Wednesday, March 02, 2016

Disruptor Companies Should Challenge Regulatory Status Quo - But Not Dis It

My friend Ron Klain, an esteemed leader in both the public and private sectors (top executive with the Steve Case/Ted Leonsis private equity firm Revolution; former President Obama "Ebola Czar" and Vice President Biden's chief of staff during Obama's first term), just penned a terrific, instructive piece in Fortune, "Proof startups can't afford to ignore the law."

Ron makes the excellent point that innovative startups, especially disruptor companies like Uber and Airbnb that have upended legacy industries and assaulted regulatory convention, must proceed with prudence.  Otherwise, they risk being blindsided by politicians and even consumers who support the existing regime. As he aptly notes in a beautiful line, "The public roots for underdogs, not unicorns." I agree. The regulatory rubric is somewhat analogous to the earth which must be moved and the weather which must be contended with when one constructs a building - a reality you can't ignore or wish away. New industry entrants shouldn't receive an automatic exemption from legal restrictions merely by dent of their newness or ability to harness cutting-edge technologies. A great example in the legacy media space was Barry Diller-backed startup Aereo. In 2012, the company was planning to launch a service that ignored the cable and satellite TV copyright and licensing legalities and enabled its subscribers to watch local broadcast TV stations online at a lower cost. After egregiously errant federal court and Court of Appeals decisions initially allowed Aereo to proceed, the U.S. Supreme Court rightly ruled that Aereo could not operate without adhering to existing law and regulations. Deprived of its bogus "competitive advantage," Aereo was no longer viable and shut down shortly thereafter.

On the other hand, the emergence of innovators and disruptors provides a wonderful opportunity to revisit - and in many cases eliminate or at least overhaul - calcified, inefficient, stifling laws and traditions.

In stressing the need for these paradigm-shattering companies to send the right message to the powers that be, Ron questioned the wisdom of Zenefits (which provides software for businesses to automate aspects of their human resources services, including healthcare benefits, and has been under assault by insurance regulators across the U.S.) naming legendary Silicon Valley entrepreneur and regulation-loathing libertarian Peter Thiel to its board.

I see it differently. Were I heading Zenefits or another potential disruptor company, I'd want to have both Thiel AND Ron Klain on my board!

Thursday, December 05, 2013

How the GOP lost its nerve on tax reform (as published in POLITICO December 5, 2013)

Link to story:  http://www.politico.com/story/2013/12/tax-code-gop-leaders-100693.html?hp=t2_3

By: Brian Faler and Rachael Bade and Kelsey Snell and Lauren French
December 5, 2013 05:03 AM EST

The email blasting Rep. Dave Camp’s tax plan as “disastrous” arrived two days before a pivotal meeting between House Republican leaders and their chief tax writer.

The subject line: “Republican tax plan threatens conservative talk radio and media localism.” It came from Lee Spieckerman, a Dallas-based Fox News commentator and media entrepreneur, who urged party leaders to stop House Ways and Means Committee Chairman Camp’s “kooky” tax “scheme.” The email, obtained by POLITICO, had been forwarded to Rush Limbaugh, Sean Hannity and other conservative talkers.

It was the latest sign to Republican leaders that the timing is not right for tax reform.

House Speaker John Boehner (R-Ohio) and others pulled the plug last month on Camp’s long-standing vow to take up a tax overhaul bill this year, putting his three-year quest in limbo. The reversal shows how support for tax reform, even among Republicans, is broad but not deep. They routinely say they want to overhaul the Tax Code, but when the Michigan Republican pushed to take the first big step — putting out a bill — party leaders blinked.

The deferral of tax reform, at least for the foreseeable future, also reflects the enormous task Camp set for himself in pledging to overhaul the 70,000-plus-page Tax Code, which has not been revamped since 1986. No matter how small, every change would elicit cross-pressure on lawmakers, and any accomplishment would be a major feat even in a climate of bipartisan comity.

The back story on why Republicans held back Camp was compiled from interviews with dozens of lawmakers, aides and lobbyists. They cite a host of reasons, from jitters among interest groups to Camp’s failure to win support from rank-and-file lawmakers, but they all boil down to the same thing: Republicans are not ready.

Republicans say there will still be a markup — though no one can say when.

“I like the concept of getting tax reform done — the timing I leave to everyone else,” Rep. Kevin McCarthy, the third-ranking Republican, said in the days after the meeting.

“I’m not going to make a prediction,” Camp, who declined to be interviewed for this story, said at the time.
His spokeswoman, Michelle Dimarob, said, “the leadership has been really supportive about partnering together to make sure that noncommittee members have all the resources and tools they need.”

It was Camp’s bad luck to have been planning his markup just as Obamacare was blowing up. For Republicans who had just taken a beating over the government shutdown, the endless stories of Obamacare gone wrong were political manna.

