Cable's Fear Factor: the Online Video Threat

[Updated 12:11pm EDT: Scott McNulty from Comcast notes in our comment section that the TV Everywhere concept will count against the 250GB usage allowance Comcast grants residential broadband customers, and suggests the concept is non-exclusive and voluntary.  We debate Scott on that point — see the Comments below the article to follow along and add your thoughts.]

The best kept secret in the broadband industry is now out.  Stop the Cap! reader Lou dropped us a note to say the New York Times has decided to let cable’s big secret out of the bag in an article published today entitled, “Cable TV’s Big Worry: Taming the Web.”  Lou writes, “finally, the mainstream media is pointing out that the real threat to Time Warner Cable and others is Hulu.”

In addition to the obsession to “monetize” content that is currently given away for free online, many in the cable industry believe the best way to tame the web is to control the content and method of distribution.  If you subscribe to a cable TV package, you’re approved.  If you don’t, no online video for you!  Once accessibility is limited to those “authenticated” to access the content, a handful of companies can determine exactly who can obtain their video programming, for how long, and at what price.  For everyone else not going along, discouraging ‘unauthorized’ viewing and disrupting underground distribution are powerful tools for providers to protect their video business model.

What is the best way to do that?  Internet Overcharging schemes of course.  By raising the alarm that online video growth will create a tsunami-like wave of Internet brownouts and traffic jams, and by trying to pit subscribers against one another based on perceptions of their usage, the message that will be part of any cable industry “education” campaign is that limits, tiers, fees, and penalties are the answer to all of these problems.  Watching Hulu every night?  Naughty. With this 20GB monthly limit, we’ll put a stop to that.  Netflix movie tonight?  Do you really want to risk going over your allowance and incurring “necessary” overlimit fees and penalties that represent more than 1,000% markup over our actual costs?  Wouldn’t it be fairer to your neighbors to watch HBO on your cable package instead?

Is it Fair for Big Trucks to Pay More On the Information Superhighway Because They’ll Wear It Out Faster?

In cities across the country, those interested in Internet Overcharging schemes are already engaged in focus group testing.  We know, because some of our readers have been stealth participants, informing us about all of their pretzel-like logic twisting games designed to convince the public that cable and telephone companies are not going to gouge you again with a higher bill.  Some want to use toll road analogies, others are using gas and electric comparisons, and one had the novel idea of putting a plate of food in the middle of the conference table and asking if it would be fair for just one person to eat 75% of it while the rest “go hungry.”

Unfortunately for them, by the end of the session, two of our readers attending two different panels derailed their efforts and had panels eating out of their hands in opposition to Internet Overcharging schemes, and collected a nice $75 (and uncapped lunch) for their efforts.

The Times piece only adds more evidence to help make the case that Internet Overcharging schemes aren’t about broadband fairness — they are part of a protection racket to protect fat profits earned from selling video packages to consumers.

Aware of how print, music and broadcast television have suffered severe business erosion, the chief executives of the major media conglomerates like Time Warner, Viacom and NBC Universal have made protecting cable TV from the ravages of the Internet perhaps their top priority.

“The majority of profits for the big entertainment companies is from cable programming,” said Stephen B. Burke, the president of Comcast, the nation’s largest cable company.

The major worry is that if cable networks do not protect the fees from paying subscribers, and offer most programming online at no cost — as newspapers have done — then customers may eventually cancel their cable subscriptions.

It’s My Cousin’s Fault

In other words, you and I are probably not the biggest threat the industry faces from the ultimate nightmare of eroding profits.  It’s really my cousin’s fault.  He, like many in their 20s, moved into his new home and didn’t do what many of us routinely did when we moved — start the newspaper service, connect the telephone line, and get the cable TV hooked up.

He did call Time Warner Cable — to only install Road Runner broadband Internet service.  He reads the news online, relies exclusively on a cell phone, and watches DVD’s and online video on his giant flat panel television.

The cable industry is horrified my cousin represents their future.

There is no sign of that happening anytime soon, but a recent poll by the Sanford C. Bernstein research group found that about 35 percent of people who watch videos online might cut their cable subscription within five years.

“We don’t think that it’s a problem now, but we do feel a sense of urgency,” Mr. Burke said.

An Urgency to Overcharge

Like most industries that have grown fat and happy on their traditional business models, the most common first response to a challenge to that model is to resist it.  The cable industry in particular has enjoyed a largesse of profits earned from years of de facto monopoly status in most communities, with the majority of its services being largely unregulated.  Cable rate increases have almost always exceeded the rate of inflation, and the public relations talking points for those rate increases has always been, “due to increased programming costs, which represent the increasing diversity and excellence of the cable channels we provide you….”

