Franken and Comcast

There have been several reports on Senator Franken “ripping into” Comcast CEO Brian Roberts at the Congressional hearings that focused on Comcast’s proposed merger with NBC.

Most articles have highlighted the fact that according to Senator Franken, the folks at Comcast had played a little fast and loose with the truth. Beyond the fact that obviously people shouldn’t lie and without saying whether I know the Comcast folks lied or not, it opens the door to some questions that are going to need to be addresses sooner and probably later …. Should the people who manage the content also manage the transport of information?

This entry was posted in MN, Policy by Ann Treacy. Bookmark the permalink.

About Ann Treacy

Librarian who follows rural broadband in MN and good uses of new technology (blandinonbroadband.org), hosts a radio show on MN music (mostlyminnesota.com), supports people experiencing homelessness in Minnesota (elimstrongtowershelters.org) and helps with social justice issues through Women’s March MN.

17 thoughts on “Franken and Comcast

  1. “Should the people who manage the content also manage the transport of information?”

    Nope. There is, of course, a major conflict of interest owning both the trucking company and the tollway. If someone else comes on to your tollway with a better, cheaper and faster means of transport (and cuts in to your revenues) won’t you stop or slow them down?

    I’ve written several posts about this on Minnov8 and am not on Comcast’s Christmas card list anymore. 😉
    http://minnov8.com/?s=comcast&x=0&y=0

  2. One of the problems with companies like Comcast getting larger and owning more channels is that they can then use that power against smaller providers (public and private). Comcast already has a massive advantage because its scale and ownership interest in so many channels make it almost impossible for competitors to exist in the same market – which is something all of us that actually want to encourage competition need to worry about.

  3. There is precedent for a large cable operator and large content provider being under the same ownership tent. But it is not at all clear to me that it creates a problem for competitors or consumers, or that it provides any sort of advantage for the owner of the content and pipe.

    For example, Time Warner Cable was controlled by Time Warner, which owned the following as well: New Line Cinema, Time Inc., HBO, Turner Broadcasting System, The CW Television Network, TheWB.com, Warner Bros. Entertainment, Kids’ WB, The CW4Kids, Cartoon Network, Boomerang, Hanna-Barbera, Adult Swim, CNN, DC Comics, and Warner Bros. Games.

    Were there any problems with that from the perspective of competitors or consumers? I don’t know of any, but apparently owning the pipes and the content didn’t present much of an advantage from the corporate perspective because Time Warner Cable is no longer affiliated with the content part of Time Warner, having been spun out to shareholders in March 2009.

    Here’s a New York Times story from a year ago on the spin off:

    http://dealbook.blogs.nytimes.com/2009/02/27/time-warner-cable-spin-off-to-finish-next-month/

    My impression is that the content part of the operation didn’t want the pipe aspect to drag down the stock price.

    Why, then, the Comcast-NBC Universal deal? Analysts have in fact questioned whether the Comcast-NBC Universal deal is sound business strategy. Check out this Wall Street Journal piece from October:

    http://online.wsj.com/article/SB125441107753456545.html

    This caught my eye from the WSJ piece:
    ” … there is little evidence that owning both content and distribution brings strategic value. Time Warner, in fact, only this year split its cable systems from its vast content operations.”

    Anyway, I guess I’m undecided as to whether Comcast-NBC Universal is anti-competitive or just a really stupid business deal. I don’t think it can be both, right?

  4. Great points Tim. The only problem I have with your argument is that the perspective of cable owning content and the pipes is fine if the market was in stasis, but the acceleration of internet TV (and, especially, people turning off cable in droves) is the reason this has become an issue because the market is in HUGE flux.

    In a nutshell, the cable companies are making all sorts of moves (e.g., bandwidth caps; caching infrastructure at the cable head-end; so-called “authentication” schemes) in order to control internet video distribution over their cable internet connections. If you don’t think this will harm any competing providers or innovators — whether major initiatives like Boxee.tv or upstarts like Revision3 — then you’re not paying attention.

    My biggest strategic concerns have been around the level of control Comcast already enjoys and the barriers to competitive entry that have already been put in place in order to protect their cable TV business from upstart internet TV competitors. The best example of that is their 250GB bandwidth cap which they position as an “extremely large amount of data, much more than a typical residential customer uses on a monthly basis” but a consumption level of 250GB is easy to hit when streaming video at HD resolutions (and I should know since I do that extensively). It won’t stop the internet TV onslaught…but it gives them a major bargaining chip with the other issues below.