Even some members of Camp’s panel saw no reason to give Democrats the chance to change the subject by introducing what would surely be a wildly controversial tax bill.

“We don’t want to get in front of that train,” said one House Republican lawmaker, who requested anonymity. “That’s got to run its course.”

The gist of Camp’s tax plan would be slashing rates while simplifying the code — which would entail curbing lucrative and popular tax breaks.

Camp, who had persevered through cancer treatments and was now facing term limits on his chairmanship, argued the Obamacare stories would not last forever. He said Republicans couldn’t be against everything and came armed with polling that showed tax reform could be a winning issue.

In the days before the critical Boehner meeting, Camp brought in former Secretary of State James Baker, who had also been President Ronald Reagan’s chief of staff, to rally committee Republicans with war stories about the last major tax overhaul. Baker emphasized presidential leadership, recalling that Reagan helped clear a path for Congress. For some lawmakers that only underscored what they did not have: They and President Barack Obama did not even agree on the ground rules of any reform.

At one point, Baker went off script and suggested the time may not be ideal with Obamacare cratering, according to one lawmaker who was there.

Baker told lawmakers it would be a “waste of time” and “impossible” to attempt tax reform without the support of the president, said Baker spokesman John Williams. He said Baker also agreed with a lawmaker’s suggestion that tackling the issue now would only distract from Obamacare.

Beyond that, House leaders were concerned Camp’s plan would hand Democrats fodder in a separate budget fight. They wanted to ax tax breaks to pay for repealing sequestration, and if Camp put out his plan, Democrats would surely cherry-pick the parts they liked, plug them into a bill rescinding Pentagon cuts and dare Republicans to oppose it.

As one manufacturing lobbyist put it: Camp’s plan would become a “list of GOP-sponsored revenue increases.”

And as Baker’s talk underscored, they didn’t have the support of the White House. Their long-running dispute with Democrats over tax increases had scuttled budget efforts in recent years: the 2011 Obama-Boehner budget talks, the Biden group, the Supercommittee, Simpson-Bowles.

There were signs all along the GOP brass were skeptical of tax reform.

Despite Boehner earlier this year reserving the symbolically important H.R. 1 for Camp’s plan, leadership rarely talked up the idea beyond the usual platitudes. This hardly prepared their caucus, the public or, for that matter, conservative commentators for the unpopular choices they would face.

Boehner spokesman Michael Steel said, “the speaker and our entire House Republican team, remain committed to fundamental tax reform to lower rates, simplify the code and help create jobs.”
But the worries of that Dallas commentator, who feared losing a tax break for advertising costs, were just a hint of the interest group ire Republicans would have to battle.

“Unbelievably, a Republican — Camp — is now pushing a tax law change that would do more to impair talk radio than anything the Democrats could have ever dreamed of,” the email Spieckerman sent to leadership read.

He later told POLITICO the Camp plan was self-defeating since much of talk radio leans right: “It’s certainly the only media platform that’s pretty consistently aligned with conservatives and Republicans out there, other than the Fox News Channel, so to do anything that impairs that would be just lunacy.”

He was not the only one worried about losing breaks.

Camp had already shown he was not going to simply do interest groups’ bidding. His proposed tax rules for the financial industry set off alarm bells in New York earlier in the year. “The most feared man on Wall Street,” the New York Post blared, above a picture of the mild-mannered Camp. “He’s become Wall Street’s public enemy No. 1.”

What’s more, Republicans were committed to not raising the deficit, which meant they could not help one group without hurting another.

Lobbyists fretted they were about to become tax reform’s losers. Wholesalers worried about losing an accounting method that saves them big on taxes. The American Iron and Steel Institute was concerned about industry’s ability to write off equipment expenses.

“We are very concerned, however, that many of the tax reform proposals presently under consideration would raise the effective tax rate on U.S. manufacturers,” a letter from the iron and steel group to leadership in the days before the Boehner-Camp meeting said.

When one member of the Rate Coalition, major businesses publicly backing reform, couldn’t get assurances their favorite breaks would be spared, they bypassed Camp, going directly to Boehner to urge him to put off reform, according to a leadership aide.

Majority Leader Eric Cantor was widely believed to be particularly skeptical, and reform backers noticed when he left the issue off a September memo outlining House Republicans’ agenda for the rest of the year.
Tax reform was passed over again in October, in the battle over the debt limit. Reform advocates hoped Republicans would use it to force action, but when Republicans winnowed their list of demands, they settled on a delay in Obamacare. Tax reform was too divisive, lawmakers said.

Rewriting the entire Tax Code was always going to be controversial, but Camp and House Budget Committee Chairman Paul Ryan did not make it any easier on themselves.

