Exasperated consumers fed up with a two party system feasting on big corporate campaign contributions buying legislative favors from Washington have a point.  With a Supreme Court decision ripping the limits off the corporate ATMs installed in the halls of Congress, corporate interests will now spend more than ever to keep their agendas front and center among lawmakers.

Some consumers demand an end to the money-influence machine in Washington with public financing of campaigns, an allotment of free advertising, and strict ethics laws to prohibit corporations from buying favors from elected officials.  Others have joined a “tea party” movement that believes a wholesale slashing of the size of the federal government will help accomplish the goal of keeping government out of our lives.

The demand for real change is sincere, even if the proposed solutions differ. The debate comes after years of watching common-sense, pro-consumer public policy get watered down or blown out of the water after lobbyists descend on the Capitol like locusts swarming a field of wheat.

It’s unfortunate that those swarms don’t just wreak havoc on lawmakers — they’ve also quietly infested the “tea party” movement that advocates reform.

It’s akin to the Boston Tea Party being sponsored and organized by the East India Company.

After this weekend’s “tea party” convention in Nashville, it’s more apparent than ever that teabags come with corporate strings attached.

Perhaps that shouldn’t be surprising, considering the modern reincarnation of the “tea party” was channeled by a business news network. About a year ago, CNBC reporter Rick Santelli ranted on air about the federal government bailing out Americans underwater on their mortgages after the housing market collapsed.

“We’re thinking of having a Chicago tea party in July,” Santelli offered.

For Stop the Cap! readers, the names and groups affiliated with the “tea party” movement are already familiar.  FreedomWorks’ Dick Armey (R-TX), the former House majority leader in Congress openly considers himself a leader in the movement.  But his day job involves creating fake “grassroots” campaigns for corporate interests, including Verizon and AT&T.  Phil Kerpen from Americans for Prosperity promptly registered “taxpayerteaparty.com” and joined the movement while continuing to represent the broadband industry against Net Neutrality and against municipal broadband network competition.

Kerpen’s group should be called “Americans for the Prosperity of Big Telecom.” They oppose Net Neutrality to the degree Kerpen appeared twice on Glenn Beck’s Fox News show, mostly as an enabler of Beck’s paranoid rantings about Net Neutrality.  After two sessions of Beck’s chalkboard conspiracy theater, the host had Kerpen nodding in agreement to the proposition that Net Neutrality was Maoist.  The group also harassed North Carolina residents with robocalls opposing municipal broadband service that would bring fiber optic connectivity to residents.

Wherever common-sense pro-consumer public policy threatens to become law, the corporate-backed lobbying groups take the anti-consumer view and hoodwink consumers into supporting the corporate agenda.  Trying to convince Americans they are better off taking the anti-consumer position takes a lot of money.  You can’t argue your position beneath your corporate banner.  That’s too transparent.  It’s much more effective to spend tens of millions on creating fake “grassroots” groups with no visible ties to their corporate benefactor.  You need to fund so-called “independent” research groups to cook up phony reports that prove pre-conceived corporate positions.  Writing big fat checks to elected officials can’t hurt either.

Billions in profits are at stake.  In 2008 it was the oil industry and the ridiculous spike in energy prices.  Millions were spent to keep oil and gas interests free from meddlesome Washington and their pesky investigations.  In 2009, the health care industry spend tens of millions of dollars to fight health care reform, while Wall Street bankers tried to keep up with tens of millions of their own to preserve the special favors they earned from being “too big to fail.”

Right after big oil, health care, and banks comes the telecommunications industry.

Last Friday, Verizon had the dubious distinction of appearing on USA Today’s top-20 big spenders.  The only good news is the company only spent $17,820,000 in 2009 on their lobbying efforts.  That’s down from 2008, when Verizon spent $18,020,000.

Not to be too outdone, the cable television industry handed over part of your rate increase to their own lobbying machine.  In 2008, the National Cable and Telecommunications Association spent $14,500,000.  But your rates went up in 2009, and so did their total spending on an army of lobbyists — $15,980,000 worth.

That buys a lot of plastic grass.

