by Jimmy Schaeffler

For the 88,000-plus at the 2010 National Association of Broadcasters show in Las Vegas last month, they attended one of the more interesting and, indeed, provocative confabs of recent years — if for nothing else to see broadcasters grappling with truly important issues.

These were the type of “survival” issues that now put them in a category similar to their sibling telecom platform providers, such as the cable, satellite, and telco distributors, as well as some newer relatives, including mobile and Internet providers. Yet there is growth perceived for cable operators, as well, as noted below.

Rob’s Reasoning

Hubbard Broadcasting’s Rob Hubbard, head of its TV stations group, laid down a gauntlet, telling a full-room session crowd of his and fellow broadcaster’s concerns about recent U.S. government, i.e., FCC, efforts to highlight the future growth and development of broadband and Internet products and services, while likely not going out of its way to nurture the future of broadcasters, in particular.

Many in the room took that to mean broadcasters and their brethren fear the FCC is not focusing on what it is tasked by law to do, i.e., enhancing and encouraging localism, competition, and diversity.

Added Hubbard, “At the end of the day, no one can be sure of a business, or an investment, on that level, one based on something like a price-per-megahertz.”

Put another way, the government and the broadcasters have a lot of work to do in the decades ahead, which will inevitably also involve the foremost carriers of local signals in the pay TV realm, those of the cable franchisees.
Local Laments

More locally focused, in my own Monterey County, Calif. backyard, NAB attendee and NBC Hearst Argyle affiliate, KSBW co-anchor, Dan Green, lamented what he believes the NAB show has become.

“The real issue is excessive emphasis on reflecting that NAB is becoming more of a tech exposition, rather than a place where broadcasters and the like can find sources to grow their business,” he noted.

Green sees stations everywhere struggling with HD and 16 x 9 formats, and now along comes something even more challenging. In this economy, to focus on a 3D technology that is at least 10 years down the road, for almost every engineer, is just wrong.

Put another ways, there’s just no shortage of technology on the show floor and in sessions that can be put to use today. “Local stations need to maximize the potential of digital before we go wholeheartedly into 3D. 3D is maybe OK today for ESPN, but for local news?” Green asked rhetorically. That said, 3D, as noted below, remains a rare special opportunity for cable providers.

Cable’s Rep

A well-known cable executive (but one preferring anonymity), noted that NAB this year was “…a chance to walk in the other man’s shoes for a while. Indeed, it was so interesting to see the immense amount of pressure from the feds and to watch NAB and broadcasting industry try to react in a constructive manner.”

The cabler also noted a floor-touring contingent from would-be convention rival CES, noting with optimism that NAB now has not only the empathy of both the cable and consumer electronics industries, but also a better chance in the future to work with (and speak a common language with) both groups.

The cable exec cited one of broadcasting’s top priorities, i.e., retransmission consent (AKA the negotiations over the carriage of local broadcast signals by pay TV operators), as an area where cable and broadcasters can speak together informally, well in advance of (and hopefully to the preclusion of) later, nasty, in-public debates.
Broadcasting’s Rep

A well-known broadcasting executive (but also one preferring anonymity), agreed with his cable brethren that one of the better pay TV opportunities ahead lies in the development of 3DTV. As content switches to 3D, cable needs to work closely with commercial broadcast and local TV stations. Yet, bigger concerns turn on standards and capacity, placing local broadcaster-to-cable franchisee talks on a back burner, for now.

Conversely, land-based cable and telco operators are not cheered by the concurrent development of new “over the top” Internet and broadcast content providers, such as L.A.-based Sezmi, which act to remove cable and telco middlemen from the delivery of broadcast content.

Indeed, as good as this new model of “seamlessly integrating broadcast TV and broadband video options” might be for broadcasters, it might also be just this bad for cable- and telco-casters.
Jimmy Schaeffler is chairman and CSO of The Carmel Group, a Carmel-by-the-Sea, Calif.-based consultancy, event organizer, author, attorney, and publisher.