They had promised at the outset to slash the top individual and corporate rates to 25 percent. It was a dramatic cut that could rally Republicans — even Reagan didn’t get rates that low. The top corporate rate is now 35 percent, with the top individual rate nearing 40 percent.

But lawmakers had no idea how they’d make the math work. It would be a mammoth task, forcing them to dig into big, popular middle-class tax breaks.

“There clearly is a difference between what members from both sides of the aisle say about tax reform and what they do,” said Clint Stretch, a former counsel at the congressional Joint Committee on Taxation now at the nonpartisan Tax Analysts. “What they’ve done is really avoided the hard-choice conversation.”

Exactly how Camp intended to make good on his pledges was a closely guarded secret. Aside from committee Republicans and select staffers, few knew the details. Very little leaked out, with even top tax lobbyists saying they could only surmise what Camp was planning. That secrecy allowed lawmakers to consider an array of controversial ideas, without having to worry about what their constituents thought, let alone Democrats or the special interest groups.

But it came with a cost. It was hard for Camp to proselytize when he wouldn’t say exactly what he was selling. Even aides to Republican members of his committee said they didn’t know what was going on. They were excluded from his closed-door meetings with their bosses, as what one aide called a “cone of silence” descended over deliberations.

They worried what their bosses might be agreeing to and whether they even fully understood the options. Many had been on the committee for only a few years.

Republicans outside the committee had little inkling of what Camp had in store. They could easily be blamed by Democrats for whatever he proposed, even if it never reached the House floor. More than a third of the caucus had been in office for less than three years, and many didn’t know the first thing about the trade-offs that would have to come. What would they say when their local factory owner complained about losing depreciation allowances?

A substantial number of Republicans didn’t even want to reform the income tax — they wanted to end it. About a third of the caucus had signed onto a bill promising a “fair tax” to repeal the income tax system, abolish the IRS and replace it with a national sales tax run by the states.

So at a Nov. 14 meeting in Boehner’s office, where party leaders met with Camp and other top committee Republicans to decide how to proceed, they urged him to focus on building support within their caucus and among business.

“They basically said, ‘If you can prove to us that this can pass, then we’ll work with you,’” said one lawmaker. “They’re having a difficult time marshaling votes to pass anything, and obviously this is something that’s big, so they’re very gun-shy.”

The committee had been trying to educate the rest of the caucus, but the conversations often didn’t move past the 30,000-foot level. There were questions about why the corporate income tax was even necessary and why they couldn’t simply slash rates. There was far more work to be done.

But how do you educate 200 lawmakers already distracted by dozens of other issues on the taxation of foreign subsidiaries of U.S. corporations?

“Everyone has a different level of understanding,” said Ways and Means member Tom Reed (R-N.Y.). It’s not surprising there would be an “educational curve for folks who haven’t been dealing with this like us on a day-to-day basis.”

“It’s still a work in progress,” he said.

It’s hard to see how the timing will get any better next year. Republican primaries will be under way by the spring, and for many House Republicans, that’s the only election to worry about. After that, there’s the midterms, where Republicans hope to retake the Senate. The 2016 presidential race will begin not long thereafter.

“It’s going to be exceedingly difficult,”said former Republican Ways and Means Committee Chairman Bill Archer. “Timing is a problem for him.”

But when the timing is finally right, H.R. 1 will still be waiting.


© 2013 POLITICO LLC

Saturday, April 13, 2013

Originally published in TVNewsCheck, April 12, 2013

How Stations Can Kill Aereo And AutoHop

Broadcasters have an alternative to converting over-the-air networks to cable channels to thwart Barry Diller's Aereo and Charlie Ergen's AutoHop Dish DVR:  the "Dual Stream Strategy." Each TV station would feed a new, modified visual format of programming to their transmitters for OTA reception. This would consist of a station’s programming lineup in a reduced-size video window, surrounded by continuous weather, news and community information graphics and visual ads. The second stream would consist of the core programming full-screen, just as it is now, for MVPDs with retrans deals.




By Lee Spieckerman

TVNewsCheck, April 12, 2013 8:19 AM EDT

TV stations and networks, already under siege from a plethora of online video offerings and new competitors like Netflix, are now facing a fusillade from Barry Diller and Charlie Ergen.

Diller-backed Aereo picks up TV station signals off-air and streams them to subscribers via the Web, without stations’ permission. Multichannel video programming distributors (MVPDs) like Comcast, Time Warner, DirecTV, Dish, Verizon FiOS and AT&T UVerse have retransmission agreements with TV stations that usually involve paying the stations to carry their signals. That retrans revenue stream has become a crucial supplement to advertising revenue.

Meanwhile, Ergen-controlled Dish has started offering a feature called AutoHop that automatically strips all TV ads from programs recorded on Dish DVRs.  So far, the courts are doing nothing to stop Diller’s and Ergen’s attacks on the television industry and there are indications that the two pirates are in cahoots.

