The Rochester-Finger Lakes Division of Time Warner Cable has upgraded upload speed for Road Runner Standard service customers, up from 384kbps to 1Mbps effective over the weekend.  Stop the Cap! reader Sergey first noticed a change on Thursday evening, but it took the weekend for the upgrade to make its way across the region.  Standard service is now 10/1Mbps in Rochester, although the Powerboost feature, also included for all Road Runner customers, can create speed test results showing 20-25Mbps download speeds, at least at the start of a file transfer.

The upgrade may make Road Runner Turbo less valuable, as no corresponding increase in upload speed for that package has been noted.  Turbo provides Rochester Road Runner customers with 15/1Mbps service and remains at those speeds.

According to Time Warner Cable’s website, the increase brings Rochester closer to the speeds other nearby cities have.  Buffalo enjoys double the upload speed, however.

• Buffalo/Western NY:  Standard: 10/1Mbps   Turbo: 15/2Mbps
• Syracuse/Central NY: Standard: 10/1Mbps  Turbo: 15/1Mbps
• Albany: Standard: 10/1Mbps  Turbo: 15/1Mbps

If you are not receiving improved speeds yet, unplug your cable modem briefly and plug it back in.

Road Runner Customer Speed Test

Cable television customers have finally reached their limit.  For years, annual rate increases well in excess of inflation have annoyed customers, but beyond complaining, few actually dropped service.  That has begun to change as the economy, consumer debt, job fears, and other expenses have finally provoked customers to begin paring back on their cable package.

According to research from Centris, a consumer research organization, a virtual ceiling of tolerance for cable rate increases appears to have been reached for many subscribers.  Although consumers are not dropping cable en masse, they are not simply accepting a higher bill either.  They are dropping services from their cable package.  In 2008 and 2009, premium movie channels and pay per view suffered most from customer downgrades.  Consumers with multiple premium movie channels started by dropping one or two of them, and their use of pay per view service also dropped.  As the financial impact of the recession wore on, the next round of rate increases caused additional erosion — by late 2009 many consumers discontinued all of their premium services.

The goal?  To reduce or at least maintain a consistent monthly bill.  The average amount consumers are paying for digital cable dropped from $79 a month in the third quarter of 2008 to $70 in the third quarter of 2009.  That decline didn’t come from discounts from the industry — it came from dropping channels and services. In 2010, consumers are still pruning away, now impacting digital basic cable and smaller add-ons like sports and movie tiers.  They are also phoning their provider threatening to cancel service altogether if additional discounts cannot be found.  Cable operators, not surprisingly, have managed to find plenty of savings for consumers who ask and stand their ground, ready to walk away from cable.

The cable industry has sought to promote bundled services as an anti-erosion measure.  It’s much harder to walk away from a provider supplying your television, Internet, and phone service, especially if they lock you into a multi-year service agreement with a cancellation fee.  The savings promoted from bundled services come largely as a result of steeper price increases on standalone products and services, manufacturing “added value” for so-called “triple play” packages.

Some customers have divorced from pay television service altogether, deciding relentless price increases and the 500 channel universe shoveled in their direction just isn’t worth the price.  For many American families, however, such drastic cord cutting would border on traumatic, and they haven’t managed such a drastic step.

Luckily, a growing number of consumers have discovered taking the Luddite approach to television entertainment isn’t a requirement any longer.

Cutting the Cord With Online Viewing

With the growing penetration of fast broadband service in homes across the country, online video has rapidly become one of the most popular online services, particularly when it’s available for free.  The benefits don’t stop at the cost — programming catalogs are becoming increasingly deep and diverse allowing fans to watch entire seasons of shows on-demand, with a limited commercial load.  A consumer looking for something to watch might easily find more entertainment online than wading through hundreds of cable channels of niche and re-purposed programming (and program length commercials).

Cable companies are well aware of the trend towards online video.  First considered part-curiosity, part-piracy, today online video is provided by the major American networks, cable programmers, independent filmmakers, YouTube, and of course, Hulu.  It isn’t just for those torrent sites anymore.  And there is plenty of room for online video to grow.

