Karl Bode is a freelance writer living in New York that has been babbling, jabbering and prattling about technology, politics and culture professionally for more than fifteen years. Follow me on Twitter @KarlBode
We've discussed for years that as an apparatus directly tied to the wallet of the cable and broadcast industry, TV viewing tracking company Nielsen has gladly helped reinforce the cable industry belief that cord cutting was "pure fiction." Once the trend became too obvious to ignore, Nielsen tried to bury cord cutting -- by simply calling it something else in reports. And while Nielsen was busy denying an obvious trend, it was simultaneously failing to track TV viewing on emerging platforms, something the company still hasn't fully incorporated.
We've also been talking about how ESPN has been making the rounds, trying to "change the narrative" surrounding cord cutting to suggest that worries about ESPN's long-term viability in the face of TV evolution have been overblown. Part of that effort this week apparently involved reaching out to Nielsen to demand the company fiddle with its cord cutting numbers, which ESPN then peddled to reporters in the hopes of creating an artificial, rosier tomorrow:
"On Thursday, ESPN reached out to reporters to let them know that cord-cutting isn’t nearly as bad as it sounds, and that the reason is the way Nielsen revised its pay-TV universe estimates. Nielsen (under client pressure) decided to remove broadband-only homes from its sample, but it didn’t restate historical data. It is now showing that, as of December, 1.2 million homes had cut the cord, a much smaller number than its earlier figure of 4.33 million homes for the year."
Isn't that handy! This of course isn't the first time Nielsen has tweaked troubling numbers on demand to appease an industry eager to believe its cash cow will live forever. The irony is that the same industry that's happy to gobble up potentially distorted data is simultaneously deriding Nielsen out of the other corner of its mouth as a company whose data is no longer reliable in the modern streaming video age. In a profile piece examining Nielsen's struggle to adapt, the New York Times (and Nielsen itself) puts the problem rather succinctly:
"Yet Nielsen is established on an inherent conflict that can impede the adoption of new measurement methods. Nielsen is paid hundreds of millions of dollars a year by the television industry that it measures. And that industry, which uses Nielsen’s ratings to sell ads, is known to oppose changes that do not favor it. “People want us to innovate as long as the innovation is to their advantage,” Mr. Hasker said.
Obviously getting a distrusted metric company to fiddle with data even further won't save ESPN. The company's SEC filings still suggest ESPN lost 7 million subscribers in the last few years alone. Some of these subscribers have cut the cord, but others have simply "trimmed" the cord -- signing up for skinny bundles that have started to boot ESPN out of the core TV lineup. Similarly, studies have recently shown that 56% of ESPN users would drop ESPN for an $8 reduction on their cable bill. This sentiment isn't going to magically go away as alternative viewing options increase.
BTIG analyst Rich Greenfield, who funded that survey and has been a thorn in ESPN's side for weeks (for you know, highlighting facts and stuff), had a little advice for ESPN if it's worried about accurate data:
"“If this is an important issue for ESPN, they should start releasing actual subscriber numbers rather than relying on third parties [Nielsen]. If they are upset with the confusion, let’s see the actual number of paying subscribers in the US over five years."
Wall Street's realization that ESPN may not fare well under the new pay TV paradigm at one point caused $22 billion in Disney stock value to simply evaporate. As a result, ESPN executives have addressed these worries in the only way they know how: by massaging statistics and insulting departing subscribers by claiming they were old and unwanted anyway. One gets the sneaking suspicion that's not going to be enough to shelter ESPN from the coming storm.
Despite 2015 being a banner year statistically for cord cutting, you're going to see a renewed surge in cord cutting denial over the next few weeks. Why? Cable companies like Time Warner Cable and Comcast managed to eek out modest gains in pay TV subscribers in the fourth quarter.
Comcast's earnings indicate a net gain of 89,000 pay TV users in Q4, despite seeing a net loss of 36,000 video subscribers for the year. Despite still seeing a net loss, that's the best video performance the company has seen in eight years (which in and of itself speaks volumes). Time Warner Cable's earnings (pdf) note the cable provider added 54,000 TV subscribers in the fourth quarter, while only seeing a net gain of 32,000 TV subscribers for the year. That's the best Time Warner Cable has done since 2006, and it's a stark improvement when each year's subscriber numbers are put in graphical form:
We'll ignore for a second these companies continue to see impressive subscriber and revenue growth thanks to network improvements, despite claiming Title II would destroy the known universe (that's a different blog post). But the fact that these companies finally saw a modest turnaround after years of steep video subscriber losses was quickly used as evidence by the cable industry, some investment websites and a few analysts that cord cutting is "overblown":
And I'll go further. Cord-cutting fears were overblown by a combination of the journalistic echo chamber and analyst self-interest.
Except these gains don't debunk cord cutting. Many of these additions are users that had previously fled to satellite TV and phone providers. For years, cable's subscriber losses were predominately to satellite and telco TV providers, whose set top boxes were notably more innovative (Dish's Hopper, for example). In the last few years Comcast and Time Warner Cable have dramatically bumped broadband speeds and updated their own set top boxes, moves that have won some former defectors back. As a result Verizon FiOS saw its worst video subscriber additions since 2006, while AT&T and DirecTV combined saw a 54,000 broadband user net loss and a net loss of 24,000 TV customers last quarter.
That's lateral subscriber movement between legacy pay TV providers, not evidence that cord cutting isn't real. And there's absolutely nothing in those numbers that suggests the very real trend of cord cutting has been "overblown" as a broader industry phenomenon.
There's another major reason cable companies are once again adding video subscribers: their growing monopoly over broadband markets. There are now hundreds of markets in which AT&T and Verizon (now focused almost solely on more profitable wireless) are actively trying to hang up on unwanted DSL customers via a one-two punch of price hikes and apathy. Those annoyed users are being forced to flee to cable if they want current generation broadband speeds. When those users arrive, companies like Comcast and Time Warner Cable are offering them TV and broadband bundles that are cheaper than what they'd pay for broadband alone in order to boost legacy TV subscriber rolls.
As a result, many of these subscribers may not have even wanted TV, and once the promotional rate expires may decide to simply leave again. That's of course where Comcast hopes that the use of usage caps comes in. The company is now exempting its own streaming service from usage caps in the hopes of preventing TV users from cutting the cord. Should they cut the cord anyway and embrace streaming alternatives, they run face-first into usage caps and overage fees. If cable is forced to compete on price for TV, it will be sure to seek its pound of flesh from your broadband bill.
Cord cutting continues unabated in the background of this tussle, like the drip, drip, drip of a leaking faucet nobody wants to fix. And while pay TV growth remains flat or in decline, it's important to remember the overall population and the housing market continue to grow, without a corresponding uptick in cable subscribers. That's a sign that younger people and many new homeowners simply don't think traditional cable is all that important, and the slow drip of cord cutting will, over time, become something more resembling a torrent as, quite bluntly, legacy TV's older audience dies. Cable can do something about this, but it's going to require seriously competing on price above and beyond short-term, subscriber roll boosting promotions.
While the public successfully forced the FCC to adopt net neutrality rules last year, one glaring omission may be coming back to haunt consumers and the commission alike. The FCC's open Internet rules contain three "bright-line" restrictions: no blocking, no throttling apps or traffic, and no "paid prioritization" of apps or content. Unlike neutrality rules in Japan, The Netherlands, Slovenia, and Chile however, the FCC refused to outright ban zero rating (exempting content from usage caps), instead opting to determine on a "case-by-case basis" if a carrier is violating the "general conduct" portion of the rules.
As we worried last year, this opened the door to ISPs trampling all over net neutrality -- just so long as they were marginally clever about it. And that's exactly what has happened, with AT&T, Verizon, Comcast and T-Mobile all running rough shod over net neutrality with varying degrees of obnoxiousness and success.
