What is the last technology product you purchased that never declined in price after you bought it?  If you answered your broadband service, a new study proves you right.

Since there are no public data on what has happened to broadband prices over the last decade, Shane Greenstein, a professor of management and strategy at the Kellogg School of Management, and his co-author Ryan McDevitt, an assistant professor of economics and management at the University of Rochester and a graduate of Northwestern University, analyzed the contracts of 1,500 DSL and cable service providers from 2004 to 2009.

The results every broadband user already knows.

At best, prices have declined only slightly — typically between 3-10 percent, partly from a “quality adjustment” the authors included to account for gradually increased broadband speeds when measuring prices.

Greenstein blames a broadband duopoly for the stagnation in broadband pricing.

Greenstein

“So if you were in such a market as a supplier, why would you initiate a price war?” Greenstein asks. With no new entries on the market, suppliers can compete by slowly increasing quality but keeping prices the same. According to Greenstein, quality is where providers channel their competitive urges.

Meanwhile, once companies have installed the lines, their costs are far below prices. “At that point, it becomes pure profit,” Greenstein says. A company might spend around $100 per year to “maintain and service” the connection, but people are paying nearly that amount every other month. Greenstein says that it is not surprising that prices were high during the buildout phase in the early and mid-2000s, since the firms were trying to recover their costs. “However, we are approaching the end of the first buildout, so competitive pressures should have led to price drops by now, if there are any. Like many observers, I expected to see prices drop by now, and I am surprised they have not.”

The authors also confirm Stop the Cap!‘s long-standing contention that providers are enjoying dramatically reduced costs to deliver broadband to customers, yet are not spending some of those profits on important network upgrades.  That could lead to a broadband bottleneck, Greenstein contends, especially with the growth of online video.  We argue it is a recipe for Internet Overcharging — triggering increased pricing to “pay for upgrades” while limiting usage of broadband service, despite the mountain of profits available today to cope with usage growth.

McDevitt

Greenstein and McDevitt pored over 1,500 broadband contracts over several years, tracking pricing, service bundling, and speed improvements.  Pricing, adjusted for speed improvements, was generally flat.  Because the cable industry has delivered most of the speed growth Americans enjoy, the “quality adjustment” the authors used credited most of the modest price declines to the cable industry, especially for customers moving to bundled packages of services.  The authors found DSL and its providers almost completely stagnant — both in pricing and speed.

The most surprising discovery, Greenstein says, is that national decisions are being made without the type of data that he created in the consumer price index. “As an observer of communications policy in the U.S., I find it shocking sometimes how often government makes decisions by the seat of their pants,” he says. Without real data and statistics, decisions are based solely on who has better arguments—in essence, a debate. A better consumer price index will help produce better decisions for the future of the Internet and its users.

It may also serve as an effective challenge to telecommunications industry lobbyists who engineer their own statistics and claims about the performance of the nation’s phone and cable companies.

Thanks to Stop the Cap! readers Bones and Michael for sending along the story.

A Seattle startup launched its new “online cable TV system” this week offering a 30-day free trial of 27 live feeds of over-the-air television stations from New York and Seattle.

Dubbed ‘ivi,’ the online video service expects to charge customers $5 a month for the package of broadcasters delivering shows from all of the major American networks, plus several superstations most Americans haven’t seen on their cable lineup since the early 1990s.

‘ivi’ claims it offers more content than Hulu — providing online access to every network and syndicated show seen on New York and Seattle TV screens, and for an introductory price of $0.99 more per month, the company plans to turn your home computer into a giant DVR, capable of recording and storing any of the programming on ivi’s lineup for later viewing.

“The cable industry has spent countless millions of dollars on so-called ‘TV Everywhere’ solutions in a blind effort to prop-up outdated technology and business models” said Todd Weaver, founder and CEO of ivi, Inc. “However, ivi empowers its users to experience TV Anywhere, offering them major broadcast channels delivered live to their laptop or desktop, anywhere on the planet. Whether eventually integrated into Google TV, Apple TV, or meshed with an existing platform’s digital strategy, ivi makes the set-top-box and any ‘Web to TV’ products obsolete. Instead of attempting to bring the Web to the TV, ivi intuitively brings TV to the Web.”