Dish just announced that it’s raising $2.3 billion to buy wireless spectrum. If Aereo isn’t stopped by the courts, Dish could harness that spectrum to send streams of local TV stations picked up by Aereo to Dish subscribers, enabling Dish to avoid having to make retransmission deals with broadcasters. That would save Dish — and cost the TV industry — billions.

Dish is already being sued by the networks to stop AutoHop. The networks claim that Dish doesn’t have the authority to tamper with ads from DVR replays of broadcasts.

CBS is seeking to have its retransmission agreement with Dish vitiated, on the grounds that Dish deliberately concealed its plans to launch AutoHop during their retrans negotiations. Fox, having been denied a preliminary injunction against AutoHop, has appealed to the Ninth Circuit.

Given the inherent vicissitudes of the legal system — a risk compounded by the incompetent jurisprudence on Aereo and AutoHop to date — and Charlie Ergen’s history of scorched-earth, ego-driven litigation, it would be foolish for broadcasters to leave their destiny in the hands of the courts.

So it’s not surprising that both News Corp. COO Chase Carey and Univision Chairman Haim Saban announced this week that their broadcast networks are prepared to take their signals off-air and convert their networks into pay channels, available only through MVPDs.

As MVPD-only services, television stations would be able to protect their intellectual property from Aereo’s off-air pilferage and, perhaps, more easily restrict Dish’s ability to excise their advertising. And TV stations might garner more in license fees from MVPDs than they currently receive from them in retransmission fees.
But ending over-the-air (OTA) service would be the nuclear option for TV broadcasters.

It would cut off service to viewers who can’t afford MVPD subscriptions — reducing ratings and creating a PR nightmare; end the cost-saving compulsory license for programming, which only applies to OTA broadcasts; diminish broadcasters’ leverage in carriage negotiations with MVPDs; and likely result in government confiscation of most or all of TV stations’ valuable OTA spectrum.

There is an alternative strategy broadcasters can execute much more quickly and easily with dramatically less downside risk: the “Dual Stream Strategy.”

Most TV stations already have the ability to send one programming stream to their transmitter for OTA reception and a totally separate programming stream, via fiber, to MVPDs.

Under the Dual Stream Strategy, stations would fully exploit the power of this capability.

Each TV station would feed a new, modified visual format of programming to their transmitters for OTA reception. This OTA Feed (OTAF), would consist of a station’s programming lineup in a reduced-size video window, surrounded by continuous weather, news and community information graphics and visual ads. Also included would be a graphic informing viewers that they can get the station’s programming, without the added visual elements, from their cable and satellite provider and the station’s mobile service.

Here is a mock-up of what the OTAF might look like:
















The second stream would consist of the core programming full-screen, just as it is now.  This Exclusive Clean Feed (ECF) would be provided only to MVPDs that have retransmission agreements with the stations in good standing (in other words, not including Dish with AutoHop). As noted above, the ECF would also be available through stations’ mobile phone/tablet services such as Dyle and Mobile500 Alliance.

Adding the layers of important, local, free visual content to OTA broadcasts of regular programming would in no way debase a TV station’s service to its community. To the contrary, it would be a significant enhancement to many OTA viewers who can’t afford cable or satellite (and in some cases, Web access) and are thus deprived of 24-hour news and weather channels.

This Dual Stream Strategy would annihilate Aereo and decimate Dish AutoHop by relegating their subscribers to a screen crowded with unwanted visual content and a shrunken programming window.

And, of course, the continuous on-screen ads in the OTAF would be AutoHop-proof.

In addition to fortifying broadcasters’ franchises, the ECF would raise the value of station content to MVPDs by driving new subscriptions from viewers who now get all their TV OTA. It would insulate the MVPDs from Aereo and emerging Web-based and over-the-top video services while accelerating uptake of TV stations’ mobile video services.

Comcast would seem particularly well positioned to execute the Dual Stream Strategy, as it has NBC network owned-and-operated stations in five major markets where its cable MSO is the primary MVPD: Chicago, Philadelphia, San Francisco, Washington and Miami. Most have a very low percentage of OTA-only households.

The Dual Stream Strategy might require stations to modify some network, syndication, sports rights and advertiser contracts — but far less than would becoming an MVPD-only service, which would eliminate the stations’ compulsory license. Because the core programming content of both streams fed by TV stations would be identical, that compulsory license and the MVPD broadcast retransmission rubric would remain intact.

And every participant in the video value chain — whether an MVPD, a studio, a sports league or an advertiser — has a huge incentive to cooperate with broadcasters. All have a common interest in shooting down Aereo before it gains more altitude and in eviscerating Ergen’s AutoHop.

Dish would undoubtedly claim that by forcing Dish viewers to settle for the OTAF, TV stations would be violating their Dish retransmission agreements. But, of course, broadcasters are already claiming that Dish’s AutoHop violates those deals.