T-Mobile is now zero rating all the major music and video services, while throttling every video service that touches its network to 1.5 Mbps by default (and lying about it). AT&T has been charging companies for cap-exempt status for a few years now under its controversial "Sponsored Data" program, which tilts the playing field against smaller competitors and startups that may not be able to afford AT&T's toll. Verizon recently followed suit with "Free Bee" sponsored data, which lets companies pay Verizon to have their app, video, or entire website or service tagged with premiere, cap-exempt status.
In each example, carriers have injected themselves into the middle of the content stream for marketing or direct financial benefit, in the process completely dismantling the level playing field enjoyed by smaller companies, startups and non-profits. These smaller operators may not be able to pay to play, and in some instances won't even realize they're being discriminated against. And because these services are pitched as "free shipping" or "a 1-800 number for data," some consumers are applauding as the open Internet gets dismantled piecemeal, oblivious to the fact that usage caps are arbitrary constructs to begin with.
And while AT&T, Verizon and T-Mobile are at least being marginally subtle about it, Comcast simply declared "fuck it" -- first imposing completely unnecessary usage caps on millions of its broadband customers to hinder Netflix, then making its own streaming video service cap exempt. When pressed, Comcast's bullshit department proudly declared it wasn't violating net neutrality -- because its streaming video service runs entirely over "Comcast's managed network to the home." So yes, as predicted, net neutrality is crumbling under the weight of rule loopholes and immaculately-crafted bullshit.
Wheeler pointed out that the meetings the FCC has been holding with those companies--Comcast, AT&T, T-Mobile and likely Verizon--were at the bureau level, which he said was significant. "I am not at these meetings," he said. "Nobody from the office of the chairman is in these meetings. They're gathering information and we'll see what happens from there."
It's not really clear just how much data the FCC needs to collect. AT&T's Sponsored Data and Comcast's (ab)use of usage caps are obviously problematic, and have been in play for several years. The real problem for the FCC isn't information, it's limited time and shaky legal footing. One, the upcoming elections could result in a President that has no idea what net neutrality is, who immediately sets forth replacing Wheeler and dismantling the net neutrality rules. Two, the FCC is still waiting for the outcome of the mass-industry lawsuits against the rules, which could leave the FCC without a leg to stand on.
I asked Public Knowledge lawyer Harold Feld, who probably spends more time submerged in FCC policy than anyone, what he thought the next course of action would be at an FCC boxed in by the courts and politics. He suggested that the agency might follow the course it set on the interconnection front, which began with a few pointed inquiries and ended with incumbent providers magically ceasing shenanigans for fear of FCC enforcement. Feld posits that something similar could be applied to zero rating, finally letting companies know what is or what isn't acceptable:
The FCC has already gotten 12,000+ complaints about Comcast. It would not be hard to bump them to the top of the list. But Wheeler may not want to start an investigation when he only has a limited time left in office and a future FCC might drop the matter. Instead, Wheeler may push for some kind of Policy Statement or Enforcement Guidance. Something that would provide notice industry wide about what the FCC would consider "red lines" on data caps.
But Wheeler has been very clear that he is not promising to do anything but check under the hood. I certainly would not expect the FCC to do anything until the D.C. Circuit decides -- especially in light of the possibility that the FCC could win on wireline and lose on wireless. If the D.C. Circuit decides in the late spring or early summer, that will not leave much time for the FCC to take any kind of official action.
In other words? If you're expecting any hard enforcement from the FCC when it comes to caps or zero rating, you shouldn't hold your breath. The agency is currently boxed in by both lawsuits and the upcoming election, but had already made it clear it thinks zero rating and usage caps are just "creative pricing." Should the rules remain fully intact post lawsuit and election, political pressure might force the FCC to take action against Comcast's less-than-subtle abuse of usage caps, but things aren't looking good if you're part of the vast minority that realizes the horrible precedent zero rating represents.
We've discussed for years now how Hulu is hamstrung by the fact that it's owned by the traditional cable and broadcast industry. Owners 21st Century Fox, Disney and Comcast/NBC have gone out of their way to ensure the service is never too disruptive -- lest it hurt the traditional cable cash cow. And that's been the cable industry's mantra for years now -- crow ceaselessly about how you're "innovating," while simultaneously trying not to innovate too much, lest your customers realize your legacy TV service is absurdly expensive, inflexible, and outdated.
As the industry has slowly realized that it can no longer just pretend cord cutting doesn't exist -- things have improved slightly, with Hulu making a renewed effort to invest in original programming and dramatically broadening its content catalog to better compete with Amazon and Netflix. The company has also listened to consumer complaints and now offers an ad free version -- while placing fewer ads in the ad supported option. Hulu is also attracting new investors, with reports that Time Warner is looking to give a $2 billion cash infusion in exchange for a 25% stake.
But while Time Warner isn't making it a condition of the deal, the company is making it clear that it would like to see Hulu pull current seasons of shows in a misguided belief that it can turn back time:
"Time Warner believes that the presence of full, current seasons on Hulu—or anywhere else outside the bounds of pay-TV—is harmful to its owners because it contributes to people dropping their pay-TV subscriptions, or "cutting the cord." In the discussions about taking a 25% equity stake in Hulu, Time Warner has told the site's owners that it ultimately wants episodes from current seasons off the service, at least in their existing form, although that is not a condition for its investment, according to the people familiar with the discussions.
The problem is that Time Warner would join Comcast in sharing the delusion that you can be both simultaneously disruptive and innovative on the streaming side, while still magically preventing traditional cable customers from noticing and cutting the cord. Comcast was barred from meddling in matters of Hulu management as a condition of its acquisition of NBC, but it's a condition Comcast largely ignored. It's also a seven year condition that will expire shortly after Time Warner seals its new ownership stake, meaning a double dose of myopic, backward-looking leadership at Hulu at precisely the wrong time.
Though many in the insular cable industry ecosystem like to pretend otherwise, it's simply no longer a debate: consumers are increasingly cutting the cord and migrating to cheaper, more flexible viewing options. Traditional TV customers get 194 channels, but they only watch, on average, about 17 of them. 16% of consumers cut the cord last year, while 23% of consumers engaged in "cord-trimming" (reducing their overall cable package) in some way. 57% of those asked, unsurprisingly, say that price is the biggest reason they're looking to shake things up.
It's not an enviable position for the traditional TV industry to be in. To seriously combat cord cutting, it needs to offer a more flexible product at a lower cost -- something that (with a few "skinny bundle" exceptions) it absolutely refuses to do. What we get instead is turf protection (broadband usage caps), a boat load of denial and failed "me too" services like Comcast Streampix that, thanks to fear of cannibalizing the legacy cash cow, are neither here nor there. The problem is, if Hulu isn't willing to offer what consumers want, Netflix, Amazon, or some other company certainly will.
Last week, we noted that the FCC has proposed new guidelines that would bring some much-needed competition to the cable TV set top box market. Data shows that 99% of consumers pay something on average to $230 a year in set top box rental fees, despite much of this dated hardware being worth little to nothing. Collectively, the cable industry pulls in around $20 billion annually in set top box rental fees, which are fairly consistently increased once or twice a year. Unsurprisingly, whenever the FCC has tried to do something about this proprietary, captive market, the industry becomes downright hysterical.
That was exemplified last week when the FCC simply proposed requiring cable operators deliver programming data to third-party hardware using any accepted standard they choose. Cable operators can still provide the traditional set top box (and consumers can still rent them), the industry would simply suddenly face competition for what's been captive income. But with $20 billion in annual revenues at risk, the industry quickly got to work trying to argue that the FCC's plan would demolish the very fabric or time/space and result in no limit of untold harm to consumers.
