Hand-in-glove with Mitch’s excellent dissection of net neutrality and the growing awareness by consumers, politicians and businesses of the “nervous system” nature of the Internet, a group of top thinkers held an on-air debate on the topic today. During the popular Kojo Nnamdi’s show on WAMU (a DC radio station), Gigi Sohn, President and Founder of Public Knowledge, made the point that new business models could evolve that allow broadband providers to be paid for their network upgrades that don’t also permit broadband providers to discriminate against third-parties.
I think it’s really important to emphasize that we’re not saying you can’t have different business models. What we’re saying is that you can’t discriminate.
Sohn suggested that in fact consumers should pick up the tab for bandwidth-intensive applications and that broadband providers should be compensated for however much consumers use the network, even if metered usage, the business model driving mobile voice services, is the answer.
Why not have a metered rate? How is that not a new business model that solves the bandwidth issues and makes money for the cable companies and phone companies at the same time.
As unpopular as it sounds, consumers should pay for what they use, Sohn said. This is Mitch’s point exactly. In his post he writes:
In an “Internet-based” economy, users willing to pay for enough bandwidth to receive a stream of HD video should be able to freely choose which provider of HD streams deliver content to them using the bandwidth they’ve paid for. Of course, a provider of HD content would be wise to make sure they can deliver HD-quality to the local access point-of-presence, at least if they want to have satisfied customers. But the choice of how that local access bandwidth gets used is made by the end-user who pays for that level of bandwidth, not by the company that provides the bandwidth.
Princeton professor Ed Felten made a similar point. Some middle ground has to be found in order to give broadband providers the incentive to invest in the network while barring them from dimming the vitality of the entreprenuerial Internet.
It does cost an awful lot to build a next-generation network. The question is how we can allow the companies to build the next-generation network infrastgructure without setting them up as gatekeepers.
But, Greg Moffett, VP and Senior Analyst at Sanford C. Bernstein & Co., weighed in with a contrary view from the investment community’s perspective. All this talk about what broadband providers should and shouldn’t be able to do is in essence formalizing a certain kind of broadband business model, much to the detriment of not only investment, but innovation.
Let’s not try to pretend that sitting here today we can envision all the business models and decide which ones are legal and which ones aren’t.
And if net neutrality laws are overly constricting, then investment will surely be hampered, Moffett said.
If we restrict freedom too much here in the business models we’re not going to get as much investment as we need.Posted by Cynthia Brumfield at 6:12 PM | Print | Comments (10)
Mike Bookey, a friend of mine who recently published a book called “America at the Internet Crossroads: Choosing the road to innovation, wealth, and a supercharged economy,” likes to say that, before we start debating the details of Internet policy, we need to step back and ask ourselves (as individual citizens, as participants in a debate, and as a society) what kind of an Internet we want in the future. Without some shared sense of that, parties in an Internet policy debate have no common frame of reference and will tend to talk past each other, especially if they come to the debate with different ideologies, biases or political agendas. It may not always be easy to agree on one or more key goals, but I think Mike’s right that this is an important first step in any debate related to Internet policy.
Mike also contends that, rather than think of how the Internet best fits into our economic system, it’s becoming more appropriate to think in terms of how our economic system fits within the Internet. My interpretation of Mike’s point is that the Internet is emerging as the “nervous system” that supports 21st century economic, political and social systems. It is not simply another sector of the economy to be regulated (or deregulated) in the usual manner, where vested interests in related sectors engage in an invitation-only dance of lobbying and horse-trading artfully choreographed by well-paid legal minds to balance each other’s mix of pain and gain. It’s too fundamental and important for that.
I think an appreciation of this latter point is fueling what seems to be growing and often passionate grassroots support for the principles of network neutrality (if not always agreement on whether we need net neutrality rules or what they should be), as well as the accelerating rise of local Community Internet (a.k.a. muni-broadband) initiatives in cities large and small around the country.