The ivi TV player is currently available for download to any Windows, Apple, or Linux computer, and will soon be available on other platforms, including mobile devices, tablets, and set-top-boxes.  It allows customers to access its lineup anywhere in the world where a broadband connection exists.

The company provides over-the-air stations in both New York and Seattle to serve different time zones, but the lineup also provides viewers the flexibility of catching a network show twice — once on East Coast time and again three hours later.

The lineup covers all the bases, particularly from America’s top television market — New York City.  Spanish language programming from New York stations provides access to Estrella TV, Univision, TeleFutura, and Telemundo.  Since many stations have agreements to use their digital sub-channels to deliver additional programming, ivi viewers also get access to RTV – The Retro TV Network, Universal Sports, This TV from MGM, and a handful of specialty PBS feeds.  KONG-TV from Seattle, a classic independent station not affiliated with any network, is also included.

Some other less notable stations making it to the lineup include Cedarburg TV, a public access channel from Cedarburg, Wisconsin, which spends part of its broadcast day airing NASA-TV, Radio Tele-Luxembourg, a station from the Grand Duchy of Luxembourg in Europe, CCTV-9, the English language TV network from the People’s Republic of China, and PlayTV — a music video channel.

Stop the Cap! snagged a copy of the Windows version of the player and gave the service a test run.  Those seeking a free trial can apply on the company’s website, but you will have to supply a valid credit card number to participate (if you cancel within 30 days, you will not be charged).  If you are concerned about this, consider using a “one time” credit card number, a service often available from credit card companies that generates a one-time-use credit card number.

The player, like ivi’s website, is apparently a work in progress — fairly spartan in design and looking somewhat outdated.  But the player is less than three megabytes in size, a welcome change from oversized “bloatware.”  It was also nice to see versions for Linux and the Mac during launch week, instead of the more typical “coming soon” attitude other new ventures rely on.

The player is generally intuitive to operate, letting you control how much bandwidth to use for the service.  The version we tested allows you to pause, rewind, and fast forward paused programming.  A channel guide offers basic program information customized for your particular time zone.

ivi's electronic program guide

Playback quality has issues, however.  Despite setting our player for “high definition” playback, the encoding rate was far too low to actually deliver anything close to HD viewing.  In fact, viewing artifacts ranging from shading errors to soft pixelization were readily apparent even in a reduced-size player window.  At full screen, playback reminded me of a medium-quality RealVideo stream from an earlier era.  It was watchable, but I wouldn’t call it a “cable-TV killer.”  On a large screen TV, it’s likely to be even more problematic.

Still, for $5 a month, it might be worth it, especially if you have dropped cable and don’t get reasonable reception of broadcast signals, or your local TV market doesn’t offer broadcast affiliates of the CW, MyNetwork TV, or those networks made-for-broadcast-subchannels — RTV and This TV.

Besides, if you sign up for the free trial today, you may not even have to pay a cent if the broadcasting industry sues the pants off the founders and shuts it all down before the end of the month.

Remarkably, ivi founder and CEO Todd Weaver told the Puget Sound Business Journal he was unaware of any other startup company attempting to deliver live TV feeds.

We here at Stop the Cap! do.  Weaver might want to talk to Bill Craig, founder of a very similar Canadian venture called iCraveTV in December, 1999.  We remember iCraveTV very well, because it delivered 17 channels of programming from Canadian over-the-air broadcasters and several network affiliates from nearby Buffalo, N.Y.  We especially remember the blizzard of lawsuits that promptly followed, all because the Canadian startup never bothered to get permission from the stations involved and they let Americans watch.

Weaver offers conflicting accounts about whether ivi secured permission from the stations it started streaming this week.

FierceIPTV reports the company hasn’t.

At the moment, the company has no contracts with any broadcasters, but ivi claims it doesn’t need to, since it’s an online cable system and, as long as it pays fees to the U.S. Copyright Office–which get disbursed to the broadcasters–it’s covered. Although Weaver says it’s not inconceivable that the company will face some legal challenges.