Despite the reality that most cable boxes (and many executives) are outdated relics of a dying era, the cable industry stuck to one central theme last week: the FCC's plan is "big tech's" attempt to thwart all of the amazing innovation occurring in the cable industry. A "diverse" group of cable companies and broadcasters calling itself the "Future of TV" coalition quickly launched to deride the FCC's "attack on innovation," with one press release circulated by the group going so far as to suggest that Google has been holding secret meetings at the FCC that undermine the cable industry's relentless thirst for...diversity:
"...Secrecy and subterfuge shouldn’t be tolerated and professional staffers who know the ropes and are unlikely to be swayed by a flashy demo and a Golden Ticket. The AllVid scheme being flogged by Google and the FCC is unfair and destructive to values held far too dearly on Capitol Hill – undermining free market competition and putting a government thumb on the scale for powerful incumbents like Google, and making it harder for those serving communities of color and providing diverse and independent programming to make the video ecosystem work.
There's no secret cabal in the fact that Google, Apple, Roku, TiVo and countless other companies have lobbied for years for an open cable set top box market. But the cable industry has lobbied ferociously to dismantle any attempt to bring this goal to fruition (including CableCARD). So to mock Google for "secretly" lobbying for broader competition is both strange and hilarious. The argument that more robust set top box competition will somehow hurt diversity is equally absurd (more choice and lower product cost is good for diversity), yet it seems to pop up all over the Internet in mysteriously placed editorials.
But credit the cable industry for one thing, it knows how to rally around a central message, even if that message is absolute bullshit.
The central theme of this blog post by the industry's biggest lobbying organization (the NCTA) was cable's amazing knack for innovation:
"We see these innovations almost daily, which is why it’s so strange that government feels compelled to insert itself in the mix in order to do Big Tech’s bidding. By forcing new government mandates on network providers and content creators, the FCC may intend to reward Google handsomely, but in the process it will ignore contractual freedoms, weaken content diversity and security, undermine important consumer protections like privacy, and stall the creative and technical innovation that is driving positive changes in today’s TV marketplace.
Likewise, a blog post by Comcast largely involves the company patting itself on the back for being incredibly, awesomely innovative:
"Comcast is responding with our innovative X1 platform, and enabling access on a growing array of devices. Like other traditional TV distributors, online video distributors, networks, and sports leagues, Comcast is using apps to deliver its Xfinity service to popular customer-owned retail devices. These apps are wildly popular with consumers. Comcast customers alone have downloaded our apps more than 20 million times. This apps revolution is rapidly proliferating, and we are working with others in the industry and standards-setting bodies to expand apps to reach even more devices.
Given these exciting, pro-consumer marketplace developments, it is perplexing that the FCC is now considering a proposal that would impose new government technology mandates on satellite and cable TV providers with the purported goal of promoting device options for consumers.
Oooh, step back FCC, Comcast is developing apps! The problem is, and the insular cable industry forgets this constantly, that absolutely nobody likes or believes the cable industry outside of the cable industry. Cable providers continue to have the worst customer satisfaction and support ratings of any U.S. industry or government agency (no small feat). So when "big cable" breathlessly insists it's just trying to protect its monopoly over cable set top hardware to the benefit of minorities and puppies, it's unclear who the hell would be daft enough to actually take them seriously.
Here's the thing: if the cable industry's existing set top box systems are as "innovative" as the industry claims, surely competition will bear that out? When faced with a myriad of new hardware options, customers will clearly want to continue paying Comcast a significant amount of money for a traditional cable box, right? If the cable industry is half as adaptive as it claimed last week, surely this sudden influx of competition will be like a gnat at the ear of a god of innovation. Unless of course this prattling on about innovation is just the insecure braying of an industry absolutely terrified by the foreign specter of real competition?
Apparently the millions Facebook has been spending on advertisements, lobbying, marketing and spamming the Indian government will be for naught. The Telecom Regulatory Authority of India (TRAI) appears poised to ban the practice of zero rating as part of its new net neutrality rules, effectively killing Facebook's controversial Free Basics zero rating program once and for all in the country. According to the Times of India, TRAI is expected to deliver the death blow to Facebook's world-domination ambitions within a week:
"Trai will issue an order to this effect within a week, top sources told TOI. The order is also expected to bar free or subsidised data packages that offer access to only a select services, such as Facebook, Twitter or WhatsApp messenger. "These are discriminatory and are against the concept of digital democracy. We will not allow them," a source said. The regulator's stand will clear the confusion over net neutrality. There were apprehensions over the manner in which free Internet was being offered, after the introduction of some zero-rated platforms with preferential treatment to a few websites for a fee."
India would join Japan, The Netherlands, Chile and Slovenia in banning zero rating entirely, based on the idea that cap exemption gives some companies a leg up, and unfairly distorts the inherently level Internet playing field.
That's something the FCC refused to do here in the States, and as a result we're witnessing telecom carriers rushing toward who can be the most "innovative" in the zero rating space. AT&T and Verizon are now formally charging companies for premium, cap-exempt status, T-Mobile is throttling every shred of video that touches its network to 1.5 Mbps (and lying about it), and Comcast is now exempting its own streaming video service from usage caps, much to the chagrin of smaller streaming competitors. So far, the FCC's response has been to nod dumbly.
In India, Facebook (lead by former FCC boss and neutrality waffler Kevin Martin), has been engaged in a blistering media and lobbying campaign to convince India that a curated walled garden run by Facebook was a great way to help the nation's poor farmers. Indian activists and critics like Mozilla disagreed, arguing that the company was simply hiding its lust to control emerging ad markets under the banner of altruism, and if Facebook really wanted to help India's poor, it should focus on improving the country's actual Internet infrastructure.
Facebook's initial response was to call critics of the company's program extremists who were hurting the poor (despite many of the critics being local Indian activists who've dedicated a lifetime to that task). When that didn't work, Facebook changed the name of the program, and filled local newspapers with full-page editorials by CEO Mark Zuckerberg declaring the company's sole interest was poor farmers, not cornering developing ad markets. When people didn't buy that, Facebook tried tricking its users (including those in the U.S. and UK) into spamming the Indian government.
It appears to be that last effort that may have pushed TRAI over the edge (you can read TRAI politely trying to ask Facebook (pdf) to prove the 11 million bogus supporters of Free Basics actually exist). Assuming TRAI follows through on reports, Facebook's now forced to do what many critics wanted all along: actually put all of the money spent on lobbying and marketing Free Basics -- into actually helping shore up India's lagging telecom infrastructure.
You'll of course recall that Aereo founder Chaitanya Kanojia's attempt to disrupt the TV industry ran face-first into an army of broadcaster lawyers and a notably ugly ruling by the Supreme Court. Undaunted, Kanojia has returned with a new plan to try and disrupt the frequently pricey wireless broadband industry. Kanojia's trying to do this via a new startup named "Starry," unveiled at a launch event this week in New York. Starry is promising to offer users uncapped, gigabit speeds at prices less than most people pay their incumbent broadband provider.
Kanojia claims that the service will deliver this ultra-fast connectivity via what it's calling the country's "first millimeter active phased array technology." FCC documents suggest that Starry will utilize spectrum in the 38 GHz band to deliver broadband to urban areas via hundreds of rooftop nodes scattered around the city. Users are given both a "Starry Point" antenna that sits outside their window, and need to buy a fancy $350 router called a "Starry Station" to connect to their various Wi-Fi devices. Kanojia tells TechCrunch that the technology will only cost around $25 per home to deploy:
"It costs the cable guys around $2,500 per home to deal with the construction costs of laying down cable,” said Kanojia on a phone call, setting the scene for his next big unveil. “And beyond cost, there are regulatory hurdles that slow down the process. We can deliver faster broadband with no regulatory wait time and it will cost us only $25 per home.” Kanojia won’t disclose pricing but says that the service will offer various tiers based on speed (up to 1GB up and down) and that it will be “orders of magnitude cheaper” than current broadband providers like Comcast and Time Warner Cable."