By Jimmy Schaeffler

Some three weeks after NCTA’s Cable Show 2010 in L.A., I find myself (and my contributing colleagues from the Wall Street, software, consultant, and trade group sides of the U.S. pay TV industry), still thinking about several notable challenges, promises, and universal truths that immersed the convention’s 13,000 attendees.

Those key challenges involved net neutrality, new technology, oversaturated programmers, and lots of folks looking for work. On the promises side, NCTA risked maximizing the potential for future development and collaboration, by holding the event in Los Angeles, thus permitting a rare mixing and matching of the Silicon Valley and Hollywood creative communities, together with cable’s core. Indeed, it worked.

Policy Perspective

Senior vice president of Starz and multi-decade cable TV veteran David Charmatz summed up the NCTA event from a policy perspective, noting an underlying focus on the reclassification of government control over the Internet, via either Title 1.5 or Title 2. This is the issue that arose from the recent appellate court decision questioning the FCC’s authority to regulate the Internet. Nonetheless, because of the late timing of that decision (relative to convention planning), it was not surprising that there were few sessions that dealt with the all-important reclassification. Therefore, this and other related topics — e.g., “net neutrality” — were more likely to be addressed in the hallways. Instead, Charmatz noted that the show focused on iPAD apps, cross-platform search, a few new programmers, and some of the usual show “attractions and distractions” e.g., awards, events, networking.

Charmatz highlighted several elements behind the issue’s importance, i.e., 1) its impact on a series of past rulings (that courts will now have to reconsider and resolve); 2) how its determination affects net neutrality — as but one measure of how it impacts future competition using the Internet; 3) how its resolution creates new opportunities for the telcos; and 4) in a similar manner for the satellite operators (e.g., Dish Network and DirecTV), how its determination affects their abilities to offer additional competitive products — such as branded voice and high-speed Internet data services — on leased third-party infrastructures (which consumers will know only as those coming from either of the top two DBS providers).

Charmatz’ prediction for Cable Show 2011 in Chicago: Much of the talk will be about random access networks, and location-based media.

IP Progress

Another long-term TV industry analyst and interpreter, Gary Arlen, the president of Arlen Communications Inc., agreed with the focus on net neutrality, yet also gave equal emphasis to the pending transition from switched-video to IP-based transmission services. This will happen because the cable industry wishes to protect its existing investment in switched-video, and because IP services offer better bandwidth utilization, which will be especially important for the delivery of ultra-high-speed data services and bandwidth intensive video, including HDTV and 3DTV.

On another front, Arlen noted the emergence of the “post-affiliate era,” highlighted at NCTA by the dearth of new programming opportunities. Indeed, even in a 5,000-channel universe, saturation can occur.

Arlen’s forecast for Cable Show 2011: Those attending the convention in the Second City will pay even greater (and more serious) attention to cord-cutting and alternative means of distribution, including wireless broadband access to premium content. Arlen further predicts that there will be even greater expectations for Canoe Ventures to deliver the targeted, cross platform advertising services it has promised.

Trade-Group Take

Both the NCTA vice president Rob Stoddard and American Cable Assn.’s chief Matt Polka, highlighted the obvious advantages emanating from a positive dialogue with the federal government. At the show, not only were there a good number of FCC staffers walking the exhibit floor and attending various sessions, but, more importantly agency chairman Julius Genachowski, was front and center in a single one-on-one general session with the NCTA’s CEO. He was also seen walking the exhibit floor (and with the crowd), in several instances.

Noted a gratified Stoddard, “We felt positive about being able to engage with the chairman in a constructive fashion at this event. It’s our goal every year at The Cable Show to help policy makers better understand our industry.”

