(Cross posted at Digital Society)

In the early days of the Internet, the newspaper industry made a terrible miscalculation.  Under the belief that the first newspaper available on the Internet would own the space, publishers worked furiously to make content available – largely for free.

The trouble with giving something away for free is it becomes terribly hard to start charging for it later.

Even free evangelists like Mike Masnick understand that you are forced to make money off of things around the free, as opposed to the free product itself.  Masnick often cites musicians as the case study – just accept the fact that you’ll never make money off the music and instead sell concert tickets and t-shirts.

So the newspapers pooched the deal when they went online for free, undercut their own business, and now cannot move to a pay model.

The video content industry would be wise to learn from this, but often seems doomed to repeat the mistakes of both music and newspapers.  More and more programmers are handing their content out for free; and not just the broadcasters who have always been free.  They seem to be operating under the same ridiculous construct that killed news – “this is the future, so we better get on board or be left behind.”

But television isn’t music, nor is it newspaper.  There is an absolute glut of news and music in the world.  Anyone can create either with minimal effort.

Compelling, stimulating, on the edge of your seat video is something altogether different.  Any monkey can pick up a camera and shoot video.  YouTube has proven that. But very few people watch YouTube 160 hours per month. News doesn’t approach that figure and neither does music. Only TV generates that kind of consumption.

Video is different.

Programmers need to figure that out and do it quickly.  Giving away compelling video for free is a recipe for disaster just as it was for news.

Fortunately, programmers have a tool the music and news industries never did – the app store.  Just yesterday Warner Bros made news by releasing Inception and The Dark Knight as apps.

While The Daily is attempting to create an app based news outlet (and charging 50 bucks a month for it), I expect that pilot program will be dead by this time 18 months from now.  There is simply too much news available for free.

For programmers, however, it’s not too late.

Programmers should follow Warner Bros lead and immediately start thinking of ways to protect their content within their own apps.  Why give the content away for free through Hulu, or your own website, when you can do it through an app, and protect the content.

Video delivered via apps (whether desktop or mobile) would allow rights management, and provide a revenue stream, not a revenue hole. Want to watch Lost via your iPad?  There’s an app for that.

The High Cost of Free

The suggestion that content owners move to an app delivered model should scare the bejeezus out of the free radicals like Free Press and Public Knowledge.  They want content to be freely accessible to all.  This model flies in the face of that.

The fact is there is simply no business model in “free” for the video industry.  Broadcasters have come to realize this and are pushing four fold increases in retransmission consent deals so cables paying subscribers can underwrite the free viewing of others.

Everytime you see your cable bill rise, thank “free”.  But that’s an unsustainable model.  More people will get tired of price hikes, and switch to free.  As more people switch to free, and fewer people pay, more content will go away – unable to pay the bills on a declining number of subscribers.

True A La Carte

Moving to an app model should be cheered by anyone who advocates for a la carte.   Under an app model, programmers could make all of the content from a channel available (which would likely be very expensive) or have different apps for different shows.

Buying all of the content from a channel would be the realization of those who pursue a la carte cable.  Alternately, you could buy all the episodes of a show under something like the Kindle model – that is the app is free, and you buy content within it on a per show basis.

But wait, you say, doesn’t iTunes already do that?  Yes, but as GigaOm notes in the article linked above, iTunes movies are available in fewer countries, so apps open up a whole new market for content creators.

Net win for the programmer.

Granted, programmers would need to pull their content from sources like Hulu and Netflix, and invest in the development of proprietary applications, but the cost of that over the long term is significantly less than the cost of going out of business.

At issue is a column by the Washington Post’s Rob Pegoraro about the recently announced TV Everywhere plan cable companies are pursuing. In his column Rob writes:

Yes, you read that right: To watch this new batch of TV shows online, you’d have to sign up for a traditional pay-TV plan.

The TV Everywhere idea has been a dream of some media people for the last few years; see, for instance, Mark Cuban’s defense of the idea. But I don’t get it. At all.

Well, my immediate thought is, “You’re right. You don’t get it.” But after that, words fail me.

First, Rob, this isn’t “a new batch of TV shows”. This is the content you’re already paying for, but you’re now allowed to view it online. In order to view Pay-TV online, you need to pay for Pay-TV. That’s sort of the whole point.