The catch? One, nobody really knows specifically how well Starry's phased array technology is going to work (especially in regards to line of sight), and Starry isn't offering much hard technical detail right now beyond a YouTube video. If it does work, millimeter wave technology will still require the deployment of hundreds if not thousands of nodes across a city, distance limitations restricting its use to only denser urban areas. The broadband landscape is littered with the corpses of thousands of urban WISPs, which still rely on incumbent bandwidth, and still require slow, cumbersome deployment of a sizable amount of gear.
And while real-world disruption of national incumbents will probably be minimal, it's still refreshing and absolutely necessary to see somebody try (and fortunately there's spectrum available to try with). According to Starry, users can pre-order the self-install kits at the Starry website, after which they'll be made available at Amazon and other retailers. The service will launch first in Boston in March. Variety got wind of the fact that around fifteen cities should be unveiled as launch markets sometime this year, including Los Angeles, San Francisco, Detroit, Washington D.C., Seattle and Denver.
And while nobody actually knows whether Starry will really work, with no real regulatory or legal hurdles in its path,
Kanojia's latest attempt at disruption -- at the very least -- shouldn't wind up face down and unconscious at the Supreme Court.
The FCC has formally declared war on the outdated, over-priced traditional cable box. The agency has put forth a new proposal (pdf) for guidelines intended to bring much-needed competition to the cable set top box market. As recently noted, data collected from the top ten biggest cable companies found that 99% of cable customers still rent a cable box, paying $231 in fees annually for often-outdated hardware that's frequently worth very little. This cozy little captive market nets the cable industry roughly $20 billion in rental fees every year.
"Decades ago, if you wanted to have a landline in your home, you had to lease your phone from Ma Bell. There was little choice in telephones, and prices were high. The FCC unlocked competition and empowered consumers with a simple but powerful rule: Consumers could connect the telephones and modems of their choice to the telephone network. Competition and game-changing innovation followed, from lower-priced phones to answering machines to technology that is the foundation of the Internet."
The FCC wants to design a software-based solution that lets consumers access cable content via the hardware of their choice. Hardware that, thanks to competition, would be better, cheaper and faster than the clunky old cable boxes we all know and love. The FCC's careful to state it's not mandating a specific standard by which cable operators have to provide programming data to these devices, stating they simply need to adhere to "any published, transparent format that conforms to specifications set by an independent, open standards body."
This isn't the FCC's first attempt to force competition on the set top box market. CableCARD was the agency's earlier, ineffective attempt to mandate a standardized card for use in third-party set tops. CableCARD regulations were well-intentioned but cumbersome, and frequently left unenforced. The cable industry also went out of its way to avoid pitching the cards to consumers, and often made the installation process as cumbersome and nightmarish as possible. When meager CableCARD stats were released annually, the cable industry would then collectively shrug and insist low adoption reflected a genuine lack of interest in the idea of better third-party devices.
With $20 billion in set top box revenues on the line, the cable industry has spent the better part of a decade fighting tooth and nail to kill this FCC proposal and anything like it. Opponents including AT&T, the MPAA, and the cable industry's biggest lobbying organization today formed what they're calling the "Future of TV Coalition," which argued in a release that greater set top box competition will kill diversity programming, hurt consumer privacy, embolden pirates, and generally just destroy the known universe:
"Many parties, including 30 members of the Congressional Black Caucus, have warned this would unravel the modern TV ecosystem, doing particular damage to small, independent, and diverse programmers and the communities they serve. AllVid would also undermine vital privacy and other consumer protections that apply to pay-TV providers but not the tech firms advocating adoption of AllVid. And it would erode protections against video piracy, rendering programming less secure."
Of course that's bullshit, and what the industry's really afraid of is seeing a cornerstone of its uncompetitive walled-garden empire demolished by real competition. Granted it's worth noting that the FCC's proposal doesn't prevent customers from keeping their existing cable boxes, nor does it stop cable providers from providing them. In other words, if the cable industry wants to retain customers on its systems, all it has to do is innovate and compete.
All of that said, you can't begrudge those who look at the CableCARD fracas of the last decade and legitimately wonder whether the FCC has the chops to actually implement and enforce such guidelines with an election (and potential FCC shuffle) looming. It's also worth asking if another multi-year enforcement fight is worth it with the cable industry on a collision course with Internet video and irrelevance anyway. Whatever happens, it's at the very least amusing to see a former cable lobbyist nobody expected much from plunge a dagger into one of the cable industry's largest and most sacred cash cows.
Back when the Nest thermostat was announced in 2011, it was met with waves of gushing adoration from an utterly uncritical technology press. Much of that gushing was certainly warranted; Nest was founded by Tony Fadell and Matt Rogers, both former Apple engineers, who indisputably designed an absolutely gorgeous device after decades of treating the thermostat as an afterthought. But the company also leaned heavily on the same media acupressure techniques Apple historically relies on to generate a sound wall of hype potentially untethered from real life.
Courtesy of marketing and design, Nest slowly but surely became the poster child for the connected home. Over the last year or so however things have changed, and while now Alphabet-owned Nest remains an internet of things darling, the unintended timbre of the message being sent is decidedly different. For example, Nick Bilton recently wrote a piece in the New York Times noting how a glitch in the second generation of the supposedly "smart" product drained the device battery, resulting in numerous customers being unable to heat their homes just as a cold snap hit the country:
"The Nest Learning Thermostat is dead to me, literally. Last week, my once-beloved “smart” thermostat suffered from a mysterious software bug that drained its battery and sent our home into a chill in the middle of the night. Although I had set the thermostat to 70 degrees overnight, my wife and I were woken by a crying baby at 4 a.m. The thermometer in his room read 64 degrees, and the Nest was off."
Again, that's the poster child of the so-called "smart" device revolution failing utterly to complete a task thermostats have been successfully accomplishing for a generation. Other tech reporters like Stacey Higginbotham reported the exact opposite. As in, her Nest device began trying to cook her family in the middle of the night, something Nest first tried to blame on her smart garage door opener, then tried to blame on her Jawbone fitness tracker (Nest never did seem to pinpoint the cause). Her report suggests that an overall culture of "arrogance" at Nest shockingly isn't helping pinpoint and resolve bugs:
"One Nest partner, who declined to be named to preserve his business relationship with the company, said that Nest being quick with the blame didn’t surprise him, citing a culture of arrogance at the company. When something went wrong during integration testing between his device and Nest’s, problems were first blamed on his servers and team."
And fast-forward to last week, when researchers putting various internet of thing devices through tests found that the Nest thermostat was one of many IOT devices happily leaking subscriber location data in cleartext (with Nest, it's only the zip code, something the company quickly fixed in a patch). Granted Nest's not alone in being an inadvertent advertisement for a product's "dumb" alternatives. In 2016, smart tea kettles, refrigerators, televisions and automobiles are all busy leaking your private information and exposing you to malicious intrusion (or worse).
It's a fascinating, in-progress lesson about how our lust for the sexy ideal of the connected home appears to be taking a brief pit stop in reality, where sexy doesn't matter if the underlying product, person or device remains inherently dysfunctional. As a result, dumb and ugly technology is poised to make a dramatic comeback.
So it was a little bit amusing last week when AT&T CEO Randall Stephenson thought it would be a good idea to chime in on the encryption debate. In a back-rubbing, feel good interview with the Wall Street Journal, Stephenson had the stones to actually suggest the company's unprecedented, disturbing ties to the NSA were all but fantasy:
"The AT&T chief said his own company has been unfairly singled out in the debate over access to data. “It is silliness to say there’s some kind of conspiracy between the U.S. government and AT&T,” he said, adding that the company turns over information only when accompanied by a warrant or court order."
Omitted of course is that for much of the last fifteen years AT&T did nothing of the sort, working in tandem with the NSA, FBI, and every other government agency to hoover up U.S. citizen data with minimal oversight and virtually no regard for the law. When busted, AT&T had enough political power to get the government to give its telco partners retroactive immunity. To brush this documented and disturbing history aside like cracker crumbs in bed gives you a pretty good idea of Stephenson's hubris. It also shows you what the CEO has learned after fifteen years of unprecedented scandal.
