News

Competition or Collusion?

1/09/2010 2:00 AM Eastern

As advocacy groups took aim at cable’s “TV Everywhere” online video concept last week, a blog war of words erupted between National Cable & Telecommunications Association CEO Kyle McSlarrow and one of the groups, Free Press (see Rules, page 14). Some edited excerpts from the back-and-forth:

National Cable & Telecommunications Association CEO Kyle McSlarrow:

Free Press’ theory seems to be that TV Everywhere poses a threat “to kill” online video competition because it would only be available to cable and other pay TV subscribers. But they get it exactly backwards: It is an effort to ensure more content than ever is distributed over the Internet at no extra charge to consumers.

Moreover, the TV Everywhere concept involves a multitude of competing program networks, most of which distribute their content on competing cable, satellite, telephone and online platforms. As publicly announced, TV Everywhere envisions separate, bilateral agreements between one content company and one or more individual distributors. It is purely vertical in nature – like any arrangement between a content company and a distributor. …

So, Free Press is really complaining about the decisions content owners make as to how their content should be distributed. As it happens, many programmers rely on the subscriber-based license fees they receive from cable operators and other distributors to remain economically viable. … Programmers invest tens of billions of dollars a year to produce high quality content; they have the right to experiment with different business models and determine how to recoup that investment in terms of distributing their content on different platforms. …

The fact that market participants are experimenting with models in addition to fee or advertiser-supported models is not a sign of anti-competitive conduct. It is a sign of a dynamic and rapidly-changing market in which no one knows the ultimate outcome.

Free Press senior adviser Marvin Ammori:

Yesterday, consumer groups called for government agencies to investigate TV Everywhere — a new scheme that would require Internet users to pay for a cable TV subscription if they want to watch popular shows online. … Unsurprisingly, the cable industry didn’t welcome this critique of their plans.

[McSlarrow’s] key argument is that TV Everywhere consists of collaboration, not collusion. McSlarrow has a point that some collaboration is not presumed to be anti-competitive; indeed, the FTC and DOJ have issued guidelines on collaboration among competitors. But the types of “collaboration” generally found not to harm competition and to further innovation are very different from TV Everywhere.

First, TV Everywhere sets the price for consumers to access much television content online. The price is the cost of a traditional cable TV subscription and an Internet connection plus access to “free” content if you watch advertising. In other words, consumers will pay three different ways. … Second, in a world without TV Everywhere, we could expect programmers to compete directly with distributors on the Internet — for example, Hulu (owned by programmers like Disney and Fox) versus Comcast (a traditional distributor). TV Everywhere unwinds that competition. … Comcast’s president likened online competition to a “classic prisoner’s dilemma,” because if each competitor went in a different direction, without agreements, the cable industry’s economics could crumble.

Our system does not rest on incumbents protecting their turf. As consumer groups called for yesterday, the antitrust authorities should investigate such an important, potentially illegal and anti-competitive development.

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