But the Puget Sound Business Journal reports the opposite:

The company has secured the rights to deliver live television feeds from local affiliates in Seattle and New York, with plans to expand to LA, San Francisco and other markets in the near future. Ivi pays the stations an undisclosed amount to pick up the signal, which it does by either placing a physical encoder device at the station or capturing it from satellite or antennae.

The folks at iCraveTV thought they were covered so long as they paid copyright fees, too.  Craig said Canadian laws gave it the right to retransmit broadcast television signals, in the same way that cable companies and satellite companies do. As long as the company doesn’t tamper with the programming and paid copyright holders for their work, he argued, iCraveTV was completely legal.

The National Football League, horrified by the prospect of this venture airing its football games to Canadian and American viewers without a contract, promptly found a judge in Pittsburgh who issued a restraining order — the beginning of the end of iCraveTV and the start of some hefty legal bills.  When it was all over, 10 Hollywood studios, the Motion Picture Association of America, three major American television networks, and three television stations in Buffalo either filed or contemplated filing lawsuits asking for at least $5 million in damages from the venture.

Considering ivi was reportedly bankrolled for less than $1 million in “angel financing,” they better have a liability policy bigger than that.

“Whenever someone first hears that we are carrying their linear feed, the knee jerk reaction is: ‘I must protect my content, always,'” said Weaver. However, he noted that some broadcasters see ivi as a means to sell more advertising and a new distribution mechanism altogether. “We do not disrupt the existing live distribution models,” he said.

While that may be true for Cedarburg, Wisconsin’s public access channel, the major American networks that own the network-affiliated stations in New York are unlikely to see things that way, unless they own and control the venture, of course.  Neither will local network affiliates, who stand to lose local advertising revenue should large numbers of viewers flock to web-based, out-of-area network stations.  Local broadcasters effectively stopped satellite providers from reselling access to distant network stations in areas where local stations already provided that service, so it’s very likely they’ll strongly oppose ivi for the same reasons.

Still unsure how the industry will react?  Consider a combined Comcast-NBC network facing an online venture that promotes itself as a “cable cord cutter” asking NBC for permission to stream its programming online so viewers can cancel their Comcast subscriptions.

Enjoy ivi while you can.

Time Warner's "Get Tough" Campaign Caved In to Disney/ABC's Demands

So much for “getting tough.”

Time Warner Cable averted a blackout of several Disney-owned cable and broadcast outlets Thursday when it cut a deal with Disney to keep programming on Time Warner Cable.  As part of the agreement, the nation’s second largest cable operator agreed to add several Disney-owned networks subscribers will ultimate pay higher cable bills to receive in 2011.

The cable trade and business press are applauding the agreement.  The Wall Street Journal said the two sides surprised the TV industry by avoiding the level of public acrimony common with similar disputes in the past, avoided nasty publicity campaigns, and reached an agreement that avoided a standoff.

“We are pleased to have reached an agreement without any interruption in service,” said Time Warner Cable Chief Executive Glenn Britt.

Subscribers may also appreciate they aren’t facing the loss of programming they would still pay for as part of their monthly cable bill.

Disney wins new fees for carriage of ABC shows approaching 50 cents a month per subscriber, according to sources close to the negotiations.  The programmer also will receive substantial increases in payments from the cable company for ABC Family and The Disney Channel, along with the right to repurpose that programming online through services like Hulu and ABC.com.

Time Warner Cable has argued that programming costs make up the bulk of rate increases, yet its newest agreement with Disney compels the cable company to add additional networks and services cable subscribers may have no interest in receiving, much less paying to receive.

Among them are:

• Disney, Jr., a new 24-hour cable network targeting preschoolers which will replace ABC SoapNet in early 2012;
• ESPN Goal Line, a new network showing reruns of college football games;
• ESPN Buzzer Beater, still another new network rerunning college basketball games is also under development and will be added to Time Warner Cable’s lineup when launched.
• ESPN 3D, which will show-off sporting events on newly available 3D televisions.
• The addition of ESPN Deportes HD to Time Warner Cable’s larger footprint.
• Availability of ESPN Radio feeds in New York, Los Angeles and Dallas to Time Warner Cable’s video platform.
• A Time Warner Cable/ESPN Deportes co-branded, Spanish language sports website in Los Angeles.