Stephenson then apparently thought it would be a good idea to start giving lectures to companies that actually give a shit about the privacy of their customers. According to Stephenson, companies like Apple and Google shouldn't be embracing encryption, because that's something that should only be acted on by our stalwart representatives in Congress:
"I don’t think it is Silicon Valley’s decision to make about whether encryption is the right thing to do. I understand Tim Cook’s decision, but I don’t think it’s his decision to make,” Mr. Stephenson said...“I personally think that this is an issue that should be decided by the American people and Congress, not by companies,” Mr. Stephenson said.
Of course Stephenson's intentionally ignoring the fact that companies like Apple and Google are now rushing to embrace encryption because that's what consumers want. Much like AT&T did with net neutrality, it's also urging that the issue be left to Congress, because it knows Congress is either too cash-compromised or incompetent to do the right thing. For some time, it hasn't been entirely clear where AT&T as a company ends and the nation's intelligence services begin, so giving any advice on "the right thing to do" in regards to surveillance and privacy is utterly adorable.
AT&T certainly has ample credibility, just not on the encryption front. AT&T's the company you go to if you want advice on how to, say, defraud programs designed to help the hearing impaired or low income Americans. AT&T's the company you go to when you want advice on how to rip off consumers with fraudulent services. AT&T's also the foremost authority on effectively buying state legislatures and convincing them to write abysmal, protectionist laws to demolish competitive threats. But advice on the "right thing to do" when it comes to encryption? Thanks, we'll pass.
Just about a year ago, the FCC voted to raise the base definition of broadband from 4 Mbps downstream, 1 Mbps upstream -- to 25 Mbps downstream, 3 Mbps upstream. This, of course, annoyed the nation's mega providers, since the higher standard highlights the lack of competition and next-generation upgrades in countless markets. It especially annoyed the nation's phone companies, given that the expensive, sub-6 Mbps DSL foisted upon millions of customers can no longer even technically be called broadband.
Fast forward a year and the broadband providers' favorite politicians in the House are still whining about the improved definition. In a letter sent to the FCC last week (pdf), the six senators complained that the FCC is on a mad power grab, using a crazy and arbitrary new definition to saddle broadband providers with all manner of onerous regulations. Besides, argued the six Senators, 25 Mbps is more than any American consumer could ever possibly need:
"Looking at the market for broadband applications, we are aware of few applications that require download speeds of 25 Mbps. Netflix, for example, recommends a download speed of 5 Mbps to receive high-definition streaming video, and Amazon recommends a speed of 3.5 Mbps. In addition, according to the FCC's own data, the majority of Americans who can purchase 25 Mbps choose not to."
Focusing on the fact that a single Netflix stream eats just 3.5 to 5 Mbps ignores the fact that broadband connections serve an entire house of hungry users, many of whom will be gobbling significantly more bandwidth using any number of services and connected devices. It's also worth pointing out that a single Netflix Ultra HD stream can eat 25 Mbps all by itself. And on the upstream side of the equation, the FCC's definition of 3 Mbps remains relatively last-generation and arguably pathetic. Similarly, many consumers may not buy 25 Mbps because the lack of competition can result in high prices for faster tiers.
In other words, claiming 25 Mbps is some kind of "arbitrary," pie-in-the-sky standard is absurd.
Of course, the Senators don't really care about technical specifics, they're just blindly echoing the broadband industry's annoyance that the FCC is now actually highlighting the lack of broadband competition in the market. They're specifically bothered by this recent FCC study, which notes that two-thirds of U.S. households lack the choice of more than one ISP at speeds of 25 Mbps or greater. Companies like AT&T and Verizon also don't like how this data highlights the fact they're giving up on rural America and many second- and third-tier cities, freezing broadband deployments and in some cases even refusing to repair aging infrastructure.
And while it's certainly true the higher standard helps prop up the FCC's Congressional mandate to ensure quality broadband is deployed in a "reasonable and timely" basis (and by proxy its Title II reclassification), a lot of the FCC's efforts have quietly involved eliminating regulation, ranging from streamlining tower placement and pole attachment regulations, to eliminating the kind of awful state level protectionist laws that keep municipal and public/private broadband networks from taking root in incumbent duopolist territories.
At the end of the day, incumbent providers and the politicians who love them are simply annoyed that the FCC has any standards whatsoever, since that makes it immeasurably harder to pretend that the nation's broadband competition and connectivity issues don't exist.
If you're a cable customer you've probably been met with at least one cable retrans blackout. It's what happens when broadcasters and cable operators can't behave like adults and agree on rates for a new programming contract, so instead decide that whining and punishing paying customers is the best course of action. The feuds usually involve months of public bickering, public announcements, ads and on-screen tickers declaring that the other guy is the villain, then blacked out content for paying customers, who almost never see refunds for the inconvenience.
These disputes usually end with both sides agreeing to a new confidential contract, with those costs then passed on to the consumer. Rinse, wash, and repeat.
Despite 2015 being the year that cord cutting and Internet video finally started to make some real headway (with the launch of Sling TV, HBO Now, and an increasing array of original programming from the likes of Netflix), the legacy pay TV industry continued to bicker like children. In fact, an analysis by the Wall Street Journal showed more retrans blackouts than ever before last year, and 2016 is already looking to likely break that record:
"Television viewers around the country endured a record 193 blackouts in 2015, up from 94 the previous year and eight in 2010, due to an intensifying battle between cable companies and the broadcasters who provide a key part of their programming. Already so far in 2016, at least 13 new blackouts have occurred in markets from Tucson, Ariz., and Tulsa, Okla., to Lexington, Ky., and Lafayette, La., according to pay-TV carriers and their allies."
The cable and broadcast industry is caught in a death spiral it can't seem to escape. Programmers demand more money for the same content, and the biggest cable operators ultimately agree, passing on those costs to the consumer (though not innocently taking every opportunity to tack on some hikes of their own). Smaller cable operators have started finding that the profit margins are just getting too tight, so they've considered getting out of the TV business entirely. Customers, meanwhile, tired of what's often bi-annual price hikes for huge bundles of unwatched content, increasingly look to other options.
Here's what this kind of unsustainability looks like in graphic form:
One of the problems here is that customers (many of them older and frightened by Internet video) are losing access to content they're paying for, and very rarely do they see refunds. Regulators have paid some lip service to this being idiotic, but have so far kept a hands-off attitude to what's treated as run of the mill business disputes. And that hands-off attitude may be the right approach longer term; these feuds are simply a cooperative game of seppuku, and the industry remains collectively oblivious that it's expediting the death of the very cash cow it's bickering over.
Last week, NBC executive Alan Wurtzel boldly claimed that Netflix and YouTube weren't threats to traditional cable. His only evidence? Data purchased from a company named Symphony that guesstimates Netflix's closely guarded viewership numbers. That data actually showed Netflix's viewership numbers for its original series are impressive, but found that viewership wanes a little once users get done binge watching. That's it. The data didn't really support Wurtzel's claim that Netflix doesn't pose a threat to traditional cable, NBC was just boasting that it had figured out Netflix's viewership tallies.
Symphony was born out of the well-documented failures by Nielsen to track consumer viewing on new platforms, and not only tracks every viewing habit of some 15,000 Netflix customers, but also uses GPS data to track where these customers are viewing the content. It's a welcome improvement for an industry that spent the last decade paying for data that only told it what it wanted to hear: namely that cord cutting and Internet video weren't a serious threat.
And while trying to understand your competitors makes sense, it's hysterical how Netflix's hidden viewership numbers seem to drive traditional broadcasters absolutely crazy. You'll recall that CBS threw a similar hissy fit last year, clearly upset that Netflix doesn't have to adhere to traditional ratings metrics because it's not an ad-supported legacy service.
