Tuesday, January 05, 2010

A New Year, Same Old POTS

It's a new year, but Free Press and other so-called public interest organizations didn't waste any time making it clear that they will be singing the same old tired tune this year as last. They are asking the government to investigate the new TV Everywhere service that is being launched by multichannel video program distributors (MVPDs) such as Time Warner Cable, Comcast, and Cox. In effect, Free Press and company are again urging that the regulatory model that was applied to regulation of POTS, or Plain Old Telephone Service, in the last century when POTS was a monopolistic offering, be applied to today's dynamic broadband Internet environment.

The concept of TV Everywhere is that a subscriber to a multichannel video distributor – without any additional charge – can watch TV programs online. It is likely that one effect of TV Everywhere is that more quality video program will be available over the Internet. And this, in turn, is likely to drive increased broadband adoption, a widely agreed-upon policy objective.

But Free Press and its allies, claiming to be representing consumers, contend the plan of the MVPDs to make television programs available on the Internet to subscribers without charge is actually anti-consumer. Of course, normally consumers are pleased when they are given additional options to make use of a product at no additional charge. And, as a matter of fact, I am not aware of any material opposition to the plan by actual consumers.

Nevertheless, Free Press and company have written to the Department of Justice, the Federal Trade Commission, and legislators to complain that TV Everywhere is "problematic" because it may "upset the emerging market of online video." According to Free Press, "the TV Everywhere model requires consumers who wish to watch popular video content on the Internet to first subscribe" to a MVPD. This is the alleged harm.

I do not have any idea whether the TV Everywhere model ultimately will succeed in the marketplace. In fact, I don't have any idea whether any business model devised by "cable" companies or "telephone" companies or "broadcasters" or "online tvtubes of various stripes" will succeed, or whether the companies that Free Press calls the "incumbents" will even exist in a few years. I know I am not as smart as the prognosticators at these same consumer organizations who predicted that if the AOL-Time Warner merger were allowed to be consummated without stringent "public interest" conditions the merged company surely would dominate both the online and cable market segments. But the communications and media marketplace is simply too dynamic and changing too fast for me to have any confidence at all in making predictions.

Although I am not smart enough to predict the future of markets and successful business models, here's what I do know. Free Press and company exhibit a profound, dogmatic anti-market bias. The only model they believe is appropriate for any communications company that distributes any content is a public utility-model under which regulators determine the prices, and the terms and conditions, under which the product is made available to consumers. This is the regulatory model that was applied to regulation of Plain Old Telephone Service when POTS was a monopolistic analog telephone offering. The only match for Free Press and company's profound anti-market dogmatism is a profound faith in the ability of politicians and regulators to manage communications and media markets "in the public interest," no matter how much more dynamic and competitive the markets have become.

This strong anti-market bias is evidenced in this instance in the same respects that characterize much of Free Press and company's advocacy and which, if accepted, will lead to unsound policies that harm consumers.

  • Free Press's modus operandi is always to urge regulation before any material market failure or consumer problem is demonstrated to exist. Here Free Press says TV Everywhere is "problematic" because it might upset the "emerging" online video market. Rather than waiting for the market to develop further to see whether any real problems materialize, rather than hypothesized ones, Free Press hastens to call out the regulators first. The M.O. is the same with regard to net neutrality: Regulate first; don't wait for any real marketplace abuses to be demonstrated.


  • Free Press invariably urges that all communications and media offerings be unbundled under regulatory supervision at its core, even though this unbundling mania runs counter to the way most products are offered in the marketplace.


  • Free Press always ignores the fact that there are costs associated with creating and producing goods and services, whether video programming or other content on the one hand, or broadband networks on the other. Absent government ownership and control, which may be Free Press's true preference, these costs must be recovered. And absent demonstrable market failures, the entities that create and produce the goods and those entities that distribute them to the public ought to be free to negotiate mutually satisfactory business arrangements that, in their view, give them the best opportunity to recover their respective costs. Otherwise, the incentive to create and produce goods (here programming) and modes of distribution (here broadband networks) will be diminished or eliminated. As for TV Everywhere, program producers are under no compulsion to sell programming to MVPDs, but they certainly may view the prospect of doing so at a market price as an opportunity, not a problem. Just as Free Press's net neutrality proposals would foreclose more broadly any future opportunity for the development of two-sided markets between broadband providers and content and applications providers, opposition to TV Everywhere has the same market-foreclosing effect with respect to video programming.

I generally prefer the cautious use of antitrust law by antitrust authorities to regulation under the vague public interest theories applied by the FCC. And I have no problem with antitrust authorities investigating and remedying instances of real marketplace abuses attributable to demonstrated market failures as long as the antitrust authorities act consistently with rigorous economic analysis standards. I do have a problem, however, with premature calls for investigations in the technologically dynamic, competitive communications and media markets at a time when new business models are emerging and then evolving as market participants test consumer response and demand.

When Free Press and company acknowledge the online video market is "emerging," they ought to hold fire, at least for a while, to see what actually emerges before asking that the marketplace evolution be stopped in its tracks. If they won't hold fire – which I don't expect them to do – the antitrust authorities, lawmakers, and policymakers should have the good sense to do so.