One of the most contentious issues in the debate had been online video programming.  Time Warner Cable agreed to add ESPN3, an online network, for “authenticated” cable subscribers who have a package that includes ESPN.  That’s a departure from Disney’s usual demand that operators pay a fee for every broadband customer they have in return for access. That means Time Warner Cable customers who subscribe to a TV package will soon be able to access ESPN, ESPN2, ESPN3, and ESPNU even if they don’t subscribe to Road Runner.  But it also means Road Runner customers who don’t take cable-TV will not have access.

Finally, Time Warner Cable won the right to include on-demand access to popular ABC and Disney Channel shows.

Ultimately cable customers will pay a price for this agreement, facing even higher cable rate increases in 2011 to cover the costs for additional programming.  Many critics contend Time Warner Cable’s “Roll Over or Get Tough” campaign is more public relations than substance.  The company can claim they are fighting for subscribers when an intransigent programmer forces the cable company to take networks off the air, but in reality most of the time agreements are reached that look to many more like “rolling over” than “getting tough,” especially when the company simply passes along the added costs to cable customers.

[flv]http://www.phillipdampier.com/video/CNBC Disney Time Warner Agreement 9-2-10.flv[/flv]

CNBC covered the announced agreement between Time Warner Cable and Disney, reporting it was Disney’s largest carriage deal ever.  (2 minutes)

Amazon Prime members may get access as part of their $79 annual membership fee.

Amazon.com is talking to TV show distributors and media companies about launching a new online streaming service comparable to Netflix to provide online television programming, according to sources familiar with the talks.

Amazon already offers $1.99 online access to individual shows and movies, but the new service would charge a flat fee for unlimited access.

Various news reports indicate Amazon has approached NBC/Universal Studios, Time Warner, and CBS/Viacom, among others.

The Wall Street Journal obtained access to one proposal that would bundle the yet-unnamed service with its existing Amazon Prime service, which charges frequent Amazon shoppers $79 a year to get two-day “free shipping upgrades.”

Would Amazon.com have access to current hit shows or find themselves restricted to showing 1970s Wonder Woman reruns?

Analysts say Amazon Prime’s steep annual fee has only attracted a small percentage of Amazon customers who perceive value from it, but including unlimited TV programming would give Amazon a built-in subscriber base and potentially attract new interest among current Amazon customers who want something more than two-day shipping for $79 a year.

Large web players are jockeying for video programming, seen as the next big thing as broadband becomes commonplace in most American homes.  It’s already a huge revenue generator.  Americans spent $340 million dollars watching TV online and another $300 million for online movies in 2009, according to Adams Media Research.

Those familiar with Amazon’s proposed service say the service is likely to find studios amenable to licensing older TV shows and second-run content, similar to what Netflix streams today, but will likely find strong resistance to licensing first-run, current network shows.  Most TV networks and major cable networks reserve those for services like Hulu and the cable industry’s TV Everywhere, which they own and control.

Some studios are concerned that licensing reruns of current shows might be eating into their lucrative deals with cable networks, which license network TV programming as part of cable programming lineups.  But many studios also recognize that viewers blockaded from access will simply pirate the shows online, downloading them from newsgroups, commercial file storage networks, or peer-to-peer services.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Bloomberg Sony to Expand Service Amazon May Start Online Video 9-1-10.flv[/flv]

Bloomberg News covered Amazon’s video service in this morning’s Business Briefs, which also gave word Sony was dramatically expanding video options on its Playstation console and Motorola was putting $3.5 billion in cash into its mobile phone and set-top box unit destined to be spun-off in 2011.  (1 minute)

Time Warner Cable subscribers are at reduced risk of losing access to Disney owned channels like ESPN, Disney and local television stations in several major cities now that the two companies are close to an agreement.  But, as usual, regardless of whether Time Warner Cable whittles down Disney’s demands or Disney secures dramatically higher pricing for its cable channels, one thing is certain: Time Warner Cable subscribers will ultimately lose, facing higher cable bills in 2011.