The industry uses research companies like Centris to carefully track subscriber trends.  They want to be out in front of any sea change in viewing practices that could impact their business model and their revenue, and avoid repeating the mistakes others made in ignoring a potential threat for too long.

Wall Street is well aware of the potential threat as well.

Craig Moffett, a cable industry analyst with Sanford C. Bernstein is among the most prominent trend-watchers for the cable industry.  He sees some warning signs for the future.

“Still no evidence of cord-cutting, but as prices spiral higher, the stresses on the system are unquestionably growing,” Moffett said.

So far, the cable industry has decided the best way to fight potential losses is to get into the game themselves on their terms.  Comcast and Time Warner Cable, the nation’s largest cable operators, are launching their TV Everywhere concepts, which provide their broadband customers with online access to a myriad of cable programming, on demand, and currently for free.  The catch?  You must be a verified, current pay television customer.  If you want to watch a basic cable show, you need a basic cable subscription.  Want to watch Bill Maher online?  You can, assuming you are a verified HBO premium television subscriber.

Comcast’s system is already up and running.  Time Warner Cable is expected to roll out their system sometime this year.

The industry is even selling the public they applaud the online video experience as a win for customers.  Time Warner Cable president and CEO Glenn Britt said, “TV Everywhere is an all-around win for those of us who love television. It will give our customers more control over content and allow them greater access to programs they are already paying for, while enhancing the distributors’ and networks’ robust business model that encourages the creation of great content.”

He didn’t say it also protects Time Warner Cable’s flank from cord-cutting.  Lose the cable subscription and your access to online cable programming goes with it.

But the question remains, is that enough to protect cable television revenue?

The answer might be no.

[flv width=”400″ height=”380″]http://www.phillipdampier.com/video/Bloomberg Invasion of the Cable Killers 9-15-09.flv[/flv]

Bloomberg News reported on ‘The Invasion of the Cable Killers’ — new hardware that lets you bypass cable, back on September 15, 2009.  (2 minutes)

The Coming Online Viewing War: The Players Assemble

Who owns and controls programming ultimately controls the distribution of it.  Time Warner Cable took several shots at Fox a few weeks ago when threatened with the loss of Fox programming over a contract dispute.  Alex Dudley, spokesman for Time Warner Cable, told NY1 viewers much of Fox’s programming is available online for the taking, so even if the network was thrown off the cable company’s lineup, viewers could simply bypass the dispute and watch online… for free.  His message – the dollar value Fox places on its programming is diminished when it gives it away for free online.

The fact so much of network programming is available online for free is part of the dispute over how much cable operators should pay to carry networks on their cable systems.  When the industry passes along those carriage fees to consumers, will that be the last straw for some who will drop their cable subscription and simply watch everything online?

“They’re the ones who are going to resist these price increases that the programmers are trying to push,” said Dudley. “One need look no further than the music industry for an example of what happens when consumers feel taken advantage of by an entire industry.”

Dudley’s remark is more telling than he realizes.  The cable industry is well aware of what happened when the music and newspaper industry ignored nascent challenges to their business models like piracy or free access to their content.  To cable operators, the music and newspaper industries’ online experiences are lessons to be learned and not repeated.  The music industry waited too long to crack down on piracy and lost pricing power as consumers simply stole what they rationalized was overpriced.  The newspaper industry failed to erect pay walls to control access to their content, and newspaper subscribers dropped print subscriptions to read everything online for free.  Cable industry control of content and distribution is key to protecting their business model for pay television.  More on that in a moment.

Now two other parties want to be heard on this matter — consumer electronics manufacturers and advertisers.

This week, Advertising Age is running a story on the implications of cord-cutting.

The magazine takes note that online viewing doesn’t require a computer any longer.  Samsung, Boxee, Apple TV, and even Microsoft, manufacturer of the XBox, are now selling devices that bypass cable television and grab online video for users, often for free.