Pegoraro suggests that this is like requiring people to pay for a subscription to the Washington Post in order to take a college prep test course. Ummm… No. That’s not at all the same thing. TV everywhere is, however, the equivalent of saying, “If you want to eat your McDonald’s Happy Meal in the park, you still have to pay for the McDonald’s happy meal.”

Next, Pegoraro asserts that incredibly complicated things like “authentication” are way to difficult to comprehend or apply:

Set aside such operational issues as authentication (how do you verify that one person’s a Comcast/DirecTV/Fios/etc. customer and another is not?)…

Ummm… How do you know if someone is a Gmail user or not? Well, Rob, they’re called “accounts”. When you subscribe, they create one. They come with something called an “account number” or a “user name” and a “password”. When you want to access your service online, you type (that big flat thing in front of your monitor is called a keyboard) those pieces of information into a form, click “submit” and voila! You are authenticated.

Pegoraro, again:

If somebody wants to watch video online, let ‘em: Charge them a fee, make money off their attention through advertising–better yet, give people a choice between watching ads or paying for an ad-free experience. But don’t force them to sign up for an unrelated, non-Internet service.

Sure, because the “ad-supported” model is working so well for broadcasters and newspapers. Even YouTube (ad supported video) is projected to lose between $175 million and $470 million this year. Even TV advertising is a failing venture because people are skipping the commercials. Hollywood has begun writing the commercials directly into the script to stave off that practice. NBC recently announced that Jay Leno’s show in the fall will be “DVR-proof” to force advertising on the public.

Do such actions seem like the tactics of a business model that works?

So let’s take a business model that works (a hybrid ad/subscriber model) and force it to pursue a failing business model because you want content for free – content that may cost millions per episode to produce.

As for the comment that you are forcing someone “to sign up for an unrelated, non-Internet service”, that’s still ridiculous no matter how many times you repeat it. This isn’t a non-Internet service. It’s the same service you already subscribe to, you just have more ways to consume it now. However, if you want to consume it, you have to subscribe.

Finally, Pegoraro suggests that media companies should simply give up and make all their media available for free:

Repeat after me: Trying to introduce an artificial scarcity of easily-duplicated content on the Internet does not work. If you set up boundaries that make no sense to your customers, you will simply cede the field to bootleg redistribution of your work. Fighting this principle is like trying to push water uphill–with a broom.

Well, actually, Rob. Most cable content isn’t available online for free – even through bootleg. Some of the most popular shows on cable are HGTV’s design programs. I challenege you to go find a readily available bootleg source of them. Go ahead, I’ll wait…

…

…

Back yet? What about ESPN sporting events? They’re all available for free elsewhere, right? No? What about NFL games? Surely the satellite guys give those away for free and you don’t need to subscribe to get the Sunday ticket, right? No? Hmmm… Well what about HBO’s programming. You can get Entourage episodes for free all over the net, right? Really? Only the old ones that have been released for sale well after the air date?

How can that be? How can people control such things? How can they possibly defeat the bootleg distribution of their work? Because they don’t make them available online for free? Perhaps.

The fact is, despite Rob’s characterization of Pay-TV as “easily-duplicated content”, it’s simply not true. Look at YouTube. The most popular video sharing site will disable the soundtrack to your video if the audio patterns in the file match copyrighted content. Sure. You could cruise BitTorrents looking for content. And many do. Those sites are constantly defending against their copyright violations and go out of business regardless of the legitimacy they claim (AllOfMP3.com, anyone?).

You can also find websites that show grainy, handicam captured versions of first-run films – often before they appear in theaters. But the quality sucks. Under Pegoraro’s theory, movie theaters should simply give up the fight and make all movies (regardless of the cost to produce and market them) open to the public at no cost on day one. Better yet, just close all the theaters and let people download the movies for free? Heck, the studio could easily make up those $30 million salaries and production budgets by displaying an ad for mortgage caluclators right along side the film, right?

CableTechTalk will give the industry a voice in the ongoing discussion and debate over telecom policy discussions. Debate over the direction of our nation’s telecom laws increasingly takes place online. This blog seeks to be an active player in that conversation, but it won’t be one-sided. Far from a typical press release and talking points blog, CableTechTalk will invite people with whom we disagree to engage in cross posted debates on the issues – sharing both sides of the argument and letting readers draw their own conclusion.

The blog also gives us the opportunity to share developments in the gadgets that attach to and leverage our voice, video and data platform. This week we’re in Las Vegas looking at the new tech toys on display at CES. We’re looking at the new TVs and set-top boxes, personal entertainment devices, gaming and broadband applications, and all the other things that make life fun.