I’d argue that these two trends reflect an increasingly widespread appreciation for both of Mike’s points, which together speak to the critical importance of Internet policy and favor creation of a next-generation broadband Internet that offers virtually unlimited, ubiquitous, symmetrical bandwidth, with access to the content and services this bandwidth can deliver controlled by end users, not by pipe-owners.
The latter, of course, should be paid enough by users to finance the network’s costs, but that’s a separate issue from having pipe-owners provide different levels of speed or quality to different service providers based on their business relationship (or lack thereof) with them.
In an “Internet-based” economy, users willing to pay for enough bandwidth to receive a stream of HD video should be able to freely choose which provider of HD streams deliver content to them using the bandwidth they’ve paid for. Of course, a provider of HD content would be wise to make sure they can deliver HD-quality to the local access point-of-presence, at least if they want to have satisfied customers. But the choice of how that local access bandwidth gets used is made by the end-user who pays for that level of bandwidth, not by the company that provides the bandwidth.
Of course, the role of “high-capacity, low-cost, ‘stupid-network’ bit-delivery” is a pretty radical and unwelcome departure from the traditional cable TV model, and also from the two-tiered Internet vision apparently embraced by both telephone and cable companies (though the latter prefer to let telcos do the talking and take the heat).
But, it seems to me that this really is the vision of the Internet that the vast majority of American citizens, companies and public institutions share, including web-based service providers, the financial industry and both new and established content providers, virtually all of whom are experimenting with direct-to-consumer distribution via the Internet. In a column discussing the growing number of “over-the-top” (personally, I dislike that label) content initiatives, CED magazine editor Jeff Baumgartner quotes Les Moonves:
“With this broadband channel, we’ve essentially bypassed cable and created a general entertainment outlet utilizing existing creative and content resources,” said CBS President & CEO Leslie Moonves.
I don’t claim to be a very good reader of Congress, but I’m beginning to believe that more and more of its members are sensing the reality that the vast majority of their constituents—cable and telephone companies being the notable exception—share key elements of a common vision of the Internet’s future, a vision built around fully retaining the principle of network neutrality, while also encouraging investment in networks that can put the U.S. back in the lead in terms of availability, bandwidth and service innovation.
Appreciation of this reality within the halls of Congress seemed evident in: comments and questions from both sides of the aisle at recent hearings held by members of the House Judiciary committee; the shift in vote balance on Markey’s net neutrality amendment as it went from subcommittee to committee and; the fact that, in some House races, net neutrality appears to be emerging as a campaign issue in a season when control of the House is potentially up for grabs.
Public support for an “open” Internet is also apparent in the growing number of Community Internet initiatives being considered around the country. The message to cable and telephone companies from the country at large is beginning to sound like “work with us to create the Internet we want and know is possible, or get out of the way and we’ll do it without you”—either on our own as a local community, or with the help of Internet-based service providers like Earthlink and Google and/or vendors that see muni-broadband projects as an emerging business opportunity.
There have recently been signs that incumbent access providers are starting to bid on Community Internet projects, though its not clear yet to what extent they will end up being involved in such projects. They certainly could bring assets to the table. But it remains to be seen whether local communities and incumbents can develop win-win strategies that balance the latter’s business priorities with the former’s goals for a next-generation broadband Internet. And, in many communities, there may a fair amount of distrust between the parties, as well as a preference among community leaders to avoid becoming dependent on incumbents, whose participation they may perceive as having ulterior motives and potentially conflicting priorities.
It’s my sense that Wall Street analysts largely ignore the significance of Community Internet initiatives when they model cable and telco valuations. Should that change, it could increase the pressure incumbents feel to address this potential threat to their existing business models and valuations, either through a ramping up of efforts to block these initiatives at the local, state and/or national levels, or by developing strategies for adapting their business strategies to what may be an emerging reality—that they stand pretty much alone when it comes to their vision of tomorrow’s Internet.