Added Polka: “I did a lot to answer questions about Title 2 implementation and the concern of many in the industry that the FCC would be too heavy-handed, which still is a possibility. I think it’s smart for the industry to take a wait-and-see approach, and I also think the [FCC] chairman said some good things (e.g., no rate regulation of the Internet and liberal forbearance), but the concerns we have about Title 2 implementation are real. And only time will tell what posture we need to take in response.”

Both Stoddard and Polka saw new technologies that caught their eyes. Polka focused, like many, on 3DTV, and its many displays on the show floor. For his part, Stoddard touted the cable industry’s “My World” exhibit, which was focused on broadband capabilities in numerous daily venues, both in the home and out, and emerging applications, as well as current services. Carrying the theme “a fully connected world,” Stoddard noted, “… the pavilion was one of the greater traffic generators, and it provided a fair amount of ‘buzz’ among Show attendees.”

Looking forward to next year’s show at McCormick Place, Stoddard foresees: “We hope to build on the momentum of tight, focused, and exciting trade shows, that provide real cable immersion to anyone who walks through the door.”

ACA’s Polka believes next year’s show will have more focus on the implementation of Title 2, and the National Broadband Plan, including Universal Service Fund (USF) reform to pay for continued broadband stimulus and deployment.

Wall Street Stance

As was the case with his show peers mentioned above, Credit Suisse’s Stefan Anninger and Spencer Wang noted cable MSOs’ worries about reclassification of broadband as a Title 2 service, and how Genachowski’s “third way” approach to regulating broadband stands on tenuous legal footing.

Further, MSO discussions revealed to the Credit Suisse analysts that video sub churn is in check; pay-per-view and premium businesses continue to stabilize; high speed data continues to show strength, tied to its speed and reliability; and a weak housing market remains a long-term concern.

Other issues observed were those of 1) retransmission consent, and hopes the FCC will intervene; 2) IP video and its uptake, and its use on devices beyond the TV (e.g., smart phones, iPads, laptops, eReaders) and throughout the customer premises; and 3) cable’s need to improve the user interface of its video product (e.g., program guide).

The Credit Suisse officiala believe the key concerns and topics at the 2011 Cable Show show will be:

1) Over the top  (Internet video bypass); and 2) moving video around the home and onto wireless devices.

As for my view on what the Cable Show will bring to Chicago from June 14-16, 2011: a true focus on a complete rewrite of the Federal Telecommunications Act.

Jimmy Schaeffler is chairman and CSO of The Carmel Group, a Carmel-by-the-Sea, Calif.-based consultancy, event organizer, author, attorney, and publisher. 

By Randolph May

A few days ago, after attending the NARUC Convention, I wrote this blog piece, “Genachowski at NARUC.” Based on the fact that Chairman Genachowski at NARUC emphasized an FCC mission focusing on catalyzing private investment, creating jobs, and competing globally - and did not even mention net neutrality regulation - I stated my hope that he had abandoned his campaign for Internet regulation.

My optimism may have been misplaced. Based on comments made in an interview with The Hill’s Sara Jerome, it looks like Genachowski may be intent on trying to force the FCC to promulgate new net neutrality mandates. In my blog, I stated:

“It is safe to say, even more so after this month’s election, that if Genachowski continues to pursue net neutrality regulation, without further congressional authorization, he will jeopardize his ability to accomplish those important pro-growth goals that he emphasized at NARUC.”

Put another way, Genachowski is approaching the Rubicon. It would be a big mistake to cross it.

If he tries to ram net neutrality regulation through the commission, without further congressional sanction, when a significant majority of even this lame-duck Congress oppose this course, including some 70 Democrats, he will be taking a step that jeopardizes his ability to lead the commission in ways that actually would help spur the private investment and job creation he professes to want.

