The Justice Department is investigating whether usage-capped broadband plans — as well as TV Everywhere services and most-favored-nation programming contracts — violate antitrust laws, the Wall Street Journalreported today.
Meanwhile, Attorney General Eric Holder says he’s sympathetic to the concerns of cord-cutters: that tiny percentage (today) of consumers who want to cancel pay-TV service altogether and get everything over-the-top.
In fact, the country’s top law-enforcement official suggested that he, himself, has cord-cutting inclinations. At a Senate hearing Tuesday, the WSJ reported, Sen. Al Franken said cable bills are “out of control” in arguing that consumers want to watch TV and movies online instead. Holder responded, “I would be one of those consumers,” according to the newspaper.
One would hope the DOJ’s inquiry into usage-based broadband pricing plans from Comcast, AT&T and Time Warner Cable and TV Everywhere isn’t driven by Holder’s personal video-consumption preferences.
It’s worth noting that the FCC explicitly allows broadband providers to employ usage-based pricing models (see Genachowski Strongly Defends Cable’s Usage-Based Pricing and Free Press, Public Knowledge Pan FCC Chair’s Usage-Based Pricing Shout-out).
“[P]rohibiting tiered or usage-based pricing and requiring all subscribers to pay the same amount for broadband service, regardless of the performance or usage of the service, would force lighter end users of the network to subsidize heavier end users,” the commission says in its Open Internet Order. “It would also foreclose practices that may appropriately align incentives to encourage efficient use of networks.”
In any case, Netflix is presumably a “principal mover” for the DoJ probe, given its vociferous complaints about Comcast’s previous policy of exempting VOD on Xbox from its 250-Gigabyte usage cap, Sanford Bernstein analyst Craig Moffett wrote in a research note Wednesday. (For more on this see: Comcast To Shift From Broadband Caps To Usage-Based Pricing, Netflix Packs On 1.7M Streamers In Q1, Gripes About Comcast’s Xbox App, Comcast CTO: VOD To Xbox Goes Over A Dedicated IP Path and Sony Blames Comcast’s Caps For Holding Off On Broadband TV Service.)
But, in Moffett’s analysis, the DOJ investigation would actually accelerate cable and telco operators’ move toward usage-based pricing — which would be worse for the likes of Netflix and other online video providers than caps without overage fees (which was Comcast’s previous policy).
“We believe that the DOJ will conclude that [cable operators] are inarguably within their rights to charge for the use of their facilities for that distribution, regardless of whether they do so by delivering an MPEG-2 stream that is purchased (by them) from Viacom or an IP stream that is purchased (by the customer) from Netflix,” Moffett wrote.
Ultimately usage-based pricing would result in higher effective prices for online video, and therefore reduced demand, according to Moffett: “Be careful what you wish for.”
Programming Note: Don’t miss the fourth annual Multichannel News/B&COnDemand Summit, Wednesday, June 20, in New York City. Scheduled speakers include Comcast’s Matt Strauss, Verizon’s Terry Denson, Rogers’ David Purdy, Charter’s Jeff Bernth, HBO’s Hans Deutmeyer, Cox’s Louise Wasilewski, ActiveVideo’s Cliff Mercer and Music Choice’s Dave Del Beccaro.