"Given what is really remarkably inaccurate data, I hope they didn't spend any money on it," he said of the numbers. "There's a couple mysteries at play for me. Why would NBC use their lunch slot to talk about our ratings? Maybe because it's more fun than talking about NBC ratings. … The methodology doesn't reflect any sense of reality we keep track of."
But then Sarandos went on to make what's probably the biggest point (and one CBS and NBC clearly don't understand): the existing ratings measurement system doesn't matter when you're not reliant on traditional advertising.
"I can't even tell you how many 18-49 users we have … we don't track them," he said. "Those sample sets don't give you a lot of information when people are watching thousands of shows [on Netflix] around the world. Somewhere in the world, every second of every day, someone is pressing start on a Netflix original. … There is not an apples to apples comparison to Netflix watching and any Nielsen rating."
Sarandos noted that the specific numbers — Wurtzel had 4.8 million adults 18-49 watching Jessica Jones, followed by Master of None (3.9 million adults 18-49) and Narcos (3.2 million adults 18-49) — wouldn't even be relevant to his business if they were true. "The ratings themselves have no specific impact on the business," he added. "If we were spending a lot of money on shows people weren't watching, they will quit. People are finding value in how we're spending our content dollars … if they're watching today, tomorrow or seven days from now."
As for NBC's claim that binge watchers always return to watching TV in the "way god intended," Netflix noted in its quarterly letter to shareholders (pdf) that "our investors are not as sure of God's intentions for TV, and instead think that Internet TV is a fundamentally better entertainment experience that will gain share for many years." Obviously the histrionics by broadcast executives surrounding Netflix obfuscating its viewership numbers originate in jealousy; jealously that Netflix gets to operate under a new paradigm where traditional ratings are less important, while legacy sector executives have to stare at charts like this one:
The collapse of broadcast TV ratings. How close to zero before we stop talking about "broadcast", "TV" & "ratings"? pic.twitter.com/4IWnkNAe1J
And while it's great that the traditional cable and broadcast industry is finally cooking up viewer measurement systems that challenge its long-held delusions about cable's infallibility, the petty sniping at Netflix really isn't all that flattering and isn't going to help them compete anytime soon.
Have we mentioned lately that when it comes to the so-called "internet of things," security is an afterthought? Whether it's your automobile, your refrigerator or your tea kettle, so-called "smart" internet of things devices are consistently and alarmingly showing that they're anything but. If these devices aren't busy giving intruders access to your networks and passwords, they're often making life more difficult than so-called dumb devices. Last week, for example, the popular Nest smart thermostat simply stopped working after a software update, resulting in thousands of customers being unable to heat their homes.
Now yet another security problem has been revealed in The Ring smart video doorbell, which lets you see who's at your front door via a smartphone app. According to a blog post by Pen Test partners, all an intruder needs to do is to remove two screws, press a big orange reset button, and they're able to access the configuration URL for the entire system, which can be chained with other devices including door locks and home security cameras:
"If the URL /gainspan/system/config/network is requested from the web server running on the Gainspan unit, the wireless configuration is returned including the configured SSID and PSK in cleartext.
The doorbell is only secured to its back plate by two standard screws. This means that it is possible for an attacker to gain access to the homeowner’s wireless network by unscrewing the Ring, pressing the setup button and accessing the configuration URL.
As it is just a simple URL this can be performed quite easily from a mobile device such as a phone and could be performed without any visible form of tampering to the unit."
In short, your smart doorbell could potentially make you immeasurably less secure, without any visible signs of tampering to the outside unit. This is, the researchers have warned in a previous post, similar to a vulnerability common in a popular smart bathroom scale, which can be easily tricked into sharing a user's WPA-PSK. Fortunately the company behind the smart doorbell tells the research firm that they quickly issued a firmware patch for the problem, though obviously not all vulnerabilities get fixed this quickly, and it's one more example of "smart" technology being a great advertisement for more traditional, dumb devices.
And despite notable experience with security issues, broadband ISPs that have been eager to jump into the smart home arena aren't having much more luck. A flaw was recently exposed in Comcast's Xfinity home security and automation service, allowing a hacker to trick the system into reporting an "all clear" state by jamming the 2.4 GHz radio used by the service. The security service would then report that everything was fine for up to three hours, and once communication was re-established with the service base station, the system never informed the user there was a problem. So smart!
And the end of the day, if you're interested in a smarter, more secure home, you may want to consider a dog.
About once a week now you'll see a legacy broadcast executive take to the media to try and "change the narrative" surrounding cord cutting. Usually this involves claiming that things are nowhere near as bad as the data clearly shows, with a little bit of whining about an unfair media for good measure. ESPN, which has lost 7 million subscribers in the last two years, has been particularly busy on this front. The broadcast giant has been trying to argue that cord cutting worries (which caused Disney stock to lose $22 billion in value in just two days) are simply part of some kind of overblown, mass hallucination.
Speaking to the Wall Street Journal (registration required), ESPN President John Skipper "plays offense on cord cutting" by effectively denying that ESPN is even in trouble. He starts by proudly insisting that the huge losses in subscribers weren't a surprise to the company:
"We stayed pretty calm. [The loss of subscribers] didn’t come as a bolt out of the blue to us. We had been thinking about this. We had a big town hall meeting in December. We had a priorities meeting earlier where we gathered everybody together to try to ground ourselves in our business."
Right, except that former ESPN employees have said ESPN execs weren't even talking about cord cutting as a threat until 2015. The company was also spending hand over fist (like a $125 million update for the SportsCenter set), suggesting they didn't really see the subscriber dip coming. After pretending that cord cutting didn't catch ESPN by surprise, Skipper proceeds to admit that "cord trimmers" (people scaling back their TV packages) are a big reason for the subscriber hit, but that the losses aren't all that big of a deal because the departing customers are old and poor:
"People trading down to lighter cable packages. That impact hasn't leaked into ad revenue, nor has it leaked into ratings. The people who’ve traded down have tended to not be sports fans, and have tended to be older and less affluent. We still see people coming into pay TV. It remains the widest spread household service in the country after heat and electricity."
This narrative that cord cutters and cord trimmers are old, poor, and otherwise of no interest is a popular one among cord cutting denialists, but data consistently shows it's simply not true. Cord cutters and cord trimmers tend to be young, affluent consumers who are just tired as hell of paying an arm and a leg for channels they don't watch. And, if recent surveys are any indication, there are a lot of users who don't watch ESPN and are tired of paying for it. In short, most of the data suggests that ESPN has a lot more subscriber defections headed its way with the rise of so-called skinny bundles (an idea ESPN has sued to stop).
When asked what ESPN plans to do to attack the cord cutting trend, you'll note that Skipper's first instinct is to deny that the legacy cable industry really has all that much to worry about:
"We are still engaged in the most successful business model in the history of media, and see no reason to abandon it. We’re going to be delivering our content through the traditional cable bundle, through a lighter bundle, through Dish’s Sling TV, through new over-the-top distributors, and through some content that is direct-to-consumer."
When pressed for what "direct to consumer" services ESPN plans to offer, Skipper can only provide one example: the company's brief experimentation with streaming the Cricket World Cup. That's because ESPN's contracts with cable companies state that if the company actually evolves and offers a direct streaming service, cable companies are allowed to break ESPN out of the core cable lineup. That means more skinny bundles than ever, and an acceleration of ESPN's problems. So, like a child in the dark, ESPN has decided to hide under the covers and pretend the monster under the bed isn't real.
There's no doubt that Disney and ESPN will eventually figure things out and balance the need for innovation with their desire to protect their existing businesses, but it's pretty clear from public comments and past decisions that it's going to be an ugly transition. That transition would be so much less ugly for many legacy broadcast companies if they spent a little less time trying to "correct narratives" telling them truths they don't want to hear -- and a little more time preparing to compete with the internet video revolution.