Where does the money go?  Among Verizon’s benefactors and friends:

Consumers for Cable Choice: Common Cause notes Verizon spent $75,000 in just one year on this group, which fights for statewide cable franchises, mostly benefiting phone company cable TV from Verizon and AT&T.  While this short cut may bring consumers a choice in providers, it doesn’t bring them any savings.

FreedomWorks: Adamantly opposed to Net Neutrality, FreedomWorks also backs those statewide video franchises, thanks to generous fees paid by AT&T and Verizon to take those views.

The Progress and Freedom Foundation: They define “progress” much differently than consumers.  Opposed to a-la-carte pricing for cable television packages (letting you choose and pay only for the channels you want), P&F also hates Net Neutrality and the concept of government issuing franchises for cable and telco TV in the first place.  Let them dig up your streets and backyards without oversight!  The group receives so much corporate telecommunications money, it would be easier to list the companies that don’t cut them a check.

The American Legislative Exchange Council: They exchange Verizon’s money in return for strong opposition to Net Neutrality.  They are at the forefront of opposition to municipal broadband networks, with a staff of lawyers who “helpfully” draft legislation for state lawmakers to ban such networks.  Part of the broadband protectionist racket, ALEC makes sure even unprofitable, unserved areas stay that way.  ALEC believes Net Neutrality will harm states’ economies, which would be true if a state was defined as a corporate broadband provider.

New Millennium Research Council: They “develop workable, real-world solutions to the issues and challenges confronting policy makers, primarily in the fields of telecommunications and technology.”  This so-called “think tank” issues suspect reports mostly for the benefit of Congress, which some members use as cover when voting against their constituents and for the provider.  You’re certain to hear elected officials railing against pro-consumer policies quoting liberally from these industry-backed “think tanks,” which provide a patina of independent legitimacy to corporate-backed propaganda. Need to scare people with stories about an overburdened Internet that will crash and burn without “network management” that slows service and enriches providers?  No problem! (That the group has had Verizon employees working for them doesn’t hurt either.)

Broadband for America: This relatively new group is infested with Verizon and AT&T contributions from top to bottom.  In addition to direct contributions from big telecom interests, virtually every single public interest non-profit group on their roster has an AT&T or Verizon lobbyist on their board of directors, or accepts generous contributions from the telecom industry.

Frontier of Freedom: Another so-called “free market” group advocating deregulation, FF doesn’t disclose its donors and considers itself independent, but a familiar pattern belies that.  Frontier of Freedom advocates statewide video franchises and has even run advertising promoting telco-friendly legislation in states like Texas.  The cable industry was displeased because Frontier of Freedom used to represent their best interests but suddenly flipped sides in 2005.  Money talks.

MyWireless.org: “MyWireless.org is a national non-profit consumer advocacy organization” the site declares, without bothering to disclose it is really a sock puppet of the cell phone industry’s trade group CTIA – The Wireless Association.  Ostensibly interested in stripping taxes and government-mandated surcharges off of cell phone bills, the group also opposes Net Neutrality and consumer protection laws.  It’s a bit difficult to call yourself pro-consumer when you oppose a California and Minnesota consumer Bill of Rights that would have required a 30 day penalty-free trial of cell phone service, expanded a toll-free complaint hotline, set minimum service standards, and required easy-to-understand billing.

NetCompetition: Another front group bought and paid for by the industry it seeks to zealously protect.  Adamantly opposed to Net Neutrality, NetCompetition also spends its time Google-bashing and attacking Free Press, seen as one of the strongest advocates for Net Neutral policies and consumer protection from provider abuses.  Their member page explains everything.

The unfortunate part of all this is that many participants of the “tea party” movement seem blissfully unaware of the corporate manipulation of their movement, all happening barely beneath the surface.  Millions of dollars are flowing into the bank accounts of astroturf groups doing all they can to channel public anger against Washington into something they can use to benefit their corporate backers.  The end result may be the ultimate feedback loop — consumers already angered by Washington not listening to their needs and concerns compounded by providers picking their pockets.  That bitter tea may be easy to brew but impossible to swallow.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Phoney Baloney Ad.flv[/flv]

Phoney Baloney: The National Cable & Telecommunications Association, the cable industry lobbying group, ran this hissyfit ad to combat Verizon and AT&T outmaneuvering the cable industry over statewide video franchising laws. (1 minute)

The issue of copyright enforcement is a thorny one, and Stop the Cap! doesn’t spend a lot of time dwelling on it, except when it sneaks its way into our issues.