    Perhaps a bigger barrier is with something being instituted called “authentication” (http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=107122) and other cable companies are coming on board. Being “authenticated” means that if you’re a Comcast internet customer — but don’t subscribe to their cable TV service — you can’t watch a show from a competitive service over the internet (e.g., Netflix, AppleTV) on your Comcast internet connection if Comcast offers that show over cable TV.

    The third “mostly hidden” barrier is the massive investments Comcast is making in server/storage infrastructure in order to only offer a better “Comcast OnDemand” service. But smarter people than I at this stuff are just as concerned as I am that Comcast is setting up their delivery service so that ONLY those upstart internet providers that pay-to-play (i.e., pay to have their shows stored and forwarded to our homes over the Comcast infrastructure) will be able to ensure that their audiences have even a halfway decent experience (i.e., low buffering, higher quality, etc.).

    “Nah, it’ll never happen,” some say. “Comcast should be rewarded for their investments and the free market should dictate what happens” say others. There is truth in that, but without ensuring access to the pipes by upstart internet TV programmers, Comcast will ensure THEY win and THEIR programming has a competitive advantage. For those who are anti-net neutrality, it should also be noted that cable services would NEVER have been able to get off the ground had it not been for the rights-of-way and capitalizations coming from the FCC, states and municipalities.

    These problems outlined above are not just a Comcast issue. It’s an issue with any singular ownership of the pipes and the content by Time Warner and others.

    “But it is not at all clear to me that it creates a problem for competitors or consumers, or that it provides any sort of advantage for the owner of the content and pipe.”

    Again Tim, in a market in stasis you’re right, but this one is in a huge state of flux. If you, like I, had lived through the dominant Microsoft years and saw Netscape and other upstarts crushed because of Microsoft’s dominance and control over the PC desktop, you’d be less naive about the realities of what’s happening right now in the struggle to ensure the internet — and the future of innovation over it — isn’t owned and controlled by a view dominant players.

  5. Tim, realized that I didn’t directly (or even indirectly I guess) confront the “why” of ownership of NBCU by Comcast:

    a) They get the content, players and capabilities to be a major player in the business

    b) They ensure that no other upstart — even Apple or Boxee — can’t gather the three major networks and do an end-run-around Comcast and offer the networks a better deal for distribution. NBCU is a MAJOR bargaining chip.

    c) They get Hulu, arguably the best alternative to a Boxee, XBMC, AppleTV/iTunes.

  6. Steve, I’m not sure what you mean when you state that Comcast-NBCU will ensure that no other provider can gather the three major networks and “do an end-run around Comcast and offer the networks a better deal for distribution.” Are you suggesting that NBC isn’t going to be made available to Dish Network or DIRECTV anymore? I don’t get that because Dish Network and DIRECTV are entitled under federal regs to obtain the local broadcast affiliate signals. In the Twin Cities market that includes KARE-TV, the NBC affiliate, for example.

    In fact, the FCC already has program access rules that ensure that cable operators who own programming sell it to competitors at reasonable rates. This is how it worked with Time Warner before it dumped Time Warner Cable last year.

    If those regs worked to assure access to Time Warner’s content, why wouldn’t they work for access to Comcast-NBCU’s content?

  7. Christopher: You indicated that the Comcast-NBCU deal is “bad for independent content creators who are already unable to negotiate with Comcast.” Not sure what you mean by “independent content creator,” but Taylor Swift negotiated a content deal with Comcast recently. She is providing music videos and other segments on Comcast’s VOD system. Isn’t she an independent content creator? I think so.

    I’m sure there are other examples of that type of thing.

  8. “If those regs worked to assure access to Time Warner’s content, why wouldn’t they work for access to Comcast-NBCU’s content?”

    Those regs are for *existing* providers (e.g., satellite, cable) but it’s the asynchronous, on-demand access capability that is trying to be stopped by the cable companies.

    Again, don’t look at where the market is right now….instead look at where it’s headed and you’ll see the strategic obstacles being placed in the paths of any alternative provider.

  9. Steve, you stated: “The third ‘mostly hidden’ barrier is the massive investments Comcast is making in server/storage infrastructure in order to only offer a better ‘Comcast OnDemand’ service. But smarter people than I at this stuff are just as concerned as I am that Comcast is setting up their delivery service so that ONLY those upstart internet providers that pay-to-play (i.e., pay to have their shows stored and forwarded to our homes over the Comcast infrastructure) will be able to ensure that their audiences have even a halfway decent experience (i.e., low buffering, higher quality, etc.).”