Readers of this space are familiar with the reasons why I contend it would be unwise for Genachowski to continue to pursue the “solution in search of a problem” which is Internet regulation. Here are some of the salient points:

• There are many economic studies predicting that the imposition of net neutrality regulation will deter investment in Internet infrastructure. For example, a recent study by Stratecast, a division of Frost and Sullivan, forecasts that adoption of net neutrality regulation will impose in the first year “a seven billion dollar a year overhead on the economy with a commensurate job impact of up to 70,000 jobs. It is certainly true that no prediction of this kind is likely to be precisely right. But that misses the point. Even assuming that the prediction is off by 50%, do we want the government to impose new regulations at this time of 9.6% unemployment and sluggish private investment which will, according to most economists, deter jobs and investment?

• According to a recent poll by Peter Hart, the Democratic pollster, 75% of Americans think the Internet is working well. This is fully consistent with the conclusion of most economists that there is no present market failure or evidence of consumer harm in the broadband Internet marketplace. Obviously, if the Internet already were not characterized by openness, 75% of Americans would not respond the Internet is “working well”.

• In the absence of market failure and consumer harm, one can only conclude the ongoing net neutrality campaign is being kept alive by the notion that the net neutrality campaign promise made by President Obama to Free Press and other pro-regulatory groups must be fulfilled. First, the FCC, as an independent regulatory agency, should not be in the business of fulfilling campaign promises. But if the agency were in that business, and in any event, an enterprising reporter should ask President Obama to explain to the American people how new Internet regulation is going to spur the jobs and private investment the president claims to want.

• In the interview with The Hill, Genachowski said net neutrality is needed so the country can improve its broadband deployment efforts. There is no dispute that 95% of U.S. households have access to broadband. To the extent that targeted government support is necessary to help reach the remaining unserved households, through direct subsidies or otherwise, such support may be appropriate. But it is wrong to suggest deployment of broadband infrastructure will be encouraged by net neutrality regulation. As shown above, the opposite is true.

• As I pointed out in my “Genachowski at NARUC” blog, the session in which I participated at NARUC on net neutrality fairly quickly devolved into a discussion of what could be done to increase broadband adoption. The current adoption rate of over 65% is quite remarkable, considering the short span during which broadband has been ubiquitously available, and it serves no purpose to denigrate this progress. Nevertheless, the country surely benefits in various economic and social ways as adoption moves up the demand curve, and there are some steps the government properly may take to help in this regard, such as providing broadband vouchers to low-income persons. But anyone who thinks seriously about take-up rates for a moment will agree that implementing net neutrality regulations will not increase adoption rates. Another question for an enterprising reporter to ask President Obama: “Do you believe that consumers are not taking up broadband service because they believe the Internet is not ‘open.’” The answer is obviously “no”.

• In The Hill interview, Genachowski said: “I am glad I am not doing law full time anymore because of issues like this.” He should be glad, because if the Commission adopts his proposal to classify Internet service providers as common carriers, and, at the same time, attempts to forbear from applying certain common carrier requirements, this will be a risky, problematical legal route. In adopting the common carrier regulatory classification, the Commission would be reversing a determination that it took all the way to the Supreme Court in 2005 in the Brand X case. In the few years since, nothing has changed in the way that Internet access is delivered functionally by the ISPs. A close reading of Brand X will show that the Commission’s position before the Court, and the Court’s affirmance, turned on the acceptance of the assertion that, as a techno-functional matter, broadband Internet access fit the definition of “information services” contained in the Communications Act, and not the definition of “telecommunications services.”

As a former chair of the ABA’s Section of Administrative Law and Regulatory Practice, I understand - and I have written extensively about - Chevron deference and the discretion it affords the commission to change its mind if it offers a reasoned explanation for doing so. (NOTE: My views here are my own, certainly not the ABA’s or anyone else’s.) Indeed, in Brand X, the commission received Chevron deference for its determination that broadband Internet access services are unregulated information services. But the commission would have to attempt techno-functional somersaults to try to rationalize why it now considers the same services it recently considered to be unregulated information services to be regulated common carrier services - all the while in the face of more Internet service provider competition than existed in 2005. Moreover, in the face of its heretofore overly restrictive interpretations of the agency’s forbearance authority, it also may be problematic whether the commission can sustain any exercise of forbearance authority in this case. At best, the commission would be embarking on a course in which years of litigation would be assured, while investment and innovation would be chilled awaiting the outcome.