With prices for “basic/standard service” cable now approaching $60 a month, many younger customers just aren’t interested anymore.

Watching consumers abandon cable television packages for access through broadband gives executives and Wall Street analysts like Sanford C. Bernstein heartburn.  Until recently, many customers never contemplated the idea of getting rid of video packages and just keeping the broadband service they already have.  Not until Hulu.  That one website now represents a considerable amount of online video traffic from subscribers, and the cable industry isn’t in control of it, much less profiting from it.

Hulu represents a threat to be resisted.

You Use Too Much Internet, So We’ll Create Something That Will Make You Use More

To be fair to everyone, we have to get rid of the flat rate plan you’ve enjoyed for more than a decade and replace it with tiered pricing to be “fair” to subscribers because of enormous traffic growth. That what Time Warner Cable customers heard during a planned nonsensical trial of an Internet Overcharging scheme in four American cities, rapidly shelved when consumers rebelled and New York Congressman Eric Massa and Senator Charles Schumer got interested (Rochester, NY was a selected trial city).

It becomes all the more ludicrous as subscribers learn Time Warner Cable’s answer to the traffic jam is to add even more traffic… their traffic… onto their broadband lines.

Evidently online video is only a crisis requiring urgent action when it isn’t their online video.

One idea, advanced most vocally by Jeffrey L. Bewkes, the chairman of Time Warner, and embraced by many executives, would be to offer cable shows online for no extra charge, provided a viewer is first authenticated as a cable or satellite subscriber.

Mr. Bewkes has called the idea “TV Everywhere,” but others in the industry refer to it by other names: “authentication,” “entitlement,” and Comcast has called its coming service “OnDemand Online.”

“If you look at TV viewing, it’s up, even though the questions and stories are all about the role of video games and Internet usage and other uses of time,” Mr. Bewkes said.

The first test of the new system, which will authenticate cable subscribers online and make available programs on the Web for no additional charge, will be announced Wednesday, between Comcast and Time Warner. The trial will involve about 5,000 Comcast subscribers, and television shows from the Time Warner networks TNT and TBS.

It will be interesting to watch whether or not “no additional charge” means such content will be exempted from Comcast’s 250GB monthly usage limit, and whether Time Warner Cable will change their Subscriber Agreement to exempt their TV Everywhere service from the existing language in their agreement permitting Internet Overcharging schemes.  Time Warner Cable already exempts their “Digital Phone” product.

Ixnay on the Coin Chatter Already

The Times piece also raises eyebrows about the potential for collusion and antitrust violations in secretive meetings among industry executives, although they deny it.

The electronic media chiefs, including Mr. Bewkes, Jeff Zucker of NBC Universal and Philippe P. Dauman of Viacom, among others, have been more careful, so as to avoid being accused of collusion: much of the discussions have been on the telephone and in private, one-on-one chats during industry events. Pricing is rarely, if ever, discussed, according to executives involved in the discussions.

“We can’t get together and talk about business terms, but we can get together to work on setting open technology standards,” said Mr. Dauman, the chief executive at Viacom, which owns cable networks like MTV, VH1, Comedy Central and BET.

Although the representations from the industry seem benign, the potential for something far worse is always there.  Control the keys to unlock the door to online video (and the tools to lock out or limit the “other guy”), and you’ve got a plan to make sure people don’t dare drop their cable video package.  Where did the online video go from your favorite cable channel website?  It’s on TV Everywhere, and you don’t get in without an invitation.

One holdout among the major chief executives appears to be Robert A. Iger of the Walt Disney Company. At an industry conference this year he warned that gambits like TV Everywhere could be “anti-consumer and anti-technology” because such a plan would place cable programming behind a pay wall.

So much for “no extra charge.”

It’s Time to Investigate

Rep. Eric Massa (D-NY), is the House of Representatives’ watchdog on this issue.  He’s already connected the dots and realizes they lead in only one direction — to consumers’ pocketbooks.  Massa has introduced HR 2902, the Broadband Internet Fairness Act, specifically to prevent broadband providers from falling all over themselves to engage in anti-competitive, anti-consumer price gouging, all to cover their bottom lines.

This legislation, and Rep. Massa, needs your immediate support.  Call Congress and ask your representative to co-sponsor this vitally important bill.  The New York congressman is protecting consumers nationwide, and deserves your thanks and support.