CNET News started a brush fire yesterday when they quoted a Verizon representative who claimed the company had been kicking off users who use peer to peer (typically torrent) software to exchange copyrighted material.  The gist of the piece was that Verizon has been receiving copyright infringement notices from copyright enforcers and they’ve been notifying their customers to stop or risk service suspension.

“We’ve cut some people off,” Verizon Online spokeswoman Bobbi Henson told CNET. “We do reserve the right to discontinue service. But we don’t throttle bandwidth like Comcast was doing. Verizon does not have bandwidth caps.”

With that purported admission, the story was off and running.  We received several news tips about it from readers.

But this morning, Henson claims she was misquoted and the company has not actually suspended anyone’s account, but reserves the right to do so.

For now, anyway, it appears there has been no policy change at Verizon.  The company dispatches canned e-mail messages to account holders targeted in copyright complaints asking them to stop the infringing activity.  Verizon claims most don’t have to be warned twice.  That’s a commonly found policy at most providers.

The movie and music industry have reduced the number of lawsuits it brings against alleged violators, but that doesn’t mean they’ve given up the fight.

Instead, both industries have launched lobbying and astroturf efforts to inject copyright protection into the broadband expansion and Net Neutrality debates.  The Arts+Labs “think tank” was a perfect example of that, trying to conflate Net Neutrality with piracy in the music industry’s dog and pony show performance at the New York City Council Technology In Government Committee hearing regarding Net Neutrality.

The industry hopes it can insert something akin to a “three strikes” provision into telecommunications law that would bar repeat copyright violators from having Internet access. Unfortunately, history has shown that the bar has been set so low as to what represents “proof,” a mere allegation under these policies could be sufficient to put your finances and potential broadband access in peril.

Beyond the nation’s largest wireless phone companies, there are a handful of regional providers delivering service to customers the big carriers bypass.  In one of the nation’s most rural states, Alaska Communications Systems is the first to announce it is effectively matching Verizon Wireless and AT&T’s unlimited pricing plans.

ACS operates a CDMA network in scattered regions across more populated sections of the state.  The company provides 3G access in limited parts of their coverage area — namely larger cities like Anchorage, Juneau, and Fairbanks, but also saw it worth their while to provide service in and around Prudhoe Bay to serve oil workers.

The company also announced an unlimited data plan for $40 a month, although it’s limited to smartphone customers only.  Wireless broadband customers using the company’s USB dongle will pay $80 a month for standalone service, with significant discounts if they bundle other ACS services on their account.

“Alaskans deserve the best network and the best value in wireless service,” said Heather Eldred, ACS assistant vice president, product development. “Wireless data is an area where ACS will distinguish itself in the market and we’re proud to match compelling data plans with the state’s best 3G network.”

ACS also joins Verizon and AT&T in compelling smartphone and other advanced phone owners to purchase a data plan, currently priced at $40 a month for unlimited access.

Other regional players may be forced to match AT&T and Verizon’s new pricing, but if they have data-capable networks, they’re also likely earn new revenue from compulsory data plans whether customers want them or not.

To keep track and compare what’s on offer, Billshrink plotted the pricing options for the four major American carriers, which will likely serve as a guideline for regional carriers that want to stay competitive with their larger brethren.

Early reaction and declarations of a price war notwithstanding, yesterday’s “price cuts” from Verizon Wireless and AT&T Mobility on their unlimited calling plans may bring price increases for many customers who don’t need all of the components of the wireless industry’s Cadillac plans.

First, an explanation of what has changed.

Verizon started the ball rolling announcing a $30 price cut on their Nationwide Unlimited Talk plan.  Formerly $99.99, customers now pay $69.99.  For those with multiple phones on a single account, Verizon’s Nationwide Unlimited Talk Family SharePlan, which includes two lines, now drops to $119.99.  AT&T immediately matched Verizon’s new pricing.  AT&T’s Nation Unlimited plan is now also $69.99 and their shared line plan, FamilyTalk Nation Unlimited is $119.99 and also includes two lines.