Netflix has already managed that for a monthly fee, and is rolling out service on all sorts of devices, from a set top box that streams content from the web to your television to video game consoles, and now even builds-in the service to some televisions and Blu-Ray DVD players.  Microsoft’s XBox Live service could be germinating a cable television service of its own, as it seeks to license content from programmers starting with Disney’s ESPN.

All of these services, along with traditional laptop or home computer viewing, could evolve into formidable challengers for the pay television industry.  Oh, and some new televisions on offer at this year’s Consumer Electronics Show build in support for Skype, a Voice Over IP telephone service, so phone revenue could be at risk as well.

Advertising Age believes this could be one of the entertainment industry’s biggest business battles of the next few years as millions, if not billions of dollars are at stake.

For the moment, the public face of the debate is a combination of downplaying its potential impact while the players quietly position themselves and their assets for the fight certain to come.

Both Dudley and Britt at Time Warner Cable call the potential trend towards online viewing interesting, but not much of a threat at the moment.

“We see some interesting stuff out there, but right now people are watching more TV than ever; cable-cutting is largely on the fringe,” said Dudley.

“A lot of manufacturers have come out and made announcements, but I don’t think they really are in a position to erode the pay-TV subscriptions that the cable industry has today,” said Park Associates research analyst Jayant Dafari.

“For many people, cable works just fine; the quality is great; the DVR functionality is great; the only gripe they have is that they’re paying for it,” Boxee’s founder and CEO Avner Ronen told Advertising Age. But “there is a growing generation out there where the whole definition of entertainment is changing, and their main source of entertainment is the internet.”

[flv]http://www.phillipdampier.com/video/CNBC Wii At the Movies 1-13-10.flv[/flv]

CNBC covered last week’s announcement of a partnership between Nintendo and Netflix to provide Netflix on the popular Nintendo Wii, in this exclusive interview with Reed Hastings, chairman and CEO of Netflix and Reggie Fils-Aime, Nintendo of America president & COO (January 13, 2010 – 5 minutes)

‘If It Becomes A Problem, We’ll Just Cut Them Off‘

The cable industry is in a comfortable position to leverage its control over programming and distribution to ultimately limit any competitive threat from online viewing.  In addition to mega-deals like Comcast’s acquisition of content-rich NBC-Universal (a partner in Hulu), the cable industry owns, controls, or can leverage carriage of its cable lineup contingent on programmers not giving away too much for free.  Advertising Age:

One tech exec, who asked not to be named, predicted that the minute cable operators start to feel the disruption, they will clamp down and use their market power to keep TV and films from seeping into next-generation devices. They’re already putting the squeeze on networks; any free distribution is an argument for lower cable distribution fees.

Stop the Cap! is also a player in this struggle, because a key component of the cable industry’s control of programming is the means it is distributed to consumers, and cable modem service representss one half of the duopoly most Americans find when shopping for broadband.  One potential strategy to eliminating the cord-cutting option is to enact Internet Overcharging schemes like usage limits and consumption billing that effectively makes it impractical for a consumer to “switch” to broadband for all of their online viewing.  Switching to the other half of the duopoly may not be an alternative. As online video projects like TV Everywhere will also be available to telco TV partners who wish to participate, there is every incentive to also limit video consumption on Verizon’s FiOS or AT&T’s U-verse systems.

Effective competition against entrenched players in the marketplace is impossible if those players control the content, the means of its distribution, and the ability to cut you off if you watch too much or switch to an independent competitor.

But this is history repeating itself.  Many of the same players and interests followed the same protectionist path against another competitor – satellite television.  It took strong regulatory policy from Washington to force a fair and level playing ground for an industry that didn’t want to sell content to its competitors, overcharged for access, and kept effective competition at bay for years, all while happily increasing rates for beleaguered consumers.

Here we go again.

The considerable annoyance among subscribers facing rate increases from Time Warner Cable notwithstanding, the Wall Street press is celebrating the company’s increased earnings power for 2010, with the stock now being rated as a “compelling bet” by Barron’s.