If you get a chance, I hope you’ll take a look.

Let’s set the wayback machine for the VMAs last week. This show had it all – award winners trashing the network that hosts the awards, has-been rockers duking it out over whored out former TV stars, single moms trying to whore themselves out (but nobody was buying), and militant rappers getting peeved that the awards weren’t rigged for them to win. Your entertainment dollar was simply not going to go farther than the 2007 VMAs

Britney was supposed to warm up the audience, but left everyone feeling cold. Blame it on the hair, the lip-synching, the magic act that wasn’t, the drinking, the allergic reaction to eye drops (what?), or any of another 100 oft-repeated excuses for the train wreck we witnessed, the sad reality is we want to see a nubile 20 year-old in skin tight leather dancing like a tramp or tongue kissing Madonna (actually, skip that last part). The fact is, Brit is now a single mom who, with every public appearance, reminds us of the line from Sweet Home Alabama.

Look at you! You have a baby! In a bar!

Here’s some advice Brit. Put on some clothes, write/sing a grown-up song, and stop trying to convince us that you’re the hot little vixen of Baby One More Time. That ship has sailed. You were used up by a douchebag, and the only guy that still wants you is this loser.

Next up… Kid Rock and Tommy Lee. Even with Britney and Kanye melting down at the VMAs, this is probably the most pathetic story of the night. These two guys get into a brawl over a woman who, by her own admission, paid off a poker debt with sex. Yup. That girl is a class act that is worth fighting for. Go get her, guys.

Speaking of Kanye, I don’t think I could sum this one up any better than Joel McHale (host of The Soup). After recapping Kanye’s choice words about his perceived snub at the hands of MTV, McHale said, “Geez. 50 Cent didn’t whine that much when he got shot.” True dat!

In our last glimpse backward at the VMAs, perhaps the one shining moment in the telecast came when Justin Timberlake (surrounded by the vapid cast of The Hills) excoriated MTV for filling its programming with non-stop reality TV and begged them to actually play music occasionally. It seems Timberlake may be one of the few people who owes his soul to MTV, and at the same time feels bad because he’s old enough to remember that MTV used to stand for Music Television.

Finally, back in the present, let’s dip into the overflowing cup of comedy gold that is O.J. Simpson. The same week that his book (If I Did It) comes out, and the world may read his claim that he’s not a criminal (at least not a murderous one), he gets arrested for storming into a sports memorabilia show with armed accomplices and trying to steal pieces of his life. It’s not clear whether he actually owns any of what he tried to steal. And it’s not clear if he was armed, but a tape of the incident clearly demonstrates his anger and rage as he barks out instructions that no one is to be allowed to leave.

Wow, O.J., armed robbery and taking hostages. That’s a hell of a good way to prove you’re not a killer. Maybe next time you could sacrifice a small puppy on national TV and tell people your killing is limited only to the animal kingdom. By the way, aren’t you supposed to be out there trying to catch the real killer?

Some if the winners are truly breathtaking. The fact that most are produced without paints or canvas, but purely through software, is remarkable. The picture to the left, from Oddworld: Stranger’s Wrath, was created using Adobe Photoshop. I’ve worked with Photoshop a lot, and consider myself fairly proficient, but would have no idea how to even begin something like this.

If you have some time, and want to be impressed by some electronic art, take a trip through the winners from years past. The 2007 winners be unveiled July 11.

The DOCSIS 3.0 standard gets its juice from “channel bonding” technology. The modem bonds the equivalent of 4 channels of television (which would each be the equivalent of 40mbps), allowing speeds in the range of 160 mbps downstream. The upstream rate would increase as well. While the demo didn’t address upstream speeds, I was able to confirm with DOCSIS modem vendors that the upstream speed would likely increase to the 10-20 mbps range.

That may still seem small compared to the downstream, but is a dramatic increase over the 1mpbs we currently receive.

The vendors also told me that the downstream speed isn’t capped at 160, but actually scales up dramatically. The DOCSIS 3.0 standard allows for up to 32 bound channels – meaning the maximum downstream speed for the standard is 1280 mbps, or just over 1gbps.

At 160 mbps, the new standard puts cable modems far ahead of the current fiber optic offerings (which top out in the 30mbps range). The new standard is expected to reach consumers by this time next year. The interesting effect of all this, I believe, will be the creation of a bandwidth arms race between cable and the telcos. For those who have been concerned with the relative low speeds of US broadband compared to other countries, this should ease that pain.