Stop the Cap! also now calls on Congress and the appropriate regulatory bodies to begin an immediate investigation into the industry’s “cooperation” to launch TV Everywhere, and other similar projects. Specifically, we ask that an appropriate and thorough review be conducted to ensure that no collusion or antitrust violations have, are, or will take place as a result of this project.  We also call for a review of the “authentication” model proposed by the cable industry to ensure it does not exclude any consumer that subscribes to a competing video provider (satellite, telephone company, competing independent cable company, municipally owned provider, etc.), and that no “free pass” language be permitted that exempts their project from the terms and conditions that they seek to impose on others not affiliated with this project.

Senator Schumer’s long history of consumer protection would make him an excellent choice to lead such an investigation.

Once again, Net Neutrality must be the law of America’s online land.  Only with the assurance of a level playing field can we be certain no provider will attempt to exert influence or special favor over content they own, control, or distribute.

The NoChokePoints Coalition has a point.  They are a coalition of public interest groups and providers like British Telecom and Sprint-Nextel that are upset with monopolistic pricing for high speed broadband lines.  Verizon and AT&T “control the broadband lines of almost every business in the United States” the coalition states, and “generates a profit margin of more than 100% for the controlling phone companies.”

“Releasing the broadband economy from the chokehold these huge phone companies have on the special access market will be a catalyst for innovation and investment in the broadband marketplace, something we desperately need,” said Maura Corbett, spokeswoman for the NoChokePoints coalition.

“Every time you send an email, withdraw money from an ATM, or use your wireless phone, your information travels on these high-capacity lines. Excessive pricing and other market abuses by these companies have long been an issue of concern at the Federal Communications Commission (FCC). Nearly five years ago, after many complaints by broadband customers in several FCC proceedings, the Commission began a review of the high-capacity broadband market to determine the changes needed to ensure reasonable prices. Despite ample evidence of excessive pricing, the Commission inexplicably has yet to take any action.”

“The Obama administration, Congress, and the FCC repeatedly emphasize the importance of broadband to our economic recovery and, frankly, it defies explanation that we are still fighting this market abuse,” Corbett continued. “Huge companies like Verizon and AT&T control the broadband lines of almost every business in the United States. The virtually unchallenged, exclusive control of these lines costs businesses and consumers more than $10 billion annually and generates a profit margin of more than 100 percent for the controlling phone companies, according to their own data provided to the FCC. This hidden broadband tax results in enormous losses for consumers and the economy, and this country cannot afford it; especially now.”

NoChokePoints cited four central principles of its campaign to reform the special access market: (1) the special access market is broken; (2) the outgoing Federal Communications Commission made a bad situation worse by failing to address obvious market abuse by these huge phone companies; (3) this unchecked market control continues to slow broadband deployment, compromise innovation and harm our national information economy; and (4) the resulting market failure must be corrected now.

Yes, when one or two providers get together and establish pricing for a product that is way out of line for what it costs to provide, and uses that control to further squeeze every last penny they can from customers, something should be done.

As consumers, we should agree to join the NoChokePoints coalition struggle.  There are several very credible pro-consumer organizations that support the Coalition and its goals.  And consumers like myself shall, mere seconds after:

Member BT (British Telecom) stops throttling UK customer’s broadband connections, and imposing Internet Overcharging schemes on customers through limits on their data consumption.

Member Sprint-Nextel agrees that consumers should be able to request temporary suspension of their wireless data account, currently limited to 5GB of consumption per month, the moment the limit is reached to avoid the potential of paying overlimit fees, if/when applicable.

TW Telecom gets a pass here as they are entirely independent from Time Warner Cable.

Internet Overcharging schemes, monopolistic control, abuse of market pricing, and other anti-competitive behavior should be confronted.  But companies engaged in problematic behavior themselves should not anticipate a great deal of consumer compassion towards their plight, when those consumers often are on the receiving end of that problematic behavior themselves.

This week’s finding from the Pew Internet & American Life Project:

Where competition exists in broadband, prices are significantly lower than in areas where competition does not exist or is limited.

This is, of course, common sense.  But it underlines the importance of broadband competition to control pricing and overcharging schemes.  Broadband prices have been increasing in the United States, along with the number of customers, the revenues earned from those customers, and the loyalty customers to their broadband service.

What has decreased, despite the growth in broadband pricing, revenues, and customers, is some providers’ investments in their own networks to keep up with that growth.  In 2008, Time Warner Cable’s annual report showed interesting results:

“In 2007, TW made $3,730 Million, on high speed data alone, and then had to turn around and spend $164 Million to support the cost of the network. 2007 total profit on high speed data: $3.566 Billion”

“In 2008, TW made $4,159 Million, on high speed data alone, and then had to turn around and spend $146 Million to support the cost of the network. 2008 total profit on high speed data: $4.013 Billion”

“It cost TW 11% less money in 2008, to keep their network running, than in 2007.”