Despite producing “copious amounts of cash,” Time Warner Cable stock is rated underpriced, and set to move higher in the new year as the company improves its earnings with price increases for its 14.6 million subscribers nationwide.

Price increases could help to power a sharp recovery in Time Warner Cable’s earnings, which probably slumped 15% in 2009, to $1.1 billion, or $3.03 a share. This year, net income could rise 21%, to $1.3 billion, or $3.60 a share, due to higher revenue and improving operating margins. The company earned $1.2 billion, or $3.57 a share, in 2008, on revenue of $17 billion.

Subscriber growth has slowed at Time Warner and other cable concerns, mainly because of the housing recession. The company lost 84,000 basic-video subscribers in last year’s third quarter, reducing the total to just under 13 million, and analysts see basic subs dropping 2.5% this year, to around 12.5 million. Still, revenue rose 3.6% in the third quarter, to $4.5 billion, putting Time Warner Cable on track to generate $18 billion of revenue for the full year, and $19 billion in 2010. Analysts expect some recovery in advertising revenue, and additional growth from the further penetration of bundled residential high-speed data and digital phone products.

Barron’s points out Time Warner Cable’s capital spending has continued to decline dramatically, falling 13 percent in the third quarter.  The company had free cash flow of $465 million in the period.

Despite the company’s falling broadband costs, falling capital spending, and increasing prices, some Time Warner Cable executives still approve of taking earnings to an even higher level with Internet Overcharging schemes that would change the “pricing model” for broadband service.  Despite company claims such changes would save customers’ money, relentless price increases in many communities — even higher for those on Road Runner’s economy tiers, prove otherwise.

What is Time Warner Cable doing with all of the money?  Paying down some debt and returning cash to shareholders, perhaps via an ordinary dividend or share buyback, according to Barron’s.

What allows for a company to increase pricing on broadband service and subject customers to a potential Internet Overcharging scheme down the road?

“At a time when demand for broadband is going through the roof, Time Warner is the only game in town in a lot of its footprint,” says Craig Moffett, an analyst at Bernstein Research.

Gerald Levin, the former CEO of Time Warner, who presided over the company’s disastrous merger with the AOL online service confessed “I presided over the worst deal of the century, apparently.”

Appearing Monday on CNBC with Steve Case, former head of AOL, the two lamented the blockbuster wealth destruction vehicle on its 10th anniversary.

“I’m really very sorry about the pain and suffering and loss that was caused. I take responsibility,” Levin said. “It wasn’t the board. It wasn’t my colleagues at Time Warner. It wasn’t the bankers and lawyers.”

“It’s a little hard to exercise compassion, connection, and love when the market is very unforgiving,” Levin added.

The striking admission that a corporate master of the universe exercised flawed judgment was rare enough, but to apologize for it is near unprecedented.

The Times-Online called it “a tad late,” coming a decade after the deal, noting the deal was only made possible because of the Dot.com Boom launching AOL stock value into the stratosphere.

“In the US, there have been no apologies from the chief executives who steered Wall Street banks on to the rocks, notably Dick Fuld of Lehman Brothers. Given he is likely to spend the rest of his life defending legal actions, that is hardly surprising,” the newspaper adds.

The Financial Times notes corporate apologies come with some rules of etiquette:

There are – rightly – limits on what responsibility a business can accept until it has talked to its lawyers. Executives whose contrite words turn out to contain too great an admission of liability may soon end up apologising all over again.

But there are a few straightforward rules for an effective corporate apology, and the first one is to keep it simple. Expressions of penitence that come with explanations of how the event was not a total catastrophe or was partly someone else’s fault lose their impact. Equally, a statement that equivocates on the extent of remorse will fail to convince. The apology must also be clearly directed at those adversely affected by what has happened, rather than aimed at making those responsible feel better about it.