So, broadcasters can throw Charlie Ergen’s four favorite words right back at him: “See you in court.”

After several brutal years, local television is finally recovering. Local TV journalism, boosted mightily by MVPD retrans revenue, is experiencing a renaissance. Broadcast television undergirds the U.S. pay television and content creation industries, as well as professional and college sports.

Aereo and Dish apparently have no compunction about collapsing that exquisite, uniquely American media ecosystem — one that has brought our citizens the most localized television service, and the widest choice of affordable video content, on the planet.

By implementing the Dual Stream Strategy, broadcasters can vanquish Ergen, Diller and fellow intellectual property plunderers without ceding any of their audience, revenue or spectrum.

 

 


Saturday, July 14, 2012

Judge Got It All Wrong With Aereo Decision

Originally published in TVNewscheck.com July 13, 2012

Following U.S. District Court Judge Alison Nathan’s decision denying TV broadcasters’ request for a preliminary injunction against Aereo, the online video startup that picks up local TV station signals and sends them to subscribers’ computers, Aereo CEO Chet Kanojia said: "Today's decision shows that when you are on the right side of the law, you can stand up, fight the Goliath and win."

A more authentic quote from Kanojia would have been: “Today’s decision shows that if you can find a judge ignorant as to the basics of intellectual property law and willing to disregard the long history of television retransmission precedents, you can build a whole new business on stealing billions of dollars worth of video content.”

Aereo brazenly asserts that because it picks up local TV channels with a tiny, separate TV antenna for each Aereo subscriber, it’s not in the same business as cable TV systems and DBS providers like DirecTV and Dish, which are required to make licensing deals with TV stations to retransmit their signals. Incredibly, Judge Nathan bought into Aereo’s laughable argument that the company was merely “renting antennas” to its subscribers.

That would be like a store claiming that, because it pilfers merchandise from a distributor’s warehouse one item at a time, instead of by the truckload, it should be allowed to sell the goods without paying for them.

What Nathan blithely ignored is that the copyright rubric governing retransmission of television stations has never been in any way predicated on the method used to capture the stations’ signals. Whether those broadcasts are received via one master antenna, multiple antennas or, as is increasingly common with cable and DBS providers, through fiber optic connection to the local TV stations, is irrelevant. The video service provider is an intermediary that must forge a contract with a TV station in order to deliver the station’s content to subscribers.

So Aereo is no different from Comcast, Time Warner, Cablevision, DirecTV, Dish, Verizon FiOS and every other multichannel video provider: it charges subscribers a monthly fee to receive local TV stations for live viewing or personal recording. The only material distinction between Aereo and the cable and DBS companies is that Aereo’s service doesn’t also include cable networks like ESPN, Fox News and AMC.

Nathan speciously cited the precedent of a 2008 case involving Cablevision Systems Corp., the largest cable system in the New York City market, regarding its “network DVR.” That court decision allowed Cablevision subscribers to record TV shows using Cablevision servers, not just in-home DVRs. Nathan wrote: "The overall factual similarity of Aereo's service to Cablevision … suggests that Aereo’s service falls within the core of what [the] Cablevision [precedent] held lawful."

Unbelievably, the obvious difference between Cablevision and Aereo escaped Judge Nathan: Cablevision has retransmission licensing agreements with every TV station on its system. So Cablevision subscribers can only use the “network DVR” to record and play back content from TV stations with which Cablevision has a contract.

Aereo’s backer, IAC CEO Barry Diller, is the brilliant former broadcast executive who helped launch the Fox Network. He’s obviously well aware that Aereo has fabricated a fig leaf to mask systematic intellectual property theft. In Nathan, Diller lucked into a judge without a clue, eager to abet Aereo’s audacious subterfuge.

This court decision invites — indeed impels — cable systems and DBS providers to circumvent broadcast retransmission agreements with Aereo-like schemes. Even Nathan’s ridiculous opinion acknowledges that this will inflict “irreparable harm” to broadcasters. She should have included the entire American video content industry — one of the few relatively robust sectors in this very weak economy.

In his current capacity, Mr. Diller is insulated from the havoc this travesty will wreak. Sadly, America’s television broadcasters, film producers, writers, actors and local TV journalists are not.

Wednesday, July 02, 2008

FCC TV REREGULATION PUSH IS 'MISGUIDED'

Letter to the Editor, as published in TVNEWSDAY, Jan 1 2008

Editor: Washington’s war on broadcasting—and cable—is blatant and unconstitutional discrimination (“Martin Turns His Sights on Broadcasting,” Dec. 14, 2008).

The federal government’s Department of Defense established the Internet. Yet Internet content—and the prodigiously profitable businesses built upon it—are virtually unregulated.

