The reported deal between Comcast, the nation’s largest cable operator and NBC-Universal, part owner of Hulu, could have serious consequences for the Internet’s most popular destination for online television shows and movies.

In just a year, Hulu has enjoyed a quadrupling of visits well into the millions, streaming dozens of network television series, specials, and movies, all supported by commercial advertising.  Devised to help combat online video piracy and earn additional advertising revenue from web watchers, Hulu partners NBC, Fox and Walt Disney Co., have been successful at drawing scores of Americans to the video website.  Program distributors have also been pleased, earning money from shows like Lou Grant that haven’t been on network television in decades.  But after the economic crash of 2008, the venture has proven costly for the partnership, challenged by an advertising marketplace on life support and outright hostility by broadband providers, cable operators, and Wall Street investors, upset that the service is giving it all away for free.

Among the loudest to complain is Comcast, which is now angling to acquire NBC, and its 30% ownership stake in Hulu.

Comcast CEO Brian Roberts has repeatedly complained about the implications of giving away online video, which for some have begun to replace cable television subscriptions.

“If I am any one of these programmers, not just ESPN but the Food Network and I have a business in that 50 percent, 60 percent, 70 percent of my business comes from subscriptions, I want to think long and hard before I just put that content out there for free and not think through what it is going to mean to my business,” Roberts said at an investors conference in May.

Roberts view was shared by the CEO of the nation’s second largest cable operator, Glenn Britt of Time Warner Cable.

“If you give it away for free, you’re going to forego that subscription revenue,” Britt said. “And if you actually think the ad revenue can make up for that, then God bless you and go on your way. But I don’t think that’s the case, and (networks) don’t really think that’s the case either.”

The difference between Comcast and Time Warner Cable is that the former could gain part ownership in the largest service now giving it all away for free, and that has major implications for Hulu’s future.

“Would Comcast put an end to the Hulu model of using the Web to distribute free TV content?” asked Michael Nathanson, senior media analyst at Sanford C. Bernstein & Co. “Will Comcast continue to support Hulu?”

The Los Angeles Times reports there is already a precedent for Hulu limiting content for online viewers in response to complaints:

Hulu already has limited users’ access to certain cable programs, including FX’s “It’s Always Sunny in Philadelphia,” in response to an outcry from the TV producers and cable companies that object to paying TV programmers hundreds of millions of dollars each year for shows that are offered free online.

“Arguably, their ability to shape online content distribution, and to recast windows for video on demand, would be an important attribute of any deal,” wrote Craig Moffett, a cable industry analyst at Sanford C. Bernstein.

Comcast’s interest in NBC Universal would dramatically expand its entertainment portfolio with such attractive cable channels as USA Network, MSNBC and CNBC as well as the Universal Pictures movie studio. The proposed Comcast-NBC Universal venture also would give the cable operator a greater role in deciding how and when TV shows and movies are distributed online and at what price to consumers.

Comcast’s influence would primarily be felt in cable network programming streamed online, as Comcast has a vested interest from the millions it currently pays those programmers to carry their networks on Comcast cable systems nationwide.  Comcast could advocate Hulu become a partner in the TV Everywhere cartel, providing video content only to “authenticated” pay television subscribers, or it could limit the number of episodes available for free, or when those episodes appear on the service.

Soleil Securities media analyst Laura Martin thinks an even more likely possibility would be charging a fee for some of its more popular content.  Martin points to Hulu’s own financial problems, a consequence of the crash in the advertising market.  Soleil estimates that the three partners subsidize $33 million of the losses at Hulu even after earning $123 million this year from advertising.  Even worse, Martin says, is the cannibalizing of the networks’ own advertising earnings from broadcast runs of those shows now available online.  She told the Times that for every viewer who migrates to the Internet, the companies forfeit $920 a year in ad revenue.

But not everyone believes the Comcast-NBC deal is such a great idea.

Time Warner CEO Jeff Bewkes today told an industry conference in Manhattan that large media mergers have had a lousy track record.  Still, he said the merger would probably benefit the cable industry as a whole, because broadcast networks content with giving away content for free online will now be a part of the very industry hurt by that formula and will be more friendly towards arguments to stop it.

“We love to see our competitors taking risks,” Bewkes said.

[flv width=”400″ height=”300″]http://www.phillipdampier.com/video/CNBC Hulu 9-7-09.flv[/flv]

CNBC’s Julia Boorstin talked with Hulu CEO Jason Kilar in September about the desire for the company to partner with the cable industry’s TV Everywhere project.