Mr Levin mixed his belated apology with a call for today’s corporate leaders to accept responsibility for the financial crisis. Though some bank executives have apologised, expressing regret for this crisis is a harder task than it sounds. People can take responsibility only for their own misdeeds, but explaining this may sound weaselly. At the same time, if an angry public favours ritual sacrifice, then other acts to make amends might seem inadequate. So those executives who pull off an effective apology for the crisis deserve our respect – as long as they do not leave it until 2018.

Amusingly, post colossal failure, the two executives have found remarkably similar career paths divorced from the high tech telecommunications market.

Levin runs the California-based new-agey Moonview ‘addiction-rehab-for-the-rich’  Sanctuary, which markets itself as “a place to revel in the wonder of you.”  New York Magazine said Levin was pitching “brain painting, equine therapy and soul communion with the dead.”

Moonview’s “comprehensive multi-modal mind, body and spirit assessment creates a customized plan of psychological, spiritual, physical healing and optimal performance.”

It had better.  They don’t take health insurance and charge $2,500 for a one-half day and from $5,000 for a full day. Minimum is $15,000.  That makes me depressed.

Steve Case founded Revolution, which claims to: “drive transformative change by shifting power to consumers and building significant, category-defining companies in the process.  Focusing on multiple market sectors, including Health, Financial Services, Resorts, Living and Digital, Revolution’s mission is to give people better choices, more control and more convenience in the important aspects of their lives.”

Looking through their collection of companies, the middle class need not apply.  I especially enjoyed Case’s vision of a getaway with his “Exclusive Resorts” company:

We believe that your Exclusive Resorts membership plan should be designed around your lifestyle, not the other way around.

With Membership Fees starting at $160,000 (75% refundable) and Annual Dues of just under $1,000 per day on all plans, our memberships are designed to be tailored to your individual needs.  A wide range of plans from 10 to 60 days of vacation per year and optional features such as priority holiday access ensure that you will find the unique combination that is right for you.

My last vacation getaway was in Calgary and Kananaskis Country in Alberta in 2007.  The private chef “at your beck and call” at Exclusive Resorts for them was a trip to Tim Horton’s for me.

But then I didn’t preside over the worst deal of the century, requiring a mind, body and spirit assessment and a getaway to the French Alps.

[flv]http://www.phillipdampier.com/video/CNBC 10 Years After AOL-Time Warner, Gerald Levin Says He’s Sorry 1-4-10.flv[/flv]

Gerald Levin and Steve Case revel in the wonder of their failure 10 years ago merging Time Warner with AOL. (22 minutes)

Public interest groups today began an offensive against the cable industry’s attempts to stave off potential online video competition with an industry dominated and controlled online video platform that guarantees consumers won’t cut cable’s cord.

Free Press, Media Access Project, Public Knowledge and Consumers Union are sending letters to the Justice Department and the Federal Trade Commission calling for a probe into the industry’s “TV Everywhere” project, designed to weed out non-cable subscribers from accessing online video programming.

The undertaking, which the industry claims will eventually rival Hulu in size and scope, seeks to provide their broadband customers with on-demand access to as much programming as possible, as long as they subscribe to a corresponding video programming and broadband service package.

Known in the industry as a “pay wall,” the system would assure pay television companies affiliated with the project that they will not lose subscribers from customers cutting the cord to watch programming online for free.  Consumer groups call that collusion, and accuse the industry of secretly meeting to outline the TV Everywhere concept and may be violating anti-trust laws in the process.

“The old media giants are working together to kill off innovative online competitors and carve up the market for themselves,” said Marvin Ammori, a law professor at the University of Nebraska and senior adviser to Free Press. Ammori’s report: TV Competition Nowhere: How the Cable Industry Is Colluding to Kill Online TV, is included in the mailing to the federal agencies.

Ammori says the industry has a long history of controlling behavior.

“Over the past decade, they have locked down and controlled TV set-top boxes to limit competing programming sources; they have considered imposing fees for high-capacity Internet use in ways that would discourage online TV viewing; and they have pressured programmers to keep their best content off the Internet,” Ammori writes.