Customers currently paying more for a wireless plan with either carrier have to call customer service at either carrier to switch to these plans.  You won’t incur a service charge or extend your existing contract.

Verizon’s plans with unlimited calling and texting features have also dropped in price.  Verizon’s Talk and Text plan costs $89.99 per month, down from $119.99. The Nationwide Unlimited Talk & Text Family SharePlan is now $149.99 per month.  AT&T customers can add unlimited texting to an existing plan, and the rates for doing so remain unchanged — $20 for single phone accounts, $30 for family plan accounts.

However… Here comes the tricks, traps, and gotchas.

For big families with multiple phones, these unlimited plans bring a nasty surprise  — the additional charge for each third, fourth, and fifth line is $49.99 per month for each phone, not the traditional $9.99 each for those on plans with minute allowances.

Those who receive employer-related discounts from the wireless carriers may find those discounts do not apply to the Unlimited talk plans.  Verizon declares all of their unlimited plans are not eligible for any monthly access discounts, period.

AT&T goes out of its way to define what they believe a “voice call” means:

Unlimited voice services are provided primarily for live dialogue between two individuals. If your use of unlimited voice services for conference calling or call forwarding exceeds 750 minutes per month, AT&T may, at its option, terminate your service or change your plan to one with no unlimited usage components. Unlimited voice services may not be used for monitoring services, data transmissions, transmission of broadcasts, transmission of recorded material, or other connections which do not consist of uninterrupted live dialogue between two individuals.

Both AT&T and Verizon Wireless may try and up-sell you on the new data plans when you call to change your plan.  Customers calling both carriers have reported customer service representatives only too willing to provide steep discounts for new handsets or try and convince you to add one of the company’s new data plans.  Take advantage of their offer to upgrade your phone and you’ll likely discover yourself forced to also take a mandatory data plan with it anyway.  The list of phones falling under this trap keeps expanding.

Last year, Verizon started requiring customers choose data plans for the LG EnV Touch and the Samsung Rogue.  With this week’s changes, customers activating LG Chocolate Touch, LG EnV, LG VX8360, Motorola Entice W766, Nokia 7705 Twist, and Samsung Alias2 are now also subject to required data plans.  Don’t expect Verizon Wireless representatives to sell you on their cheapest pay-per-use option, which is priced at $1.99 per megabyte.  I’ve witnessed Verizon Wireless’ store employees pushing Verizon’s new unlimited $29.99 data plan.  If customers complain that’s too much, the $9.99 data plan for a piddly 25MB of access is offered next.  If it looks like a balking customer might cost a sale, the representative will grudgingly sell you pay per use plans.

AT&T customers buying many midrange and “quick-messaging” phones are also going to be required to spend at least $20 a month on a combination of texting and/or data plans. Customers using phones like the LG Neon or the Samsung Propel are affected, and weren’t required to buy data plans before.  Unlimited data for quick-messaging devices is priced at $15 a month.

If you already own a top of the line phone, your data plan charges remain the same.  Verizon customers using Windows Mobile, BlackBerry or Android phones will still pay $29.99 a month for unlimited data.  AT&T customers using the iPhone, BlackBerry, Nokia smartphone or Windows Mobile phones will also pay $29.99 a month for unlimited data.

Customers using wireless broadband with a USB dongle are also unaffected by these changes.  Whether you tether or use the dongle, your usage is limited to 5GB per month.

Existing customers will not be forced to add a data plan until their contract is up for renewal or they upgrade their phones.

Do These Changes Save Customers Money?

For most, the answers is no.  In fact, these pricing changes guarantee higher bills for most customers down the road.

Only a tiny percentage of customers pay for unlimited calling plans because most calling-allowance plans provide generous usage ranges, free night/weekend calling, and often free calling for the most frequently called, or those who are also customers of your wireless carrier.  AT&T even rolls-over unused minutes from month-to-month.  Paying considerably more for an “unlimited” calling option makes little sense for customers not exceeding existing calling allowances.