PSP Go

The arrival of Sony’s update to the PlayStation Portable, the PSP Go, gives potential buyers more to ponder than its $250 price tag and the fact it excludes a UMD drive, which means many consumers will now download their games from the PlayStation Store. LevelUp casino is a website wherein you can play games without needing to download anything.

In areas where broadband service is loaded down with Internet Overcharging schemes like usage allowances and overlimit fees, the first question for potential PSP Go owners is, “how big are these games?”

They are right to be concerned… and confused.  There has been considerable debate over the size of the average PSP Go game.  Some retailers have been talking about Go games running 50-100 megabytes.

But Al De Leon, PR Manager for Sony Computer Entertainment America, has stated the average size of a PSP Go downloadable game will be between 600-800 megabytes and no upper limit has yet been announced.  A few consumers who purchased the device discovered “no upper limit” is the operative phrase.  They found some examples among PSP titles on offer:

• Gran Turismo is 937 megabytes
• God of War: Chains of Olympus is 1.29 gigabytes
• Resistance: Retribution is 1.4 gigabytes

Of course, some games will be much smaller, especially those designed for playing on the Go. Enjoy competitive odds on kabaddi games with https://4rabetsite.com/sports/kabaddi-138.

Sony’s experiments with online game distribution could foretell a future where game titles are increasingly distributed online to consumers, which reduces manufacturing costs and speeds delivery to eager buyers.  But that future may be hampered if broadband providers implement usage allowances, particularly at the lower limits some companies have experimented with.  Frontier’s infamous 5 gigabyte, unenforced limit in their Acceptable Use Policy is a good example.

An avalanche of iPhones is to blame for AT&T's wireless problems, according to a Slate columnist

Telecommunications companies love people like Farhad Manjoo.  He’s a technology columnist for Slate, and he’s concerned with the congestion on AT&T’s wireless network caused by Apple iPhone owners using their phones ‘too much and ruining AT&T’s service for everyone else.’  Manjoo has a solution — do away with AT&T’s flat data pricing for the iPhone and implement a $10 price increase for any customer exceeding 400 megabytes of usage per month. For those using less than 400 megabytes, he advocates for a “pay for what you use” billing model.  Will AT&T adopt true consumption billing, a usage cap, or just another $10 price increase?  History suggests the latter two are most likely.

Stop the Cap! reader Mary drew our attention to Manjoo’s piece, which predictably has been carried through the streets by cheering astroturf websites connected with the telecommunications industry who just love the prospect of consumers paying more money.  They’ve called the organizations that work to fight against such unfair Internet Overcharging schemes “neo-Marxist,” ignoring the fact the overwhelming majority of consumers oppose metered broadband service and still don’t know the words to ‘The Internationale.’

Manjoo’s description of the problem itself has problems.

His argument is based on the premise that the Apple iPhone is virtually a menace on AT&T’s network.  He blames the phone for AT&T customers having trouble getting their calls through or for slow speeds on AT&T’s data network.

Every iPhone/AT&T customer must deal with the consequences of a slowed-down wireless network. Not every customer, though, is equally responsible for the slowdown. At the moment, AT&T charges $30 a month for unlimited mobile Internet access on the iPhone. That means a customer who uses 1 MB a month pays the same amount as someone who uses 1,000 MB. I’ve got a better plan—one that superusers won’t like but that will result in better service, and perhaps lower bills, for iPhone owners: AT&T should kill the all-you-can-eat model and start charging people for how much bandwidth they use.

How would my plan work? I propose charging $10 a month for each 100 MB you upload or download on your phone, with a maximum of $40 per month. In other words, people who use 400 MB or more per month will pay $40 for their plan, or $10 more than they pay now. Everybody else will pay their current rate—or less, as little as $10 a month. To summarize: If you don’t use your iPhone very much, your current monthly rates will go down; if you use it a lot, your rates will increase. (Of course, only your usage of AT&T’s cellular network would count toward your plan; what you do on Wi-Fi wouldn’t matter.)

First, and perhaps most importantly, AT&T not only voluntarily, but enthusiastically sought an exclusive arrangement with Apple to sell the iPhone.  For the majority of Americans, using an iPhone means using AT&T as their wireless carrier.  If AT&T cannot handle the customer demand (and the enormous revenue it earns from them), perhaps it’s time to end the exclusivity arrangement and spread the iPhone experience to other wireless networks in the United States.  I have not seen any wireless provider fearing the day the iPhone will be available for them to sell to customers.  Indeed, the only fear comes from AT&T pondering what happens when their exclusivity deal ends.

