggestions, the antitrust laws do not prohibit, but encourage collaboration, even among competitors, that lead to innovation and new products and services for consumers.

Programming agreements for cable carriage are carried out between different companies, whether cable, satellite or telco. That’s why your channel lineup and offerings are different from operator to operator and provider to provider.

As McSlarrow points out, it is up to individual providers to decide whether they would like to offer TV Everywhere, and then they each would then strike individuals agreements with programmers as to what content is made available online.

For the sake of the argument, however, let’s ignore their collusion claims and focus on the larger issue – competition in online video. The entire Free Press argument is predicated on a crude assumption. It relies on the belief that if TV Everywhere was blocked, those programmers would put their video online through some other venue. That assumption is demonstrably wrong. As an example, look no further than the existing offerings. Most cable programs are simply not available online. The content owners have made the determination that they would rather forgo the promotional opportunity of giving them away for free in exchange for keeping their dual advertising/subscriber revenue streams.

Cable is, essentially, a guaranteed rate of return for programmers. They can count on a set amount of income from subscriber fees and a more variable amount of income based on ad revenue. To give the content away via services like Hulu would largely deny them both. They would have no subscriber fees at all, and instead have to share in the ad revenue of the site. As has been discussed in countless forums, online ad revenue is substantially less than its TV counterpart.

Free Press’ claim hinges on the belief that these programmers would, in a world without TV Everywhere, simply give their content to any other online outlet. There is little to no evidence to suggest that is true. To bolster their specious claims, FP points to the newspaper industry.

Newspapers have been forced to compete and to give consumers what they want — access to content, widely available, sometimes under subscription, sometimes free. If a newspaper refuses to make its content available online, or does so only at high rates, another newspaper can gain revenue by making its content available at more reasonable rates or giving it away for free and relying on ad revenue. Most newspapers haven’t charged or required subscriptions to their content because they fear being undercut by their competitors.

In making this argument, Free Press unbelievably fails to acknowledge the reality of how the newspaper industry’s rush to provide free content has decimated the industry, shuttered papers and caused thousands of job losses.

Free Press is not the first to make the fallacious argument that TV content is equivalent to music and news. Unlike television, though, the per unit production costs of music and news don’t vary much. The incremental cost of cranking out an additional mp3 or news article can be minimal. Further, news is an extremely poor choice to compare to online video because news content is extremely perishable. The relative value of a news article declines with every second. As Free Press noted, the value in news is in being first, and ideally being the only one with the story. It has little to do with quality.

The Internet has decimated news because being the first person to report a story is no longer the sole purview of the media. Anyone with a phone, a camera, or a microphone can get the story and put it up online. That’s tremendously difficult to compete with, and makes news reporting, as a commodity, almost worthless.

Television, however, doesn’t work that way. Costs of producing content vary wildly. A show like Lost may cost several million dollars per episode to produce while shows like What Not To Wear cost fairly little. However, truly engaging shows require writers, cinematographers, location scouts, etc. Yes, anyone with a camera can produce content. Spend more than an hour on YouTube, however, and you’ll see how truly terrible much of that content is.

As a result, the incentive to produce high value content (like Mad Men, Burn Notice or Entourage) requires a relative certainty that you can recover the production cost. That makes cables relatively static income model very attractive and makes online video (which has not yet demonstrated it can actually generate enough money to pay for itself) a risky proposition.

Content creators want to protect the model that gives them the most certainty. To argue that they would simply make their content available through a model that didn’t do that is simply laughable. Trying to force them to do so by foolishly invoking the heavy hand of government in business negotiations – just because you don’t like the model they have chosen – is simply anti-commerce.

(Michael Turk is a Director of Digital Society and formerly worked for NCTA.)

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