    Taylor Swift negotiated a content deal with Comcast recently to provide music videos and other segments available via Comcast OnDemand service. From the little bit I read about the arrangement, I’m guessing that Taylor Swift didn’t have to “pay-to-play.” Rather, I’m guessing that Comcast had to pay Taylor Swift in order to make her shows stored and forwarded to customers via Comcast OnDemand.

    I doubt Taylor Swift was being charitable to Comcast with this. No doubt she would have been glad to make the same content available to a higher bidder. I don’t think she would discriminate against Dish Network, DIRECTV, or any other cable or internet distributor on any basis other than maximum CASH.

  10. The Taylor Swift example and my “pay to play” examples are an apples-to-oranges comparison. What I’m talking about is the groundswell of *alternative* providers of programming and not the status quo or star contracts that you’re describing.

    A simple Google search will show you how many people are disconnecting cable TV and instead going with terrestrial signals in HD and programming over the internet. It will also show you how many providers there are and this is growing.

    So let me try to explain it another way.

    I have a Mac mini connected to my HDTV at home and use it to run Boxee (see Boxee.tv for more info) which is a media center. Through it I can access a dizzying array of programming:

    – Netflix movie and old TV show streaming
    – Hulu (but they keep throwing a monkey wrench in to Boxee accessing it)
    – An upstart internet TV network in San Francisco called “Revision3.com” and their HD programming
    – YouTube, music streaming, Vimeo, and more.

    I could go on and on…but watch this short video and you’ll see what’s available on Boxee: http://vimeo.com/8599559 and this is the tip of the iceberg.

    Through this Mac mini I also access iTunes from Apple and watch shows, rent movies and more. All of this internet-based use is, unfortunately, quickly driving me past Comcast’s 250GB per month cap but I find that I’m less interested in traditional cable programming all the time, Comcast’s on-demand services and access are horribly implemented, and the user interface on their settop boxes are a joke.

    I’m not the only one either. All of this sort of internet-based TV consumption activity is happening with an increasing number of people across the US and means two things for the cable companies:

    1) Takes away eyeballs for programs and compels people like me to unsubscribe from cable TV in lieu of just obtaining over-the-air HD local channels and the huge array of content on the internet. With 51% of Comcast’s revenues coming from cable TV subscriptions, this is a huge threat to them (and other cable TV franchises)

    2) Minimizes regional and local advertising revenues which, in Comcast’s case, is 4% of revenues.

    So as you can see in Comcast’s case, 55% of their revenues are in jeopardy of erosion so why wouldn’t they want to slow down or diminish the capability of people accessing an abundance of internet-delivered programming? I, for one, long ago gave up my childish notions of trust where capitalist motives are concerned.

    What happens to a Revision3 — an upstart with quality programming streamed in HD over the internet only — if cable companies reduce, erode or limit customer access to this programming?

    That is what I’m getting at when I talk about the conflict of interest in owning both the content and the distribution and why Comcast’s storage infrastructure investments — which will have both positives and negatives no doubt — is likely to drive Comcast to provide customers who subscribe to cable a significantly better experience while ensuring that streaming internet TV providers are less likely (unless they pay to play) to be able to provide quality of service to their viewing public.

    Should mention that I’m not some 30-something tech savvy geek but rather a much older than that guy who leverages technology in any way I can so it’s easy for me to see what’s happening….or might happen if eyes aren’t opened.

  11. I think it bordering on meaningless to point to a single example of how Comcast negotiated with an independent content creator. One can find exceptions to anything. When you look at these negotiations and the way Comcast favors channels it has an ownership stake in (and you see just how many channels Comcast suddenly has an ownership stake in when they start to run on the Comcast system following negotiations), you should have some concerns about whether well-meaning federal regs are working.

    All of this is meaningless if we want to abandon the goal of cable competition – a legitimate policy choice that I happen to oppose. I prefer competition and choice — to the extent some players can gather this market power, we will have less competition.

  12. Christopher: The example you provided (via your link to “these negotiations” of your last post here) is a story about Tennis Channel’s complaint submitted in January to the FCC alleging that Comcast violated federal program carriage rules prohibiting cable operators from discriminating against unaffiliated cable services in favor of networks they own.

    This is a pending complaint. How am I to conclude that this particular regulation isn’t working when there has been no decision by the FCC yet? Furthermore, are you sure Tennis Channel’s allegations and representation of the facts are true?

    The article also references complaints that had been filed by the NFL Network and an east coast regional sports network. In both cases, the carriage issue was settled between the parties, so the FCC didn’t need to take any action.

    To me, this shows that the regulations have worked to resolve carriage disputes.

