By Robert Gessner

Recent disputes between TV networks and distributors (Viacom vs. DirecTV, which was resolved on July 20, AMC Networks vs. Dish, broadcasters vs. just about everyone) have generated news reports, editorials and blogs about the need for more consumer choice in the selection of TV programming. It is time to set the record straight about who supports more choices for consumers and who does not.

Black Entertainment Television founder Robert Johnson made some news with a bold statement to the media the other day. He predicted the demise of pay-TV’s big programming package within two or three years, saying inexorable pressure from online services like Netflix and Hulu will compel cable and satellite TV providers to offer their customers smaller video packages.

Mr. Johnson is correct that TV networks must be unbundled to create more choices for consumers, but creating that choice must start at the source: the content providers. Pay-TV providers — be it cable, satellite or telephone company-backed distributors — each want to give consumers more choices. That’s what all these recent battles are about: Pay-TV companies trying to find ways to deliver more consumer choice. Content providers simply will not allow that increase in consumer choice. So, someone or something more powerful than these dominant content giants must force these content companies either to unbundle their networks or unlink the bundles of bundles called basic cable. That’s the only hope for more consumer choice.

Ten media companies control most of the TV channels in the U.S. They are household names: Disney/ABC, CBS, Fox, Comcast/NBC, Discovery, Viacom, Scripps, A&E, Rainbow, Time Warner/Turner. Mr. Johnson correctly notes that 17 of those channels account for most of the viewing. Yet, content providers work tirelessly to keep their dozens of networks tightly bundled together and to create even more networks to add to that bundle. That’s why you must take Oprah Winfrey Network (owned by Discovery) if you want Discovery Channel. That’s called bundling.

Those same content providers also demand that all of their content be sold together as a “bundle of bundles” called basic cable. The content providers have all linked themselves together tightly. If consumers want ESPN from Disney/ABC, they must also buy MTV from Viacom embedded in the same package. That’s why basic cable has 100 channels of which consumers watch only a dozen. Don’t think for a minute that distributors want to raise rates or clutter the lineup with unwatched networks. It is done because the content providers demand it.

Here’s something else to know. The last thing content providers want to do is compete with one another for distribution. They all want to be guaranteed full distribution on basic cable. That’s why content providers won’t give consumers the ability to choose or distributors the ability to create smaller program packages. They all want to keep all of their networks linked together to maximize revenue. This practice of bundling networks (owned by the same content provider) and then linking them to other bundles (owned by other content providers) ensures that all of the content providers have full distribution to all consumers. It reduces consumer choice and raises cost. Distributors are unable to break apart either the bundles or the bundle of bundles because the content providers will not allow it.

Bundles and the ability to link bundles together are the foundation of the TV content provider business. It is their path to mutually assured success. Bundling and linking networks are the “business model” content providers allude to in Congressional hearings. Basically, their model is this: “Every TV consumer must take all TV content from all content providers.” That includes paying whatever price the content providers set (including increases) and accepting all the new networks they create. Consumers don’t like it. Distributors don’t like it. But, content providers LOVE IT, because they control the content, so there is only limited choice.

Consumers want more choice. Distributors would like to provide it. Content providers, on the other hand, DO NOT want to offer that choice. Distributors, as the conduit between the two, suffer constant salvos from both sides. Consumers accuse them of intransigence and price-gouging for failing to offer more choices (which they are powerless to create). Content providers label them as greedy and short-sighted when they resist rate increases, try to create program tiers and drop networks.

Despite the content providers’ overwhelming power and control, the ultimate end is more consumer choice, not a continuation of the “everyone-must-take-all” model. As Mr. Johnson correctly noted, “In the next two or three years…something is going to give. At some point the consumer is going to say enough is enough.” This battle is finally starting to attract Congress’ attention. When it reaches a crisis stage, Congress will respond. It won’t support one powerful industry over another. Instead, lawmakers will side with those who have real power: the voters.

More choice is inevitable. The only question is when those in favor of more choice can rally the masses to the cause. Distributors support more choices for consumers and are ready to deliver it. Content providers do not support more consumer choice. It is time consumers, Congress and the media understand that difference.

Gessner is president of Massillon Cable TV, Massillon, Ohio and vice chairman of the American Cable Association.

By Gary Arlen

EchoStar would like the cable industry to focus on its new “Aria” service, a content/technology package for small/medium operators that will debut at the Cable Show.

But most of the components in Aria are also the building blocks for a competitive consumer service that Charlie Ergen has assembled which could provide data and video broadband directly to homes nationwide.

EchoStar’s $2 billion acquisition of Hughes Communications (which closed this week) adds satellite bandwidth power to the arsenal of tools needed to create a service that could rival Netflix Plus and douse Amazon’s nascent video delivery plan, as my perceptive pal Robert Tercek, the consummate Hollywood insider, observes.