These numbers illustrate the folly of crying poverty when asked why network upgrades aren’t being performed to support evolving growth in usage.  Instead, the meme of “heavy downloaders are costing light users money and slowdowns” is part of the Re-education campaign to justify Internet Overcharging.

Yet broadband prices are continuing to climb even with reduced investments by many providers.  Pew found pricing up across all classes of broadband service, significantly so between 2008 and 2009.  Pressure on revenues from the video side of the cable business are partly responsible as investor demands for profits demand results.  Consumers, responding to a poor economy, have been cutting back on their cable TV package, especially premium channels, pay-per-view, and add-ons of extra channels.  A few are abandoning cable/satellite TV altogether, relying on their broadband connection and online video, a prospect that terrifies those providing traditional cable-like programming packages.

Some 84% of home broadband users see their fast connection as “somewhat important” or “very important.” This increasing reliance on broadband is turning a convenience into a necessary utility.  Yet the industry that provides it is under very little scrutiny and has largely been deregulated, with only limited oversight possible.

The results have been mixed.  Americans living in areas lucky enough to experience robust competition have fast, reliable service at low prices, with only limited efforts to impose Internet Overcharging schemes.

In areas with more limited competition, particularly when those competitors do not provide an equivalent level of service consistently across their service area (fast consistent cable modem service vs. variable, speed-challenged DSL), mischief by the dominant provider is increasingly common.  “Experiments” to increase prices, limit use, require customers to purchase or rent equipment, or impose annual or bi-annual service contracts, and/or  limited advancements in speed are not atypical.

Rural communities, in particular, remain exposed to many challenges — high prices for installation and service, slow/uneven speeds, contracts, and usage allowances are all commonplace.

The Obama Administration intends to spend tens of millions of dollars to improve broadband in the United States.  Unfortunately, many worthwhile projects and ideas are up against schemes from less worthy providers and groups that have teams of lobbyists and connected “interest groups” proposing spending that carries few limitations, little oversight, and loads of loopholes.  In some cases, needed project funds could even be diverted away from new projects altogether.

The Pew Study summarized its findings:

Home broadband adoption stood at 63% of adult Americans as of April 2009, up from 55% in May, 2008.

The latest findings of the Pew Research Center’s Internet & American Life Project mark a departure from the stagnation in home high-speed adoption rates that had prevailed from December, 2007 through December, 2008. During that period, Project surveys found that home broadband penetration remained in a narrow range between 54% and 57%.

The greatest growth in broadband adoption in the past year has taken place among population subgroups which have below average usage rates. Among them:

• Senior citizens: Broadband usage among adults ages 65 or older grew from 19% in May, 2008 to 30% in April, 2009.
• Low-income Americans: Two groups of low-income Americans saw strong broadband growth from 2008 to 2009.
  • Respondents living in households whose annual household income is $20,000 or less, saw broadband adoption grow from 25% in 2008 to 35% in 2009.
  • Respondents living in households whose annual incomes are between $20,000 and $30,000 annually experienced a growth in broadband penetration from 42% to 53%.

"This is not a rate increase, this is about fair pricing for everyone, seriously."

It’s always awful when you wake up with a bad taste in your mouth.  That’s the flavor of industry hacks and sock puppets who spent a good part of yesterday and last night on the attack against Rep. Eric Massa and your consumer interests.  Part of this battle is about engaging those who claim to represent consumers, but actually turn out to be paid by a lobbyist firm or “think tank,” usually located either in or near Washington, DC.  They are typically unwilling to disclose that involvement.  I’m not.  When called out, the typical response ranges from silence to ‘I would be saying the same things even if I didn’t get paid by them.’

Sure they would.

Consumers need to be particularly vigilant about the Say for Pay crowd of sock puppets that arrive in quotations in articles that attack common sense pro-consumer positions, or in the comments  below an online article.

Now you may be asking what in the world is a “sock puppet.”  Craig Aaron at Free Press explains:

Sock puppets, for those unfamiliar with the creatures commonly found inside the Beltway, are mouthpieces who rent out their academic or political credentials to argue pro-industry positions. These pay-to-sway professionals issue white papers, file comments with key agencies, and present themselves to the press as independent analysts. But their views have a funny way of shifting depending on who’s writing the checks. (To be clear, at Free Press we take no industry money.)