Meanwhile, though it never built a single commercial broadcast transmitter or laid a mile of coaxial cable, the government asserts the right to micro-manage the businesses most beleaguered by Internet competition: broadcasting and cable TV.

The stock prices of most publicly traded companies in these industries have cratered in this increasingly hostile environment.

These misguided government policies threaten the survival of local radio and TV broadcasting, through which most Americans receive the bulk of their news and entertainment, and cable, the first real competition for the telephone oligopoly.

The policies also make a mockery of the First Amendment by empowering the FCC—an unelected five-member panel—to determine what Americans will be permitted to see and hear and to what extent and in what form individuals will be allowed to speak to their fellow citizens.

That self-serving politicians and special interest groups on both the left and the right are demanding even more government control over broadcasting and cable should alarm all who value a robust media marketplace and treasure the First Amendment.

Lee Spieckerman

SpieckermanMedia LLC
Dallas-Fort Worth

Copyright 2008 TV Newsday, Inc. All rights reserved.

This article can be found online at: http://www.tvnewsday.comhttp://www.tvnewsday.com/articles/2008/01/01/daily.1/.
Please visit http://www.tvnewsday.com/ for more on this and other breaking news concerning the TV broadcasting industry.




Tuesday, November 21, 2006

Ownership Rules A Threat to Free Press

As published in Broadcasting & Cable Magazine, November 12, 2007

Editor: Current media ownership rules threaten far more than Sam Zell's acquisition of Tribune ( “Time Running Out for Tribune,” Nov. 5, p. 8). The rules undermine our Constitution and exacerbate the crisis engulfing two crucial American institutions: local newspapers and broadcasting.

Broadcasters and newspaper publishers must have the ability to build enough scale in each market to remain competitive in a brutal media marketplace. Otherwise, national cable and satellite networks and new
media behemoths like Google will totally supplant local outlets. Only in the Alice In Wonderland world of Washington would a newspaper wanting to enhance its local presence or a broadcasting company wanting permission to provide free programming to more people be seen as “contrary to the public interest.”

We have a plethora of anti-trust laws governing business behavior, ably enforced by the Department of Justice and the FTC. The First Amendment, which says, “Congress shall make no law…abridging the freedom of speech, or of the press,” certainly doesn't countenance a more onerous set of ownership regulations for broadcasters, or allow government officials to stifle the speech of newspapers by prohibiting them from acquiring a local broadcast voice.

Those who support newspaper/broadcast cross-ownership restrictions are also either ignorant or dismissive of the unseemly history behind those regulations. They were hatched by the Nixon administration during Watergate to punish and weaken The Washington Post—which then owned leading television and radio stations in D.C.—and to send a message to other unfriendly media owners. Now, special interest groups and politicians on both the left and the right have adopted the Nixonian paradigm: use ownership regulations to keep media organizations fearful. How is free speech, or freedom of the press, possible under such conditions?

Clearly, it's high time we step back and realize how insidious and pernicious media ownership regulation can be. The idea that it's the government's job to ensure a “diversity of voices” in media is a concept found nowhere in the Constitution. The FCC and Congress must transcend propaganda from self-anointed “media watchdogs” and rest on two simple but powerful truths.

First, however inconvenient it may be for anti-media zealots, the words of the First Amendment are unequivocal. Rules governing the media industry cannot be more restrictive or capricious than those affecting other industries; if anything, they must be less so. Second, free, over-the-air broadcasting and local newspapers are under siege. Our government should be doing everything it can to bolster, rather than bash, these vital industries before it's too late.





Friday, May 12, 2006

How Cable Can Conquer

A distilled version of this piece was published in the February 27, 2006 issue of cable industry trade publication Multichannel News. (Click link to story)
DirecTV is making a massive commitment to high definition programming; cable will face severe bandwidth constraints as it tries to compete. Meanwhile, EchoStar and DirecTV, already two of the nation's four largest multi-channel video providers, are hatching plans to supplement their satellites with a terrestrial wireless Internet backbone. AT&T and Verizon are spending tens of billions of dollars building broadband networks to take on cable—while state and federal lawmakers work to grease the telcos’ franchising skids.

No wonder Wall Street isn't being kind to cable.

Perhaps those who see a cable industry in crisis should be more mindful of its roots. The business was built by nimble, visionary entrepreneurs, often on vendor credit, battling entrenched interests and hostile politicians all the way. Tough fights are nothing new.

While Telcos are still laying their broadband tracks, cable's $100 billion backbone is largely built out. Cable has a wealth of experience aggregating content for diverse audiences, negotiating with content providers and selling advertising. And, most importantly, it already has a broadband pipe connected to a majority of America's homes. Given the importance of time-to-market, and the inertia of many time-challenged consumers, cable's incumbency is no small asset.