In recent months, EchoStar has bought Blockbuster (with its vast video content supply relationships) and Move Networks (adaptive bit-rate streaming technology that can be used to integrate middleware, content management, subscription packaging, billing, and digital rights management). Added to its earlier purchase of SlingMedia (for Internet delivery) and access to some Burst.com patents, EchoStar now owns the parts to create a national broadband programming network. Not to mention that it has an existing customer base of millions of homes.

EchoStar now also has a new CEO-president Joe Clayton, a seasoned executive with experience in consumer electronics sales and marketing at RCA, when that company controlled the TV set and VCR markets. Clayton more recently headed Sirius Satellite Radio (before the XM merger) and before built his telecom chops as president of North American Operations of Global Crossing Ltd., a job he got when Global Crossing acquired Frontier Corporation, where he was president-CEO.

EchoStar’s assets - and Ergen’s ambitions - add up to a formidable opportunity in the consumer broadband sector. As the patent battles with TiVO and other confrontational moves have demonstrated, Ergen loves a good fight.

Aria seems like a good Trojan horse approach to get into the cable world (if anyone accepts the offer) while at the same time allowing EchoStar to assemble its competitive broadband venture.

Gary Arlen is president of Arlen Communications LLC in Bethesda, MD, and a long-time interactive TV enthusiast. GArlen@ArlenCom.com 

I have played a role in the “multicultural cable TV marketplace” for more than two decades. From my perspective, in some years, the industry’s focus on multicultural markets has received more emphasis than in other years.

This year, the focus on servicing multicultural consumers is more enhanced than ever before. It is reflected in new programming tiers, marketing commitments and enhanced staffing. This can most easily be explained as a response to the recent Census findings. I think the reason is even more basic - - the multicultural cable TV customer is more profitable than ever before!

The best example of this “profitability” can be seen in the Hispanic market. Hispanics are now America’s largest multicultural population. They account for more than 16% of the U.S. population. When one compares the rapidly-growing “buying power” of the market to the revenues spent on promotional efforts to reach them, it is easy to see that it costs much less to sell this consumer, than to sell to a general market customer. In fact, the annual “Hispanic ad-spend” represents the fastest growing segment for media sales.

Add to this formula the fact that Hispanics represent a significant percentage of new householders. As a result, they are also the greatest potential for new cable TV customers.

Asian (mostly Chinese, Korean and Japanese) and South Asian (primarily Indian and Pakistani) cultures are experiencing a similar margin for profits measured in the difference between the marketing cost for acquiring the customer against and the buying power of the targeted consumer.

The second-largest multicultural population is the African-American community. Advertising costs for reaching African Americans are comparable to the cost of reaching the general market, and subject to the higher costs incurred for English- language advertising, which reaches the broadest audience. This situation has a less-vibrant effect on the immediate revenue potential of the market, yet, because this market is well-established, it delivers a longer-term return on profitability.

On Wednesday morning, June 15 from 7 a.m.-9 a.m., before the first session of the day at the Cable Show, you can hear more about the value of each of these cultures to the cable TV industry at the annual “Multicultural TV Breakfast,” presented by Multichannel News and Broadcasting & Cable.

I have the distinct pleasure of producing this event once again for these two publications. To register, please call Sandy Freidman at 917-281-4718.

Joe Schramm is the managing partner of Schramm Marketing Group, a NY based agency. They produce many special events for Multichannel News and Broadcasting & Cable, as well as serve the marketing needs of many in the pay TV industry, as well as in sports and entertainment.

Michael McCurry and Mark McKinnon, co-chairs of Arts+Labs, weigh in on network neutrality in a guest blog. They warn that soon-to-be proposed FCC network neutrality rules target unproven harms, could choke off the flow of creative content and work against broadband deployment.

Don’t look now, but later this week, the Federal Communications Commission is expected to propose new Internet regulations that are likely to limit consumers’ online choices, slow the spread of broadband, and hamstring an industry that seems poised to lead economic recovery. The potential rules also would could block the flow of creative content that gives the Internet its value and bless the business model that favors a single large company. Frankly, we’re puzzled.

The issue is so-called “net neutrality” rules, which would prevent the network operators that connect Americans to the Internet from offering customized services that would enable Web sites and applications to run at high speeds, without interruptions or delays and with extra protections against viruses and other threats.

FCC chairman Julius Genachowski says the potential rules would prevent network operators from blocking or degrading content and make sure that consumers can access any Web site of their choice. These are laudable goals, but existing FCC principles already provide consumers such assurances, and there is no evidence that service providers have any interest in such bad acts. In short, the proposed rules are aimed at purely theoretical harms that have not yet surfaced in the marketplace.

The proposed bar on customized services, which are common throughout the U.S. economy, is especially puzzling given that the Commission’s own Broadband Task Force has publicly observed that different Internet applications have different quality of service requirements. Some require substantial bandwidth, others are latency sensitive, and still others are dependent on speed. Increasingly, creators of applications, software and other online content are partnering with network operators in the early stages of development to better match capabilities and needs. The proposed rules would choke off this beneficial trend.