Last year, you might recall that Netflix took some heat for striking zero rating deals with Australian ISPs, exempting Netflix content from broadband usage caps. Australia was a relatively unique scenario in that the cost of transit is so high, most big content services had struck similar deals, and Netflix didn't want to put itself at a disadvantage in the newly launched Australian market by stubbornly holding on to neutrality principles. Still, it's worth recalling what Netflix said after a few weeks of criticism:
"Data caps inhibit Internet innovation and are bad for consumers. In Australia, we recently sought to protect our new members from data caps by participating in ISP programs that, while common in Australia, effectively condone discrimination among video services (some capped, some not). We should have avoided that and will avoid it going forward. Fortunately, most fixed-line ISPs are raising or eliminating data caps in line with our belief that ISPs should provide great video for all services in a market and let consumers do the choosing."
"Zero rating isn't great for consumers as it has the potential to distort consumer choice in favor of choices selected by an ISP."
Fast forward to 2016, and Netflix is suddenly throwing its support behind T-Mobile and its controversial Binge On zero rating program. Speaking on the company's earnings call this week, Netflix CEO Reed Hastings praised Binge On, which throttles every shred of video that touches the T-Mobile network to 1.5 Mbps, whether or not consumers or content partners asked it to. According to Hastings, he's thrilled about the program because it has driven more usage to Netflix:
"It’s voluntary to the customer. Every customer of T-Mobile can decide to turn it on or turn it off," Hastings explained on an earnings call today. "They’re not charging any of the providers. It’s an open program. Many of our competitors such as Hulu and HBO are in the program also." Netflix may be more inclined to defend this program because the company benefits from it: Hastings says that Netflix is seeing more viewership from T-Mobile customers — no surprise since it makes "unlimited video consumption possible." Hastings added that he hopes these kinds of programs expand further."
But as the EFF has pointed out, the fact that users can opt out is irrelevant. T-Mobile's been throttling every shred of video that touches its network to 1.5 Mbps (streamed or direct downloaded) by default, and then lying about it. Critics like YouTube and the EFF have, quite correctly, pointed out that such a program should be opt-in, for both consumers and content partners. The other problem is simply one of precedent; let T-Mobile dick about with how content gets treated, and that opens the door to every carrier modifying traffic to their own benefit.
By refusing to ban zero rating outright, the FCC has opened the door to a flood of similar ideas that are even worse and, cumulatively and aggressively, are eroding the idea of an open Internet. Worse, it's happening to the thunderous applause of some consumers, who think they're being given a gift when an ISP imposes utterly arbitrary usage caps, then graciously allows select content to bypass said caps. Make no mistake though; the act of fucking about with traffic in this fashion is an assault on net neutrality. That many people don't understand this yet (or are eager to ignore the fact when it benefits them) doesn't magically make it less true.
A few years ago, Netflix's Hastings went on a Facebook rant about how Comcast was unfairly letting its own streaming services bypass the company's usage caps. But now that Netflix is seeing benefits from zero rating, it's apparently willing to throw its principles in the toilet. Netflix may want to be careful where it treads. As some companies have discovered, zero rating isn't your friend -- and the special treatment that benefits you today may come back to bite you tomorrow.
Over the last year, ESPN's decision to laugh off cord cutting has truly come home to roost. The company has had to engage in numerous "belt tightening measures" after losing around 7 million subscribers in just two years. Where are these subscribers going? Many are cutting the TV cord entirely. Others are opting for so-called "skinny bundles" that pull pricier channels like ESPN out of the core cable lineup, moving them to additional, premium channel packs. Companies like Verizon that have experimented with skinny bundles have been rewarded for their efforts with with lawsuits from ESPN.
But there's every indication things will be getting worse for our friends at Disney and ESPN.
A new study commissioned by BTIG Research and analyst Rich Greenfield (registration required) found that 56% of those surveyed would happily ditch ESPN if it meant saving them $8 a month. 60% of females say they would ditch the channel for the $8 discount, while 49% of males would do the same. And while ESPN could pursue a standalone streaming service, 85% of those polled say they wouldn't subscribe at $20 a month, even if it bundled in all of the additional ESPN channels such as ESPN 2 and ESPN 3.
And there are some additional problems with ESPN pursuing a standalone streaming platform. ESPN's recent lawsuit against Verizon revealed that many of the channel's contracts with cable operators restrict them from breaking ESPN out of the core cable bundle; a provision that is nullified if ESPN offers a streaming version of its own. So ESPN could accelerate its own evolution in the face of cord cutting and go straight to consumers, but (at least initially) it would greatly accelerate the company's losses as more cable operators pull ESPN out of the core channel lineup.
The problem is effectively that ESPN has enjoyed more than a decade in an artificial bubble, where, thanks to the inflexibility of cable offerings, users were stuck paying for a channel they never watched. In that bubble, ESPN had no real motivation to adapt, and now the check is coming due thanks to internet video. But with the playing field changes, Greenfield's quick to note that even as a standalone option, there's simply no way that the financials work out (at least nowhere near the level ESPN's used to):
"The reality is that ESPN would likely have to charge dramatically more than $20/month/sub in a direct-to-consumer model, given the dramatic reduction in penetration rates..."The math for a direct-to-consumer offering for a basic cable network does not work, especially for channel(s) with very high monthly fees embedded within the current MVPD bundle. Disney cannot take ESPN direct-to-consumer and they know it, whether they admit that publicly or not. Furthermore, if the multichannel video bundle frays faster than expected and the TV ad market continues to weaken, ESPN's future growth prospects are dim, at best."
As The Weather Channel can attest, there's obviously going to be some casualties in the cord cutting revolution. As some companies like The Discovery Channel have been realizing, one way to ensure customers don't flee under the new paradigm of consumer is to focus on quality, a mysterious new frontier for broadcasters used to getting paid an arm and a leg for delivering the bare minimum.
Verizon has joined the chorus of companies testing the FCC's willingness to enforce its own net neutrality rules. The telco just unveiled something it's calling FreeBee sponsored data, which effectively lets content companies pay to have their content exempt from wireless user usage caps. Much like AT&T's controversial sponsored data service, the service makes a mockery of net neutrality in that it lets companies pay to give their content a leg up in the marketplace, putting other competitors at a distinct disadvantage.
According to a Verizon press release, companies can either pay Verizon to have their entire app or website exempted from usage caps (paying Verizon for each byte consumed), or pay Verizon a lump sum to have specific content exempted from usage caps (a video, a single audio file, or an app download). This is, according to Verizon, a wonderful way to add "value and utility" to the overall consumer experience:
"With 1 in 3 Americans now watching videos on their smartphone, and another 100 million on tablets, the business case for mobile is clear," said Colson Hillier, vice president, Consumer Products at Verizon. "In today's digital economy, FreeBee Data is a departure from the one size fits all approach to marketing. The opportunity to add value and utility to consumers' everyday experiences will fundamentally transform how brands and businesses connect with their customers."
Right, well, no.
While these zero rating efforts are pitched to oblivious consumers as akin to "free shipping" or "1-800 numbers for data," they've been rightly lambasted by critics as a mammoth distortion of the traditionally-level Internet playing field. Whereas deep-pocketed companies can gain marketing advantage by throwing money at Verizon for cap-exempt status, smaller competitors, startups and non-profits won't enjoy the same luxury. Not only does sponsored data give wealthier, bigger companies an unfair advantage, it gives companies like Verizon (with a generation of documented anti-competitive behavior under its belt) far too much power.
Unlike numerous other countries (Norway, Chile, Netherlands, Japan, Slovenia), the FCC chose to specifically avoid banning zero rating, instead stating it would act on a "case by case basis" to determine what's anti-competitive, and what's just creative marketing and pricing. That has opened the door to companies being allowed to brutally violate net neutrality, provided they're just marginally clever about it.