From trailblazing technology to creative content initiatives, cable is doing a lot of things right. Here's how a rededication to innovation will enable cable operators to ride the waves of change.

Cable should work as hard to retain customers as it does to recruit them.

* Those that haven't already should initiate loyalty programs tied to subscription length and/or services uptake (a cable version of "Frequent Flyer Miles"), e.g. free month(s) or free services

* Cable should be doing a lot more to market the value of choice to its current subscribers and Capitol Hill--striking back at the "a la carte" clamor. "Wouldn't you rather go to a shopping mall with 200 stores than a strip center with 12?"

Play offense--on both services and price.

Cablevision's aggressive triple play pricing model and cutting edge modem data rates have helped drive digital cable penetration to more than 60%.

Acclerate digital cable uptake by giving customers control of technology.

The CableCard/DCAS genie is out of the bottle--and I believe it's a huge gift to the cable industry.

America's growing love affair with DVRs and the 2009 analog broadcasting shutoff could be catalysts for a digital cable explosion. Seizing these opportunities will require the rapid and wide dispersion of digital cable-ready consumer electronics devices. Since cable's core business is broadband services--not STBs--it should learn from AOL, which garnered millions of subscribers without selling one PC.

* Cable should work closely with PC and consumer electronics purveyors to maximize OCAP, DCAS and EPG interoperability, with particular focus on partners in Intel's Viiv media-centric PC initiative.

* Instead of fronting the $250-$400 cost of HD DVRs, cable operators could provide that amount as a subsidy to manufacturers who bundle digital cable subscriptions with the hardware purchase. This would put much more CE marketing muscle behind digital cable.

The result? A proliferation of digital cable-ready devices from a variety of manufacturers, leading to more DVRs in more rooms, greater uptake of content services and stronger bonds with cable customers.

* DirecTV has nearly three million subscribers--the equivalent of a major MSO--who've become accustomed to the TiVo-branded DVR. Now that DirecTV is replacing TiVo with News Corp's NDS DVR, cable operators have the opportunity to win over a sizable block of its subs by offering a comparable package bundled with TiVo.

* Under the CE subsidy plan, cable should work with Microsoft and Sony to incorporate DCAS, OCAP and PVR capability into the Xbox360 and upcoming PS3. This would guarantee millions of additional digital cable platforms.

Sell digital cable much more aggressively at the retail level.

Cable should leverage CableLabs' successful Go2Broadband (G2B) back office system to expand retail channel distribution beyond specialty chains like Best Buy and Circuit City to Wal-Mart, Costco and Sears. There shouldn't be a DTV set, media PC or TiVo display without a digital cable bundle supported by prominent point-of-purchase advertising. Cable's ability to offer interconnect ad inventory, promotional opportunities and even dedicated shopping channels gives it strong deal currency with the biggest retailers.

Harness the power of the DVR to extend the capacity of the network.

The Disney-backed wireless MovieBeam VOD service has just shattered the movie DVD release window--making titles available on the same date that they hit video stores; Warner Bros. and other studios are poised to launch electronic sell-through of movies. These developments present huge revenue opportunities for cable--but also an exponentially increased burden on its networks. Fortunately, consumer DVRs, integrated with the digital cable network, can meet much of that demand.

At any one time, 50 movies or less would probably meet the requirements of the vast majority of VOD subscribers. Using "push multicast" technology, cable operators could send those 50 titles out one time, to all subscribers, for automatic storage on their home DVRs. Subscribers would then play back whatever movies they wanted to watch, whenever they wanted to watch them, without tapping the cable network. This same approach would work for sell-through distribution--consumers could "burn" DVDs right off their DVRs. Making consumer DVRs part of cable's server infrastructure will enable operators to capture the new revenue stream without needlessly clogging its networks.

Accelerate the transition to all-digital networks.

Many cable operators are already switching their networks to all-digital--but are forced to continue bandwidth-hogging analog simulcasts to accommodate subscribers who don't have digital cable-ready TV sets or won't pay the extra monthly charge for digital STBs. The electronics manufacturer subsidy/digital cable bundle plan outlined above would help solve this problem by getting a lot more digital cable-ready devices into analog cable homes. Ironically, the switch-off of analog over-the-air TV broadcasting presents an additional opportunity to convert analog cable households.

As part of the legislation mandating the transition to digital TV broadcasting in 2009, Congress authorized expenditure of nearly $1 billion to provide each household up to two $40 subsidy coupons for purchase of set top boxes to convert over-the-air DTV broadcasts to analog. LG and Thomson are positioned to be the leading providers of these low-cost STBs. Cable should lobby for those manufacturers to incorporate DCAS technology, so that those same boxes can be used to convert digital cable feeds to analog. This will not only free-up badly needed bandwidth for cable, without alienating analog customers--it will do much to achieve the government's objective of a speedy, seamless transition to digital television.