Changes to calling plans and the features associated with them occur year to year, but many customers prefer to remain on legacy plans that may offer fewer minutes, but have far fewer revenue-enhancing tricks and traps.  Verizon customers hanging on to their America’s Choice II FamilyShare plan offered four years ago maintain 700 minutes of calling time between multiple phones, get free night and weekend calling, and can access data features on their phones that deduct from their airtime allowance instead of billing for data usage charges.  The price?  $60 a month for two lines.  The equivalent plan today is priced at $69.99 for the voice calling plan, plus a mandatory data plan for the increasing number of phone that require one.  Even for phones on a pay-per-use plan, any data access will incur a minimum charge of $1.99 per month.

Where the real money will be made is from overpriced data plans forced on customers whether they want them or not, especially for midrange phones.

Wireless consultant Chetan Sharma estimates fewer than 10 percent of these customers buy data plans.

“There’s a significant number of consumers out there who like the idea of a cutting-edge handset but not of paying for services,” Michael Nelson, founder at Nelson Alpha Research told Business Week.

Wall Street analysts know mandatory data plans will bring exceptional new revenue to both major providers, especially at current prices.

“We could see a move upwards rather than downwards [in revenue/earnings],” says Jennifer Fritzsche, an analyst at Wells Fargo Securities in Chicago, who recommends buying shares of AT&T and Verizon Communications.  “Any kind of voice pricing is very much a commodity,” Fritzsche tells Bloomberg News. “Data is the future.”

JPMorgan is celebrating the potential windfall for both companies and their stocks, estimating just two percent of customers will realize any savings from these pricing changes, while many more will see prices increase.

For Verizon Wireless, it’s party time.  Even though Credit Suisse analyst Jonathan Chaplin estimates the carrier will sacrifice $540 million in voice revenue, they’re likely to gain $630 million in data plan sales. The costs of providing the service are likely to be minimal, considering most of the customers now forced to choose a plan are unlikely to use it much.

“Price War” or “War on Customers”

Still, some on Wall Street are unhappy with the prospects of any pricing changes that head downwards, especially if it sparks a price war.  Some have dumped their wireless stocks as a result of industry trends this year.  But what they may need to worry more about is the prospect of middle class customers switching from traditional postpaid two-year contract plans to prepaid services that offer light and medium mobile users better value with fewer tricks and traps.

As families face the prospect for $100+ monthly bills just for cell phone service, with mandatory data charges likely to add another $20-30 on top of that, will non-power-users stick with AT&T and Verizon for service?  Sprint and T Mobile argue they already offer better value for the hard-hit middle class, but prepaid mobile has garnered new respect for its simpler plans and easy-to-understand billing (and taxes and fees are typically included in the prepaid plan price.)

Formerly the domain of those willing to pay a steep per minute fee and buy top-up cards at convenience stores, today’s prepaid wireless plans often offer month-to-month service with familiar “minute bucket”-allowances or unlimited calling, and operate on Verizon, AT&T, Sprint, or T-Mobile’s nationwide networks.

A real price war has broken out in the prepaid wireless sector, with competitors offering unlimited calling plans as low as $40 a month.  Straight Talk, using Verizon Wireless’ network, goes even lower for a simple 1,000 minute/1,000 text/30MB web access plan for $30 a month.  The only downside is a very limited selection of phones.  Regional players like MetroPCS and Cricket offer comparable pricing for their unlimited plans, but their network coverage is a shadow of the larger players, roaming agreements notwithstanding.

As major carriers pile on extra fees for services many customers don’t want, many will find far better values in the prepaid phone marketplace.  Without the two-year contract common on major carriers, customers can switch providers at will, taking their phone number with them in most cases, if one provider doesn’t provide good service.  Best of all, they don’t have to pay for a cancellation fee or take services they don’t want or need just to satisfy AT&T and Verizon’s quest for cash.

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/WIVB Buffalo Price War Between Cell Phone Providers 1-19-10.flv[/flv]

WIVB-TV in Buffalo appeared to be drinking the industry’s Kool-Aid about the benefits of new, ‘lower pricing,’ but towards the end even they admitted there are tricks and traps involved. (3 minutes)

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.