Second, problems with voice calling and dropped calls go well beyond iPhone owners ‘using too much data.’  It’s caused by less robust coverage and insufficient capacity at cell tower sites.  AT&T added millions of new customers from iPhone sales, but didn’t expand their network at the required pace to serve those new customers.  A number of consumers complaining about AT&T service not only mention dropped calls, but also inadequate coverage and ‘fewer bars in more places.’  That has nothing to do with iPhone users.  Congestion can cause slow speeds on data networks, but poor reception can create the same problems.

Third, the salvation of data network congestion is not overcharging consumers for service plans.  The answer comes from investing some of the $1,000+ AT&T earns annually from the average iPhone customer back into their network.  To be sure, wireless networks will have more complicated capacity issues than wired networks do, but higher pricing models for wireless service already take this into account.

Business Week covered AT&T’s upgrade complications in an article on August 23rd:

Many of AT&T’s 60,000 cell towers need to be upgraded. That could cost billions of dollars, and AT&T has kept a lid on capital spending during the recession—though it has made spending shifts to accommodate skyrocketing iPhone traffic. Even if the funds were available now, the process could take years due to the hassle and time needed to win approval to erect new towers and to dig the ditches that hold fiber-optic lines capable of delivering data. And time is ticking. All carriers are moving to a much faster network standard called LTE that will begin being deployed in 2011. Once that transition has occurred, the telecom giant will be on a more level playing field.

And there are limits to how fast AT&T can move. While it may take only a few weeks to deploy new-fangled wireless gear in a city’s cell towers, techies could spend months tilting antennas at the proper angle to make sure every square foot is covered.

Karl Bode at Broadband Reports also points out a good deal of the iPhone’s data traffic never touches AT&T’s wireless network and he debunked a piece in The Wall Street Journal that proposed some of the same kinds of pricing and policy changes Manjoo suggests:

iPhone users are using Wi-Fi 42% of the time and the $30 price point is already a $10 bump from the first generation iPhone. The Journal also ignores the absolutely staggering profits from SMS/MMS, and the fact that AT&T posted a net income of $3.1 billion for just the first three months of the year. That’s even after the network upgrades the Journal just got done telling us make unlimited data untenable.

Sanford Bernstein’s Craig Moffett has been making the rounds lately complaining that a wireless apocalypse is afoot, telling any journalist who’ll listen that the wireless market is “collapsing” and/or “grinding to a halt.” Why? Because as new subscriber growth slows and the market saturates, incredible profits for carriers like AT&T and Verizon Wireless may soon be downgraded to only somewhat incredible. Carriers may soon have to start competing more heavily on pricing, driving stock prices down. That’s great for you, but crappy for Moffett’s clients.

You’ll note that neither the Journal nor Moffett provide a new business model to replace the $30 unlimited plan, but the intentions are pretty clear if you’ve been playing along at home. As on the terrestrial broadband front, investors see pure per-byte billing as the solution to all of their future problems, as it lets carriers charge more money for the same or less product (ask Time Warner Cable). Of course as with Mr. Moffett’s opinions on network upgrades, what’s best for Mr. Moffett quite often isn’t what’s best for consumers.

If AT&T doesn’t have the financial capacity or willingness to appropriately grow their network, inevitably customers will take their wireless business elsewhere, and perhaps Apple will see the wisdom of not giving the company exclusivity rights any longer.

Manjoo’s proposals (except the $10 rate increase, which they’ll love) would almost certainly never make it beyond the discussion stage.  A pricing model that automatically places consumers using little data into a less expensive price tier, or relies on a true consumption “pay for exactly what you use” pricing model would cannibalize AT&T’s revenue.  Past Internet Overcharging pricing has never been about saving customers money — they just charge more to designated “heavy users” for the exact same level of service.  Need more money?  Redefine what constitutes a “heavy user” or just wait a year when today’s data piggies are tomorrow’s average users.  Now they can all pay more.

The average iPhone user already pays a premium for their AT&T iPhone experience — an average $90 a month for a combined mandatory voice and data plan — costs higher than those paid by other AT&T customers.  AT&T accounted for the anticipated data usage of the iPhone in setting the pricing for monthly service.

The biggest data consumers aren’t smartphone or iPhone users. That designation belongs to laptop or netbook owners using wireless mobile networks for connectivity.  Those plans universally are usage capped at 5 gigabytes per month, far higher than the 400 megabyte cap Manjoo proposes.  If AT&T felt individual iPhone customers were the real issue, they would have already usage capped the iPhone data plan.  Instead, they just increased the price, ostensibly to invest the difference in expanding their network.