Take localized programming to a new level.

Innovation in programming is the hallmark of this industry: Comcast's trailblazing VOD initiatives and enhanced Denver local community access channels; Cablevision's Long Island 12 and MagRack; TW's NY1 and regional news channels; Cox's Spanish-language news channel in Phoenix; the regional sports channel concept pioneered by Charles Dolan.

We should assume that cable's competitors have read its programming playbook. The enhanced capacity DirecTV and Echostar are adding almost certainly won't just be used for more HDTV networks and retransmission of local HDTV broadcast stations. It will give them the bandwidth to offer new, exclusive, local-into-local programming. Telcos, especially with FTP, will have the ability to provide a plethora of new, hyper local content offerings. Now, more than ever, cable must be the leader in programming R&D. Cable should help create channels it wouldn't want to see on competing platforms and find new ways to super-serve key constituencies in each local market. This would also give cable a potent political weapon in the DTV multicast must-carry battle. By offering its own impressive suite of local interest channels, cable can co-opt potential broadcaster multicast offerings.

* Put particular emphasis on innovative channels targeting young demographics accustomed to the Web.

* Roll out new interactive offerings, modeled after Cablevision's Metro Weather and Traffic Interactive, Charter's "iTV" channels and Insight's LocalSource interactive portal, which give access to interactive news, sports, weather and community resources.

* Partner with local daily or community newspapers to produce "Neighborhood News," using eager TV journalism and production students as VJs.

* Evangelical Christians are a growing and loyal customer segment. Many of these churches already professionally videotape their services; cable operators could create one or more channels for this content and other church-created and religious programming--Christian, Jewish and Muslim. Needless to say, this would provide powerful viral marketing for digital cable.

Fully capitalize on digital cable's interactive advertising and "T-commerce" capabilities.

T-commerce--digital cable's ability to provide instant order and information fulfillment tied to advertising--should be a boon to cable. Upgraded digital infrastructures and ad interconnects will enable cable operators to vastly expand interactive advertising and make it a "must buy" for local merchants.

TiVo and Comcast have demonstrated that relevant, targeted interactive advertising--far from being avoided--is eagerly absorbed by viewers. Relevant advertising isn't advertising--it's information. The targeting and interactivity made possible by digital cable and DVRs virtually eliminates waste--and garners CPMs 10 to 20 times that of conventional spots. So much for DVRs being the death of TV advertising revenue! Cable also has the ability to create "watch advertising for credits" plans--rewarding viewers who elect to watch ads (and answer quick questions) with savings on VOD movies and other digital cable services.

* Cablevision's Optimum Autos channel demonstrates that the Web isn't the only competitor to newspaper classified advertising.

* Cable should work with clients to craft new special interest linear channels and VOD content, combining advertiser-produced material with cable-enabled T-commerce.

* Cable maven John Malone's Liberty would be a powerful T-commerce partner. Its QVC home shopping service and portfolio company Interactive Corp. (IAC), headed by Barry Diller, bring a formidable combination of brands, expertise and infrastructure. Together, cable operators and Liberty could seed an almost infinite variety of T-commerce and interactive advertising-driven services. A few ideas:

--An "Ask Jeeves"-powered video search engine, combining the power of cable's superb video pipeline and massive servers with push-to-PVR.

--VOD concerts with instant featured artist ticket sales via Ticketmaster and music sales via QVC

--VOD dating services, modeled after Comcast's hugely successful "Dating on Demand" channel, in partnership with Match.com

--VOD travel channels with T-commerce links to Expedia and Hotels.com

Dominate WiMax before DirecTV and Echostar do.

Many believe that WiMax is superior to DSL as a last mile connection and will soon be sufficiently robust to leapfrog 3G wireless technology for mobile applications.

Fortuitously, Comcast, TW, Cox and Newhouse have already forged a joint venture with Sprint Nextel--the leading company in the emerging WiMax space. The other big WiMax player is ClearWire, controlled by early Nextel investor and wireless telecom guru Craig McCaw. And McCaw's original family business was...cable television. Cable can provide either or both firms a crucial marketing platform as they roll out WiMax services.

* IPTV over WiMax could supplement the existing cable networks--a de facto expansion of bandwidth at what would almost certainly be a lower cap ex cost.

* WiMax could enable cable to become the leader in high quality mobile video--beating Qualcomm's 700MHz MediaFLO to the mobile punch.

Cable can conquer the broadband battlefield, despite its well-armed adversaries. Its infrastructure is enviable; its legacy of innovation, history of sharing best practices and entrepreneurial spirit unsurpassed. But winning against DBS and the Telcos will require cable to move more expeditiously, market more adroitly and program more creatively than at any time in its history. Most of all, it will require cable to connect with the customer--not just to his or her television, telephone or PC--better than anyone else in the broadband business.

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