An arms race between access providers will also limit the possibility of “net neutrality” violations. If customers are continually seeing improvements in throughput and have one significant reason to switch providers, it’s unlikely the ISP would give them another reason by limiting content.

The steps, announced today, are part of an overhaul that also affects movie production and other operations at the entertainment conglomerate owned by General Electric Co. NBC Universal aims to cut operating expenses by $750 million by the end of next year, in large part by eliminating 5% of its global work force, or about 700 jobs, in coming months.

Apparently they’re unable to continue making television dramas that nobody watches at a cost of $2 million plus per episode. Honestly, I would fear for the future of television if HBO and others weren’t doing better TV than the networks anyway. Let NBC crank out game shows hosted by 80s comedy has-beens as long as HBO keeps cranking out shows like Entourage and The Sopranos.

Now we just need to move Studio 60 and Heroes to cable since those two shows deserve to survive, but would be so much better on a channel free from FEC regulations.

Senator McCain and Kevin Martin are advocating government “solutions” to encourage a la carte programming. They believe that cable should be offered on a per channel basis. On a strictly logic basis, I agree with them. However, their argument inserts the heavy hand of government into my television habits and that is more repellent to me than paying for channels I don’t watch.

The fact is, I don’t often watch broadcast television. I’m a fan of Lost, the Monday night line up on CBS (with the exception of that stupid Christine show) and My Name Is Earl. other than that, I could care less about the broadcast line up. So I choose to subscribe to cable.

That’s the key phrase… I choose to subscribe. They have offered me a product and I decided to buy it. I have also chosen to subscribe to Satellite radio. I looked at what was available for free, found it lacking, and bought a better alternative.

Neither of these was a forced purchase, and neither of the products was government subsidized. As a result, I don’t expect the government to step in and negotiate a better deal for me. Further, I am afraid of a government that feels it needs to do that.

If a product or service has value to me, and the asking price is equal to or less than the price they’re asking, I will buy it. If it is higher, I won’t. If they raise the price, and it exceeds my assessment of it’s worth, I will cancel my subscription.

The government, quite some time ago, decided that television was a conduit to educate and enlighten the citizens (despite evidence that the populace is actually getting dumber with every passing moment in front of it), so they regulated the airwaves and what could be shown on them.

Some enterprising men and women wanted programming that was different, and less restricted. They contracted with programmers to create new shows that would be distributed over a closed, subscription based loop. That model was a huge hit. Now, most people choose to subscribe because the programming is superior and the picture is better.

Television is not a fundamental right. It is not guaranteed by the Constitution. Broadcast television – that relies on the public airwaves – is regulated by government. Cable systems, however, are run over private networks, built with private investment. They pay fees for the land they “rent” from the local governments. So they are not a consumer of public goods, they are, in fact, a source of revenue for cities (to the tune of more than $2 billion per year).

Had government stayed out of the regulation game in the first place, there is a good possibility that more effort would have been placed on ways to broadcast media more clearly, on more channels, and those channels would be available to everyone. Instead, they stifled innovation, killed a medium, and watched a new industry emerge in absence of their short-sighted broadcast regulations.

Now the government is back. Again they tell us they are acting in the interest of the people. They’re advocating more regulation that assumes the government is better at creating a business model than the entrepreneurs in America. They assume they know more about the delivery of cable television than the people who have spent their lives making it work.

All of this is being done under this unspoken belief that people have some sort of right to cable TV. That was also the underlying assumption of the broadcast regulation and look at how well that has worked? In the almost 80 years since the first TV license was granted, we have 5 networks who all hold a declining share of the viewing audience.

In the roughly 55 years since the first cable television system began operating, they have grown to more than 500 programming networks on nearly 8,000 cable systems serving nearly 60% of all homes.

That alone should tell government that the private sector knows better how to create an economically viable product. That alone should tell the government that interference by ill-conceived regulatory regimes can destroy a business easier than it can create one.

As I mentioned earlier, the panel was comprised of Tim Karr from Free Press, Steve Effros (a long time cable expert), Chris Wolf from Hands Off The Internet and Susan Crawford from the Cardozo Law School. The panelists were effective in making their arguments, but many of their claims were specious at best. More on that in a moment.