Perhaps at twice the price, everything would be nice.

Manjoo admits AT&T does not release exact usage numbers, but it’s obvious a phone equipped to run any number of add-on applications that the iPhone can will use more data than a cumbersome phone forcing customers to browse using a number keypad.  That in and of itself does not mean iPhone users are “data hogs.”  In reality, 400 megabytes of usage a month on a network also handling wireless broadband customers with a 5 gigabyte cap is a pittance.  That’s 10 times less than a customer can use on an AT&T wireless broadband-equipped netbook, and still be under their monthly allowance.

Here’s a better idea: end the monopoly AT&T has on the iPhone in the United States. That would immediately do a lot more for AT&T customers, as the so-called “data hogs” that hate AT&T flee off their network.

Manjoo’s alternatives are a “pay $10 more” solution that won’t save consumers money and “pay exactly for what you use” plan that AT&T will never accept.

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"I think these are radical consumer groups," says Larry Kudlow

CNBC host Larry Kudlow engaged in on-air lovemaking with the wireless phone industry in a shameless segment decrying Net Neutrality.  His guest, Chris Guttman-McCabe, vice president of regulatory affairs at CTIA – The Wireless Association, was strictly in friendly territory as Kudlow tossed him softballs.  It was an industry talking point Blitzkrieg on consumers from start to finish:

Kudlow: Potential government control of the Internet: is Net Neutrality going to limit investment and innovation and even customer service?

Reality: Saying Net Neutrality is “government control” of the Internet is like saying safety inspections are “government control” of the food industry.  Without Net Neutrality, big cable and phone company providers will be the ones controlling the Internet.  Will Net Neutrality really limit investment, or continue the Internet success story that investment and innovation has already produced before providers demanded you pay more.  As for impacting customer service, that’s about as valid as claiming Net Neutrality will cause snakes to hide in your bed.

Guttman-McCabe: It’s a perfect storm of usage.  If we’re forced to deliver every bit all the time you’re going to lead to some form of commoditization of the product.

Reality: Gasp!  We can’t have that!  For those who may miss the meaning, commoditization refers to a perfect storm of competition, with providers generally competing on price because their products are of similar scope and quality.  Providers cannot extract higher pricing in such environments, because consumers won’t pay.  In the wireless industry’s eyes, Net Neutrality forces them to actually deliver the service they promise in their marketing materials.  You, as a consumer, get to choose the applications and services you wish to use and pay accordingly.  The market they want is to closely control and manage the content you use on their networks, blocking or impeding “unauthorized” services that don’t have a relationship with, or approval from, your wireless phone company.  Consumers actually want every bit delivered all the time, and providers are throwing a hissyfit because of it.

Kudlow: If you’re forced to deliver every bit all the time and meet the demands of these radical consumer groups, what happens to the profits of the deliverers?  The profits that are supposed to go into the investments to expand the broadband delivery?

Reality: Radical consumer groups?  Attacking real consumer groups that represent what consumers actually want, while providers stomp their feet when forced to deliver, doesn’t solve “the problem.”  And what of the profits?  That’s a good question Guttman-McCabe isn’t prepared to fully answer.  The enormously profitable broadband industry, in general, earns billions and invests a small percentage of that back into expanding their networks.  As our readers have learned on the wired broadband side, the logical assumption that providers will at least maintain a level percentage of revenue going back into network infrastructure isn’t always the case.  Instead, some providers raise prices and limit service, blaming “increased demand.”  Kudlow could ask providers what percentage of their revenues go into network expansion, and whether that has changed in the last ten years.  Of course he doesn’t.

Kudlow (to Guttman-McCabe): …obviously you’re not from the telephone company or the cable company, what’s your meat in the game here, who are you representing?

Reality: The CTIA has among its members AT&T, Cox, and Verizon.  Guttman-McCabe’s meat is paid for by all three, and many other industry members who belong to the group.  Who does CTIA not represent?  Consumers.

Guttman-McCabe: (Here come the shiny keys of distraction and misinformation, folks) I posit a question.  Are they (Google) allowed to cache their content closer to the customer to provide a better service under these Net Neutrality rules?

What about this pen -- will it be allowed under the new Net Neutrality rules?