Comcast, for example, is now exempting its own streaming service from its usage caps, claiming that it doesn't violate net neutrality because it's "delivered over Comcast's managed IP infrastructure" and not the actual Internet. T-Mobile's now throttling every video service that touches its network by default (and lying about it), but claims this is ok because users can opt out. AT&T and Verizon, meanwhile, are simply letting giant companies pay if they want to gain an utterly unfair competitive advantage over smaller, more shallow-pocketed competitors.
And so far the FCC's response to these practices has ranged from praising them to weak-kneed promises that the agency is conducting notably informal inquiries. And while it's entirely possible the FCC wants to see if its neutrality rules withstand ISP lawsuits before leaning on them too heavily, it's also entirely possible the regulator is simply too timid to actually enforce the rules the public demanded it pass.
Last week, we noted that the press spent much of the week hysterically claiming Netflix was waging a massive new war on VPNs and proxies to crack down on out-of-region viewing. Of course if you bothered to actually read Netflix's blog post on the subject, you'd note that Netflix wasn't actually implementing anything new. It was simply taking the same, modest attempts to block VPNs it has been using for several years into the 130 countries it just expanded into. These are, it should be noted, the same systems that Netflix's Neil Hunt just got done telling CES that they don't actually work:
"It’s likely to always be a cat-and-mouse game. [We] continue to rely on blacklists of VPN exit points maintained by companies that make it their job. Once [VPN providers] are on the blacklist, it’s trivial for them to move to a new IP address and evade."
So yeah, Netflix knows a war on VPNs and proxies is futile, it's just trying to placate broadcasters in new partner countries. Those broadcasters are (quite correctly) nervous about Netflix coming to town and utterly demolishing the kind of power and influence they've enjoyed for a generation or more. As we saw in Australia, many of these companies aren't really familiar with what competition looks like and don't really understand how technology works, so they've been pressuring Netflix and governments to wage war on VPNs -- as if this is going to somehow save them from the looming Internet video revolution.
And, right on cue, VPN providers are noting that what Netflix is doing may be annoying, but it's relatively trivial to bypass, since they can simply switch IP ranges and avoid Netflix blacklists:
"TorGuard is monitoring the situation closely and we have recently implemented new measures that can bypass any proposed IP blockade on our network. VPN users who encounter Netflix access problems are encouraged to contact us for a working solution,” he adds.
SlickVPN takes a similar stance and says that the static IP-addresses they offer are less likely to be blocked.
“We work tirelessly to ensure our customers have access to the entire internet. If we find that our IP addresses start to become blocked we’ll migrate to new IPs as needed. We also offer the option of static IPs which eliminates the problem entirely,” SlickVPN’s Greg Lyda says.
So in short, Netflix isn't really engaging in a massive new war on VPNs. It would be more accurate to say it's making a token effort to thwart VPNs it knows won't work, to appease necessary broadcast partners who don't really understand the technology they're whining about. None of this is to say that what Netflix is doing is good for the Internet or for its users, but it's a temporary hiccup on the path toward Netflix's eventual goal: uniform, consistent content licensing that looks the same in every country, instead of the bizarre, fractured content availability many of the new Netflix launch countries experience today.
In the quest for ad dollars and viewer eyeballs over the last decade, there's a laundry list of cable channels that veered off course, deciding that the quick and easy money made from airing shocking garbage was worth more than having a respected brand. And that worked, for a while. The Weather Channel began airing shows about gold prospectors. The History Channel started airing -- whatever the hell this is. And The Discovery Channel made a small fortune by airing shows like Honey Boo Boo, highlighting assorted nitwits in various stages of mental and verbal incontinence.
But in the last year or two with the rise of cord cutting, things have been changing. For example, veering away from its core mission started to hurt The Weather Channel badly. Not only were customers looking for the actual god-damned weather now heading to online options, but cable operators started dropping the channel from their lineups, arguing that the dreck being served up wasn't worth the cost of admission. After some whining and scattered hissy fits, The Weather Channel finally announced it needed to return to its core focus: the weather (and weathermen standing around idiotically in said weather).
The Discovery Channel also appears to have come to something vaguely resembling its senses. The channel announced recently that it has realized the error of its ways (ie putting sensationalist tripe above brand quality) and will begin trying to redeem its image and brand in the wake of reality television:
"One day we just came in and looked at each other and said, 'You know, no more bearded guys in the kitchen with f---ing pigs running through the living room,'" Discovery head David Zaslav, the highest-paid chief executive in the United States, said one recent afternoon in his eighth-floor office in Manhattan. "Let's get back to who we really are. We’re about satisfying curiosity. Let's forget about the ratings right now and let's chase what the brand is at its best."
As an obvious sign of the apocalypse, MTV executives are even insisting that the channel will focus on a little something called music in 2016:
MTV exec says the network will focus a bit more on music #TCA16
A big reason for all of this soul searching is the rise of Internet video and the corresponding dip in ratings. Tired of bi-annual rate hikes and the fact that consumers pay for 189 channels but only actually watch 17, consumers are driving a fundamental shift in the way video content is consumed. Soon, individual channels will either be offered a la carte or as part of limited channel packs included in so-called "skinny bundles." Channels like Discovery are worried that under this new paradigm, low-quality fare you "put on just to have something on" won't past muster. So they're returning to quality:
"To distinguish itself, Discovery has doubled down on its old-school core of natural history, animal conservation and adventure specials. The media giant tapped John Hoffman, an HBO veteran known for rigorous looks at American obesity and Alzheimer's disease, to become its new boss of documentaries, with the mandate to ignore ratings and shoot for big talkers with award potential and strong reviews."
And while it's entirely possible that cord cutters and cord trimmers still want to watch garbage, the belief is that a return to quality in a specific area of expertise is going to be the only way to stand out among an ocean of sameness. There were 409 original scripted series in 2015, double that of 2009. And in an era when consumers will have more power than ever, HBO, Netflix, and Amazon have all shown that focusing on the quality of your original programming really does matter again. Hopefully, this is an early indication that our long, dark, Honey Boo Boo nightmare may soon be over.
Raising the definition of broadband from a pathetic 4 Mbps is dishonesty? I think it makes perfect sense, and it's not the FCC's fault that AT&T refuses to upgrade technology operating on roughly half of the company's network after receiving billions in subsidies to build and maintain it.
The biggest problem to me (aside from the fact this is an obvious and aggressive cash grab) remains how nobody in government gives two shits that companies like AT&T and Comcast, with an indisputable history of fraud, are metering usage with no objective third party confirming whether the meters are accurate.
Yeah we're still waiting to see how that shakes out.
The irony is ESPN's contracts with cable operators say that if ESPN creates a streaming option, that very provision in the contract restricting cable operators from taking ESPN out of the core tier evaporates.
So ESPN's stuck between a rock and a hard place: launch a streaming video option and invite more cord cutting but adapt, or fight adaptation to protect your legacy cash cow.
I think the former option is the only real path forward, but it will probably take ESPN another year to realize it.
I tend to agree. I tend toward balanced regulation and find the auto-anti-regulation position kind of a nnoying, but I agree that the government doing nothing here would probably result in the best possible outcome.
The course is set, and Internet video will have a profound and painful impact on the legacy TV cash cow. Makes more sense to keep an eye on the broadband front, where usage caps are going to be the real pain point as streaming truly starts to take off...
"An absolutely atrocious article. Sorry Karl, but you miss the boat all over the place here."
You say I miss the boat "all over the place" (atrociously, even) then proceed to really only make one point that isn't really much of a correction to anything in the actual piece: That the Canadian TV market is more vertically integrated and labors under different foreign ownership requirements than the US market.
(As an aside, neither market is really "free," especially broadband).
I certainly could have fleshed out the differences more, but there's also enough similarities over the border that a comparison is still apt, from vertical integration issues (from Comcast/NBC, to Time Warner Cable and Comcast's ownership of regional sports networks) to the relentless demonization of more flexible channel package options and pricing by an industry terrified of evolution.
Regardless, I do apologize for my atrocious story.