Sock puppets and astroturf groups go hand in hand.  If you remember, we’ve exposed a number of these groups that claim they are standing up for consumers, but in reality are paid to sit down and absorb their industry backer’s talking points.  The snowjob that typically follows claims that if you do the pro-consumer common sense thing, such as not allowing Internet Overcharging schemes to rip people off, you’ll destroy the Internet, America, and maybe even freedom itself.  Besides, just look at the “expert credentials” of our guy telling you that.

When you boil it all down, sock puppets are people who feel morally fine with taking money for being willing to assume any position you want them to take.  It’s vaguely familiar to another profession that’s been around for a very long time.  One just has better office space than the other, and better business cards, too.

If you want to explore a perfect example of sock puppetry at work, with a group trying to get public taxpayer money to benefit big telephone and cable companies with few strings attached, check out Craig Aaron’s article on the subject this past January.

In Stop the Cap!‘s history, we’ve debated a representative from Nemertes Research who refuses to disclose who pays for their industry research reports that conveniently say exactly what the telecommunications industry’s positions are on the broadband issues of the day.  We’ve questioned a group that claims that “openness” or “neutrality” of the Internet is irrelevant, and called out the American Consumer Institute Center for Citizen Research (you gotta love the name — it’s a delicious consumery-sounding word salad… with special interest croutons sprinkled all over the top), who applauded Internet Overcharging as a great thing for customers, except they were packed with lobbyists to really satisfy big telecom interests.

Readers of this site should be well-qualified to engage industry propaganda and consumer misconceptions about the fairness of Internet Overcharging schemes.  You’ve gotten the information you need to effectively educate consumers and expose the sock puppetry.  The entire reason this group exists is because we realized the fight is not over, and we’d need an army prepared to combat the Re-education campaign we were promised back in April.  The battle is fully engaged now, and I’ve been happy to see many of you joining conversations on other sites where misconceptions and sock puppets prevail, and helping to educate consumers with facts, not focus group-tested propaganda.

We need many more of you to do likewise.  If your local newspaper runs an article on Rep. Massa’s bill, or our issues, take a look at the article online and look at the comments being left by readers.  Encounter misconceptions?  Help educate people.  Discover a sock puppet browbeating consumers for standing up for common sense reform of the broadband industry?  Defend the consumer’s point of view and don’t allow anyone to berate you with smug, fact-free answers.  Most are unprepared to respond with actual evidence to back their views, just a load of industry rhetoric and evidence-free claims they have expertise you don’t.

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I know everyone will have questions about HR 2902, the bill introduced this morning by Rep. Eric Massa.  We’ve been working with Free Press and Eric’s staff for the past several weeks behind the scenes on this legislation, and there are some things that I am certain our readers will be asking about, so before things get scattered across multiple articles, I am creating this one to take questions in the comment section and also to update people on answers on an ongoing basis.

I also want readers to understand there are reasons why I may not be able to answer certain questions completely.  In some cases, it’s because I don’t know the answer, but I will try and find one.  For some others, please trust my judgment and that of the congressman.  There are reasons for doing certain things in certain ways.  I’ve been just as outspoken with the congressman’s office as I’ve been here.  They know the mission statement for our site, and our issues.

Q. Why does HR 2902 not simply ban tiered pricing outright and who decides what “unreasonable” pricing means?

A. Legislation must not only become law but also withstand legal scrutiny.  The bill is designed to accomplish what needs to be done – preventing providers from launching Internet Overcharging schemes that, upon review by the appropriate agencies, are simply economically unjustified.  These decisions are not arbitrary — there are mechanisms and measurements that take into account provider costs and what they then try to turn around and charge us.

Q. Why does the legislation not speak directly about usage caps?

A. It covers them in a roundabout way, and there are some additional reasons for structuring the language this way.  Believe me when I say this was not an issue we’d forget about, considering this site was founded on that issue, even before nonsensical tiered overcharging schemes showed up.  Stop the Cap! opposes usage caps, period.

Q. Why does the bill exempt small providers with less than 2,000,000 customers?

A. Until the broadband stimulus package begins to help guarantee reasonable access and prices for all Americans, small providers, often in rural communities, have to find wholesale broadband access at significantly higher expense than major providers do.  A number of those providers, including those run by municipalities, are with us on most of our issues, but they confront additional challenges that simply make it easier to exclude them from the language at this time.  When access finally becomes inexpensive and plentiful from coast to coast, providers will find few justifications to need an exemption in the first place.  Stop the Cap! fully supports major expansions in rural broadband to provide people living in small communities with the same kinds of access those of us in more urban areas enjoy, at comparable prices and speeds.

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