Reality: Yes!  Having redundant and strategically placed content delivery servers is a widespread, industry-accepted practice not harmed by Net Neutrality.  Akamai delivers vast quantities of video content from regionally placed servers.  Cable operators will be able to place servers to deliver TV Everywhere to their customers wherever they like, if they so choose.  Net Neutrality does not compel web providers to run everything from a central server farm.  It would, however, tell broadband providers they cannot identify and artificially slow that content delivery down just because they don’t like it on their networks.  Big difference.

Guttman-McCabe: Is the Amazon Kindle, which is basically a wireless (single purpose) device — is that allowed to exist under the new Net Neutrality rules?  I think these are some of the questions that will come out as the Commission considers these new rules.

Reality: Yes!  Mr. Boots, your cat, will also be allowed to exist under Net Neutrality rules if he happens to jump on your keyboard while you access web pages.  Your wireless picture frame, which receives digital images to display on your bookcase will also be allowed to exist even if it cannot be used to play World of Warcraft.  I’m certain Guttman-McCabe and his friends will concern troll their way through the debate by throwing up lots of non-germane “concerns and questions” that they know have no relationship to the matter at hand.  They are well paid to do so.

Kudlow, of course, doesn’t challenge his guest on any of these issues, because he seems in perfect agreement with the industry position.  The shameless segment wraps up with the ominous notice that Net Neutrality has a long way to go and the CTIA has a “lot of educating to do.”  I’ll bet.

Larry Kudlow is the host of CNBC’s The Kudlow Report (M-F, 7pm/ET).

[flv width=”400″ height=”300″]http://www.phillipdampier.com/video/CNBC Kudlow Net Neutrality 2009-09-21.flv[/flv]

Larry Kudlow interviews Chris Guttman-McCabe, vice president of regulatory affairs at CTIA – The Wireless Association on Net Neutrality (9/21/09) (4 minutes)

The Mountain Pointe subdivision, northwest of Cleveland, Tennessee

The rural broadband divide doesn’t just impact the middle class.

Residents of the affluent Mountain Pointe subdivision in Cleveland, Tennessee (any neighborhood with an extra “e” on end of the name always spells money) are unhappy to find a home life without broadband service.  Like many wealthy enclaves set outside of clustered suburban neighborhoods, homes are too few and far between in the subdivision, making it too expensive for Charter Cable to wire service there.

Charter Communications Director of Government Relations Nick Pavlis told The Cleveland Daily Banner that it was not profitable to provide service to the 55 homes affected.

Generally, Charter Cable will not wire a neighborhood or street if it costs much more than $500 per home to provide service, including the collective cost of bringing wiring to that area.  In the case of Mountain Pointe, Pavlis said it would cost the cable company $130,000 to run an underground cable 2.5 miles to supply the subdivision with service, and that’s “not a reasonable payback,” considering the company expects a 36-48 month return on investment.

Charter is willing to wire the subdivision, if the residents agree to pay $1,850 apiece to pay for the wiring expenses.

That is a cost some homeowners may be willing to pay, considering the affluence of many of them.  Among the residents, according to Cleveland Mayor Tom Rowland, are bankers, business owners, and a former state senator.

“These are the kind of people you want to provide service for — they would subscribe to all of your services if they were available,” said Rowland.

But before opening their wallets, residents are looking for alternatives.  Mountain Pointe resident Lou Patten told the newspaper he and his neighbors are frustrated because a newer subdivision on Freewill Road has service from both Charter and AT&T.

A few residents have braved wireless broadband as their best option, for now, but the neighborhood’s terrain makes service unreliable.  AT&T DSL service is not available because Mountain Pointe is too far away from the central office serving the neighborhood, located northwest of the city of Cleveland.

With Charter remaining intransigent, the mayor met with five of the neighborhood’s residents and State Rep. Kevin Brooks, City Attorney John Kimball and AT&T Regional Director Mary Stewart Lewis to see if AT&T could find a solution.

A DSLAM manufactured by Siemens designed for outdoor installation

Tennessee’s statewide franchise agreement with AT&T points to Bradley County being wired for U-verse, a hybrid fiber-phone line TV, broadband, and telephone service, by July of next year.  But such agreements do not require 100% coverage and doesn’t guarantee Mountain Pointe service.

Lewis told the newspaper she would consult AT&T engineers for a possible solution to the problem.

“We’ve got to see where you are,” Lewis said.

In the short-term, AT&T could provide DSL service by installing equipment nearby that would reduce the distance between Mountain Pointe residents and AT&T’s switching equipment, using a device known as a Digital Subscriber Line Access Multiplexer (DSLAM).  It is commonly installed in more remote locations to provide DSL service in areas where direct service isn’t possible.