Such rules also would effectively cripple the creative industry’s ability to compete with “free” content by offering consumers a higher quality experience. The creative community is actively experimenting with new business models, including free advertising-supported content, subscription-based content, streaming content, downloaded content, and pay-per-view content, that aim to provide consumers the content they want, when they want it while also providing content creators the continued incentive to invest in new movies, new music and other types of entertainment that consumers want. However, the distribution of multimedia content over the Internet is still in its infancy. The potential rule would foreclose options by government fiat, limiting the services available to consumers and curtailing the creation of new content by eliminating potential revenue sources to fund it.

Cutting off business options also would pose a risk to economic recovery and subvert the national effort to connect every American to broadband. The proposed constraints would create a serious business risk to technology and content companies that have continued to make substantial new investments even as economic problems forced other sectors to pull back. Network operators are currently planning to invest billions to meet growing demand for Internet services, but that investment and the jobs could be snuffed out by new regulation that chills the revenue streams to fund it.

The potential new rules also put the commission in the ironic position of working at cross purposes with the national goal of ubiquitous broadband. The FCC’s Broadband Task Force has reported that delivering fiber broadband to every American could require upwards of $350 billion in private investment. By cutting off other revenue options, the proposed rules would load all of the expenses on consumers through higher fees for broadband services. That means that fewer consumers, especially those at the lower end of the income ladder, could afford broadband.

Finally, we note that a single large competitor, Google, that has lobbied most aggressively for net neutrality would be the primary beneficiary. By torpedoing the development of other competitive models based on quality delivery, the potential rules would stack the competitive deck in favor of the ad-supported model that Google pioneered. While Google’s contributions to better search and improving the Internet experience deserve our appreciation, Google does not deserve policy favoritism.

The commission’s decision on these rules will set the terms of our digital society and also our future economic well being. From where we stand in the technology and creative communities, the proposed path is strewn with danger-without a clear benefit that we can discern. The commission needs to heed the danger signs and find another course.

McCurry is former White House press secretary to President Bill Clinton. McKinnon is a media advisor/strategist whose credits include the campaigns of George W. Bush and John McCain.

Arts + Labs is a coalition of studios, networks, computer companies, and others promoting online entertainment. Its partners include Viacom, NBC U, AT&T, Verizon, Microsoft and Jib Jab.

By DAVID PORTER

“Make a Statement. Make a Difference” is not only the theme of this year’s Walter Kaitz Foundation’s Annual Fund-Raising Dinner, but is also a call for the cable industry to collectively move forward and engender change.

Change requires hard work, and we have lots more work to do on diversity. At its core, the foundation has always been committed to increasing the number of women and people of color in the cable industry.

Through advocacy, a targeted grants program, programs and partnerships, our goal has always been to create a more diverse workforce. However, we must redouble our efforts to increase diversity in the C-suite. The best companies have implemented processes to include diverse candidates in hiring decisions, groom women and people of color for senior positions, and hold senior executives accountable for developing diverse leaders.

But the foundation’s work also focuses on increasing supplier diversity and diversity in programming content.

Supplier diversity is critical in enhancing cable’s ability to compete in the marketplace. By diversifying the supplier base, we create a more robust supply chain, increase our ability to develop creative solutions and build stronger relationships in the communities where we operate.

Many cable companies have made headway, but more work lies ahead. At a minimum, every company should develop an easily accessible database of women and minority suppliers; include diverse suppliers in bidding processes; regularly measure their diversity spend; and set aggressive goals to ensure that procurement managers are making the necessary efforts to succeed in building a diverse supplier base.

As one of this year’s Diversity Champion award honorees, Comcast is a shining example of what one company can do to build a strong supplier-diversity program. Comcast’s journey began in 2003 by developing an extensive network of diverse suppliers. This network was then made easily available to purchasing agents across the country and, by 2008, Comcast boasted a $500 million annual spend with diverse businesses.

Diversity in content - on and behind the screen - is another area requiring increased focus. Images in media have a powerful impact, as do the people behind the scenes creating those very images. As content explodes exponentially, our industry has a real opportunity to broaden viewers’ perspectives, and place new faces in front of, and behind, the cameras. This means developing and hiring diverse candidates who can fill the pipeline and grow into successful directors, writers, producers and on-air talent.

We can easily see this transition at Turner, the other Diversity Champion honoree at our 2009 fund-raising dinner. Turner’s diversity efforts are exemplified by the successful launches of TBS’s Tyler Perry’s House of Payne and Meet the Browns, its upcoming Lopez Tonight, and in the multi-ethnic cast of TNT’s The Closer. With diverse domestic and global markets, Turner’s cable networks create and distribute programs that appeal to diverse audiences.

For more than a quarter century, the Walter Kaitz Foundation has engaged the industry and augmented opportunities for women and people of color. We’ve been trying to make a statement, and hope we are making a difference. Please join us on this journey and do what you can to create a more inclusive cable industry.

David M. Porter Jr. is executive director of the Walter Kaitz Foundation.