In light of the above, it ought to be clear that Genachowski should abandon any plans to force net neutrality regulation through a deeply divided commission. If he truly believes that new Internet regulation is needed, despite what are likely to be adverse impacts on his professed jobs and private investment goals, he should work with Congress to craft legislation explicitly authorizing such regulation on an appropriately circumscribed basis. It is clear that a very significant majority of this Congress, and an even more substantial majority of the next one, oppose the FCC going forward without such an authorization.

When the bill drafted by Commerce Committee chairman Henry Waxman surfaced back in late September, I said in a statement that it contained positive elements, and that, while further changes were in order to guard against excessive regulation, it provided a basis for continuing to pursue discussions concerning legislation that would provide the FCC with circumscribed authority over broadband Internet services. One of the positive elements of the Waxman draft was that wireless services, the fastest growing and most competitive segment of the broadband Internet market, were not to be saddled with net neutrality regulation. Surely, with the widely-acknowledged spectrum constraints confronting wireless providers, and the almost universally accepted need for wireless providers to engage in delicate network management practices in a dynamic environment, it would be a mistake of significant proportions for the FCC to impose net neutrality mandates on wireless providers when not contemplated by the Waxman draft.

If the reports are true that chairman Genachowski is preparing to move forward without congressional authorization, he is approaching his Rubicon. He should carefully consider the reasons why he should not cross it.

*Randolph J. May is President of the Free State Foundation, a free market-oriented think tank located in Rockville, Maryland. He is the editor of the new book, New Directions in Communications Policy.

The following is a Feb. 23 letter from Full Channel TV vice president Levi Maaia to Federal Communications Commission chairman Julius Genachowski:

Full Channel strongly agrees that the time has come for the commission to review retransmission- consent rules in light of recent disputes affecting millions of consumers, many of whom were unprepared for the sudden loss of broadcast-network content precipitated by local-TV station blackouts. Media Bureau chief William Lake put his finger on the problem in his speech to the Media Institute last December, when he stated: “When a retrans deal expires today, there can be high drama.”

With the commission preparing to examine the marketplace in which retransmission consent is negotiated, I wanted to bring to your attention an unsettling episode involving Univision affiliate WUNI-TV and my company, Full Channel, a family owned cable operator in Warren, R.I., with about 7,000 customers. WUNI, owned by Entravision Communications, pulled its signal on Feb. 18 after Full Channel refused to accept a 33% increase for retransmission consent and costly demands for multicast channel and high-definition delivery.

This dispute illustrates the need for new retransmission- consent rules that rectify the imbalance of power between an affiliate of the country’s dominant Spanish-language broadcaster and a small cable operator that serves a tiny fraction of TV households within the Providence, R.I., to New Bedford, Mass., designated market area.

Clearly, WUNI’s strategy of granting retransmission consent only in exchange for an exorbitant price hike and other costly demands is aided by several regulations that prevent Full Channel from negotiating as something akin to an equal on the other side of the bargaining table. This artificial imbalance hurts Full Channel’s customers, who are innocent third parties, and it should be addressed as the commission reconsiders what exactly is acceptable conduct under the statutory requirement that broadcasters and multichannel video programming distributors bargain for retransmission consent in good faith.

Full Channel believes it is vital for the commission to provide new guidance that will yield greater certainty to the marketplace and result in fewer failed deals and dropped signals. Full Channel stands ready to assist the Commission’s search for policy outcomes that protect the interest of consumers when they are victimized by the heavy-handed tactics of a broadcaster like WUNI, which seems to have a rather strained understanding of what it means to serve in the public interest.

Levi Maaia is a vice president at Full Channel TV