AT&T U-verse customers: your nail-biting has just begun, as AT&T sends home postcards announcing the potential loss of the Hallmark Channel and its companion the Hallmark Movie Channel.  AT&T’s contract expired at 12:01 AM this morning, but Hallmark said it was willing to keep the signals running on U-verse while negotiations continued.

Ultimately, it’s all about who gets a bigger piece of your money.  Be it local broadcasters, cable networks, or programming conglomerates who can darken a dozen channels on your basic cable lineup, all say the cable industry is enriching itself on subscriber fees and all these networks are asking for is a bigger share of the pie.  The cable industry says cable programming fees are the most significant part of rate increases, as the industry is unwilling to absorb most of the programming rate hikes.  Cable wants to continue its healthy returns, so programming rate hikes come out of your pocket, not theirs.

Sometimes the amounts involved come down to pocket change, other times several dollars a month can be involved.

For example, Disney-owned ESPN is typically the most expensive basic cable channels in the lineup.

SNL Kagan, a cable research firm, estimates Disney charges Time Warner $4.08 a month per subscriber to carry ESPN.  The costs are high because ESPN competes with major broadcast networks to secure increasingly expensive television rights to major sporting events.  ESPN’s early days were filled with coverage of volleyball, log-rolling, and billiard sports.  The rights to air these events were affordable.  But with the benefit of increased programming fees, the cable network successfully bid for professional football and other popular sports.  The more money ESPN charges, the more money they can use in bidding wars to secure television rights.

With most cable networks charging closer to 20 cents a month per subscriber, what ESPN charges (and demands) for contract renewals can, all by itself, trigger rate increases.

AT&T and Hallmark are currently arguing over an increase in subscriber fees that currently run around just four cents per month per subscriber.  AT&T argues it doesn’t want to pay the percentage increase Hallmark is demanding, even if it amounts to pennies per month.

ESPN’s rate increase demands often exceed 50 cents, if not higher.

This year a new issue enters the debate — online video programming fees. Disney wants to generate income from a whole new tier of sports programming – that streamed online to Time Warner Cable customers.  The sticking point in Time Warner Cable and Disney’s negotiations seems to hinge on the cable company ponying up for ESPN3, an online network.  The concept of cable operators paying programming fees for online content is highly controversial, especially when broadband customers could face ever-increasing broadband bills blamed on the same “increased programming costs” that have taken basic cable packages from under $20 a month in the 1980s to over $60 a month today.

ESPN3 reportedly wants 10 cents a month from every Time Warner Cable broadband customer, regardless if they have the slightest interest in watching ESPN3.  Some in the cable industry fear once this precedent is set, other cable programmers with online shows could start demanding payments for those as well.

While Time Warner Cable continues to resist, other major cable companies like Comcast Corp., Cox Communications Inc., Charter Communications and phone companies AT&T, Frontier, and Verizon Communications have ESPN3.com agreements with Disney.  Nearly all have also boosted their broadband prices for consumers as well.

Despite assurances from Time Warner Cable’s Roll Over or Get Tough website, the cable industry typically caves in on programming fee increases, often agreeing to split the difference.  Since they simply pass those increases along to consumers, it doesn’t impact their bottom line until customers start canceling cable service.

Subscribers on Time Warner Cable’s blog keep coming up with an innovative idea to solve these problems — allow subscribers to pick and choose (and pay for) only the channels they want to receive.  That novel a-la-carte concept invokes fear in the cable industry like garlic repels vampires.

In the end, even if Disney and Time Warner Cable can’t reach an agreement, should screens darken September 2nd, watch in amazement as a deal is achieved hours after the disruption in programming begins.  Then, just a few months later, the accompanying rate hike will surely follow.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/WESH Orlando FL Will Bright House Customers Lose ESPN 8-26-10.flv[/flv]

WESH-TV in Orlando notes Bright House cable customers are also potentially affected because Time Warner Cable negotiates on behalf of that cable company, which has a major presence in central Florida.  (1 minute)