    I prefer competition and choice too. Thank goodness we have the option in this market to choose multichannel subscription video service from either Comcast, Dish Network, or DIRECTV. Sure, more options would be great, but if you are concerned about competition, then please keep you eyes on what’s happening with Dish Network and DIRECTV … because there has been talk of a merger of them for years. The FCC actually denied such a proposal several years ago, but that doesn’t mean it can be re-proposed. The combination of Dish Network and DIRECTV have almost as many subscribers as Comcast nationwide. The fate of those two dish providers is far more critical to multichannel video competition than anything else. No contest.

    I’m not commenting here to defend Comcast. They are fully capable of doing that on their own if they choose. My concern is that this is an incredibly complex business of legal, technical, and financial dynamics that just can’t be reduced to simplistic notions without ignoring critically important details that, when omitted from proposed policy, would likely cause significant unintended, negative consequences.

  13. Tim – you are right… the system works great – just as the rich and poor are equally able to sleep under bridges (or not), those who have access to the lawyers and funding to wait for years for the system to work will prove it works just fine.

    How many other interesting channels do we not hear about? How many other channels are never proposed because they understand the Everest they have to climb if they want to retain control of their product? Quite a few from what I hear on the podcasts that talk about these things.

    Regarding Rev3 noted above, they are a tremendous company and I root for them to succeed. So long as the network owners are not able to bias programming, they have a good shot.

    Structurally though, it makes little sense to have a network owner have an interest in what the user watches. The network owner will always be looking for maximize profits (fiduciary responsibility and all) and find ways of gaming the system to nudge or force the subscriber to act in ways that increases profits for the network owner. I have less faith in current regulations preventing this from happening than you, it seems.

  14. My guess is that Comcast isn’t at all concerned about Revision3 programming. That’s because the moment one of Rev3’s original shows hits a certain popularity threshold, one of the big programming companies (Disney, Viacom, Time Warner, etc. … or, heck, maybe Comcast) will swoop in and buy it from at Rev3 … and Rev3 will be glad to cash out at the right price.

    I seriously doubt that the folks at Rev3 would pledge to never sell any of their stuff to any of the big players. Ask them if they will agree to never consider a carriage offer from Comcast. Ask them if Comcast should be prohibited from making them an offer.

    I think it’s great that Rev3 and the zillion other internet video sources have emerged. But I can’t think of one of them that wouldn’t love to trade places with Comedy Central on the basic cable/satellite tier.

    And by the way, just because I’m skeptical about some of the concerns raised about Comcast-NBCU, it doesn’t mean that I would characterize the “system” as working “great.” That’s sort of gross oversimplification I think is not helpful to evaluation of these complex matters.

  15. I apologize on the over generalization regarding the system working great. You are obviously not making that case.

    I don’t think what Rev3’s reaction to acquisition has a bearing on this. I think what is important is whether we have a market that allows innovative content producers to be heard and I think the market power of Comcast and others hurts that because they are pressured to get noticed by Comcast to succeed.

    Rev3 shouldn’t have to pledge never to be purchased, they should simply be able to focus on producing high-quality content. So long as we have an open Internet, they will be able to do that. But as companies like Comcast get larger, they put greater and greater pressure on the federal government (and local governments) to deregulate and let them make more decisions about _their_ network.

    Pretty much everyone agreed that banks should not be “too large to fail.” But when it comes to restricting their size, those of who make that point are called socialists (not be you, I’m guessing) and we are ignored … ironically as we are trying to preserve a competitive market. At this point, I suspect future comments will be marginally useful – my concern is often with scale and unaccountable power. Perhaps we do not have enough documented evidence to prevent mergers like this, but when I look at the wasteland of radio and tv, mediums that could have been used to much greater public benefit, I don’t want to see the Internet reduced to whatever a few companies want to do with it.

  16. I don’t want to see the internet reduced to a wasteland either.

    Internet service is really not subject to any regulation right now. Does the internet even have a definition in federal law? I don’t know.

    If not, that would make it very difficult, I’m sure, for federal officials to evaluate the impact of such a merger. No definitions or standards against which an evaluation can be made.

    So I can certainly understand why advocates for an open internet might feel nervous. But if assurance of internet openness is an issue, then development of direct regulations may be needed, rather than trying to somehow address internet openness through regulations (or through tweaking such regulations) that are in place applicable to cable, satellite, broadcast, etc.

    Having said all that, I don’t know if internet openness is an issue at this point. That’s the Net Neutrality thing.

    I saw an interesting story on that recently at:

    http://www.phoneplusmag.com/articles/if-net-neutrality-dies-common-carrier-push.html

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