What was more interesting to watch was the audience. While the vast majority of the audience was respectful and paid close attention to the debate, a few (generally well known bloggers on the left) were incredibly disrespectful. The live chat behind the panel was full of insults and rude comments. It was the worst parts of the internet – anonymous flames and rudeness – on display for all to watch. I was embarrassed to be part of the forum if it meant having my name associated with that behavior.

To the content, all I can say is there were some misstatements made by Chris and Steve, but on the whole, they made the better argument. They stuck to facts and the discussion rather than making outlandish claims about things that might happen, maybe, someday, possibly. That seemed to be Tim Karr’s specialty. When challenged to name (outside of the Canadian cases which are irrelevant due to a different legal structure, and the Madison River case) one instance of telcos blocking access to content, he stared at the audience and made not sound.

He chose instead to repeat the already discredited claim that net neutrality has been the law of the land. If 60% of broadband connections are provided by cable; and cable has never had to live by the law that applied to DSL lines; and that law was repealed (essentially) to provide a level playing field; and the cable companies have not, regardless of having no legal prohibition, done any of what the net neutrality proponents claim will happen; how can you make such an outlandish argument with a straight face?

Worse than Karr, however, was Susan Crawford. She has, on her blog, routinely raged against the FCC and giving them more power. She has routinely referred to them in the most vile ways and spoken out against their power to, for instance, enforce their puritanical belief systems about exposing a naked breast to the world.

In the case of Net Neutrality, however, she thinks they’re fine. She says they should have the power to enforce a policy of “no gatekeepers” thereby making the FCC the ultimate gatekeeper. The hypocrisy of this is not apparent to her, and you should have seen her reaction to Steve Effros pointing it out.

“That’s perverse!” she exclaimed. How dare he point out her inconsistencies while the rudest people in the room were calling him a liar and a shill (despite the fact he was not paid to attend).

Granted, Chris and Steve had some verbal gaffes. Steve’s comment that the Government wasn’t involved in the growth of the Internet overlooked the role the government had in seeding the Internet, but he’s right. The net grew for two reasons – the cable companies recognized a business model in selling high speed using low cost equipment (which telcos were reluctant to do because they made more $$ on T-1 Lines) and content providers found uses for the speed cable (and eventually the telcos) was providing.

The government planted the seed, but access providers and content providers grew the plant – not the government.

On the telco side, it’s unfortunate that their allies have to live in the world created by the comments of their bosses. The “free lunch” comment will live forever in infamy with “I voted for the $87 billion before I voted against it.” But one comment that is often repeated, that is dead accurate is the reference to “my pipes”.

Like it or not, the Internet is not a public entity. It is not a company for which others provide service and it is not a public good. It is a nebulous arrangement of interconnections between private networks. If the net neutrality guys would like the government to compensate the private companies that have invested hundreds of billions to make it work, and declare those pipes a public good, that’s fine. The tab will be staggering.

That will do wonders for the deficit and guarantee great service. After all, the government does everything really well, right?

If, instead, you want a competitive environment, then you keep what you have. Existing competition has moved us this far, so why not let it continue? Some suggest the answer is because there are only two competitors – cable and telcos. That ignores the possibility that the DBS guys will ever develop the technology to compete. That ignores the possibility that governments will provide wi-fi as a public good, and it ignores the possibility that Google or someone else will provide wi-max to compete with the cable and telco guys?

It also assumes that two competitors is somehow inadequate for real competition. Honestly, I think a football field would get crowded with four teams. It would be amusing to watch for a minute, but I’d be opposed to Congress upending the NFL to include group contests because they felt two competitors in a game was insufficient. Basketball and baseball – ditto. Similarly, I don’t really like tennis with couples. I like the lone warriors doing battle.

Someone will make the argument that there are more than two football and basketball teams, and many individual tennis players. But those are different games, under different circumstances on different weeks. That’s just like business. Cable faces different competition on the programming side. They face competition from satellite and now telcos on video. They face competition for phone service from wireless, VoIP, and the telcos. They face competition for data services from telcos, cities increasingly providing wi-fi, PC by satellite (which admittedly is inferior currently, but that will change shortly), etc.

Competition works. But you have to let it. For Congress to act now, absent an actual threat, would be the height of folly.

I switched to VH1 and discovered they were about 15 minutes into one of the previously unaired episodes of Love Monkey. I skipped ahead to today and set a timer for my DVR to record the rerun, but using their new toy, I wouldn’t need the DVR, and could have just jumped back to the beginning.

I hope Cox gets that in my neighborhood soon.