In addition, these companies, which already dominate the Internet access market, have threatened to discriminate against certain online applications or have already been caught violating Network Neutrality. Indeed, the FCC issued an order in 2008 against Comcast for blocking technologies used to deliver online TV, noting the anti-competitive effect of this blocking. While it may be economically rational for cable, phone and satellite companies to squash online competitors, the use of anti-competitive tactics is bad for American consumers and the future of a competitive media industry.

The latest method of attack aimed at online TV, however, may be the most threatening — and is also likely illegal. Competition laws aim to ensure that incumbent companies fight to prevail by providing better services and changing with the times, not by using their existing dominant position and agreements to prevent new competitors from emerging.

TV Everywhere has a simple business plan, under which TV programmers like TNT, TBS and CBS will not make content available to a user via the Internet unless the user is also a pay TV subscriber through a cable, satellite or phone company. The obvious goal is to ensure that consumers do not cancel their cable TV subscriptions. But this plan also eliminates potential competition among existing distributors. Instead of being offered to all Americans, including those living in Cox, Cablevision and Time Warner Cable regions, Fancast Xfinity is only available in Comcast regions. The other distributors will follow Comcast’s lead, meaning that the incumbent distributors will not compete with one another outside of their “traditional” regions.

In addition, new online-only TV distributors are excluded from TV Everywhere. The “principles” of the plan, which were published by Comcast and Time Warner (a content company distinct from Time Warner Cable), clearly state that TV Everywhere is meant only for cable operators, satellite companies and phone companies. By design, this plan will exclude disruptive new entrants and result in fewer choices and higher prices for consumers.

This business plan, which transposes the existing cable TV model onto the online TV market, can only exist with collusion among competitors. As a result, TV Everywhere appears to violate several serious antitrust laws. Stripped of slick marketing, TV Everywhere consists of agreements among competitors to divide markets, raise prices, exclude new competitors, and tie products. According to published reports and the evident circumstances, TV Everywhere appears to be a textbook example of collusion. Only an immediate investigation by federal antitrust authorities and Congress can prevent incumbents from smothering nascent new competitors while giving consumers sham “benefits” that are a poor substitute for the fruits of real competition.

The benefits of controlling the marketplace of video and online entertainment is a lucrative one, earning players billions in profits each year.  Losing control of the business model risks the industry repeating the mistakes of the music industry, which overpriced its product and alienated consumers with annoying digital rights management technology and lawsuits.  It also risks a repeat of the newspaper industry which many in the cable industry believe made the critical mistake of giving away all of their content for free.

With online video services like Hulu generating enormous online traffic from its free video programming, the cable industry fears they might already be headed down the road newspapers paved.  TV Everywhere is part of a multi-pronged defense plan according to Ammori.

Indeed, what the industry cannot control themselves, Internet Overcharging schemes like usage caps and “consumption billing” can handily manage.

Ammoni notes:

Cable and phone companies have proposed cap-and-metered pricing for Internet service that appears to target online TV. Unlike the current all-you-can-eat monthly fee-plans, cap-and-metered pricing would charge users based on the capacity used. As a result, downloading or streaming large files will be more expensive than smaller files. In March 2009, Time Warner Cable announced metered pricing trials in four cities that would have made watching online TV cost prohibitive.

AT&T is testing a metering plan on its wireline U-verse service with hopes for national expansion. Even under generous allowances for bandwidth, users could not watch high-definition programming for many hours a day.

In response to trials by Time Warner Cable, a House bill was introduced in Congress, and Time Warner Cable dropped its immediate plans under consumer pressure. The company stated the plans would be reintroduced following a “customer education process.”

“Online TV is this nation’s best shot at breaking up the cable TV industry oligopolies and cartels. Permitting online distributors to compete vigorously on the merits for computer screens and TV screens will result in increased user choice, more rapid innovation, lower prices and a more robust digital democracy,” Ammoni concludes.