Posted by Mitch Shapiro at 4:55 PM | Print | Comments (3)Long Island-based cable operator Cablevision Systems issued its Q1 06 earnings report this morning and the accumulated, irrefutable evidence is in: cable is hot again. Even more so than its peers, Cablevision reported strong growth across the board and posted even better results than the solidly performing, New York-centric operator usually reports.
Financials first: Telecommunications (everything except Rainbow programming properties) rose 16.7% year-over-year and 4.6% sequentially to $993 million. Operating cash flow advanced 17.3% year-over-year and .7% sequentially to approximately $382 million.
Driving this growth was the stellar take-up rates in everything — basic, digital, high-speed and telephony subscribers. Cablevision posted its eighth consecutive quarter of basic subscriber growth, a true anamoly for the cable industry, and recorded its highest basic subscriber gains since the first quarter of 2000. Cablevision added almost 39,000 new core video customers, ending the quarter with 3.066 million basic customers, representing a pentration rate of 68.1%, the highest in the industry.
The number of digital customers grew by a net 167,740, a run-rate 17.7% higher than Q1 05 levels and up 38% sequentially. Cablevision ended the quarter with 2.172 million digital video subscribers, representing 69.4% of total basic subscribers, again, the highest in the industry.
Despite stiffening competition from Verizon, Cablevision’s growth in high-speed customers accelerated. During the quarter, the company added 112,289 net new high-speed customers, a gain that was 27.5% bigger than the net high-speed additions in the year-ago quarter and 19.6% bigger than Q4 05 levels. By the end of Q1 06, Cablevision served 1.8 million high-speed customers, representing an industry record of nearly 40% penetration of homes passed…and, you guessed it, the highest in the industry.
Cablevision’s digital voice (or VoIP) service continued its upward climb, with the operator adding approximately 134,000 net new customers, 46% more than the net new digital voice adds in Q1 05 and up 2.9% over Q4 05 levels. Cablevision ended the quarter with 865,308 total digital voice customers, almost 20% of the homes capable of buying the service.
| Cablevision Systems Operational Statistics (in mil., except%) | |||||
| Basic Subscribers and RGUs | 1Q05 | 2Q05 | 3Q05 | 4Q05 | 1Q06 |
| Homes passed | 4.453 | 4.464 | 4.474 | 4.484 | 4.501 |
| Basic subscribers | 2.985 | 3.006 | 3.011 | 3.027 | 3.066 |
| Pro Forma annual sub growth | 1.4% | 1.8% | 2.0% | 2.2% | 2.7% |
| Basic penetration | 67.0% | 67.3% | 67.3% | 67.5% | 68.1% |
| Monthly churn | 1.6% | 1.7% | 2.1% | 1.8% | 1.5% |
| Digital Video | 1Q05 | 2Q05 | 3Q05 | 4Q05 | 1Q06 |
| Digital subscribers | 1.623 | 1.741 | 1.843 | 1.963 | 2.127 |
| Quarterly net sub adds | 0.140 | 0.119 | 0.102 | 0.119 | 0.165 |
| Penetration of total basics | 54.4% | 57.9% | 61.2% | 64.8% | 69.4% |
| Monthly churn | 2.2% | 2.3% | 2.6% | 2.2% | 1.9% |
| High Speed Data | 1Q05 | 2Q05 | 3Q05 | 4Q05 | 1Q06 |
| Customers | 1.441 | 1.520 | 1.600 | 1.694 | 1.807 |
| Quarterly net adds | 0.088 | 0.079 | 0.081 | 0.094 | 0.112 |
| % change | -6% | -10% | 2% | 17% | 20% |
| Penetration of homes passed | 32.3% | 34.0% | 35.8% | 37.8% | 40.1% |
| Monthly churn | 1.9% | 2.0% | 2.4% | 2.0% | 1.7% |
| Digital Voice | 1Q05 | 2Q05 | 3Q05 | 4Q05 | 1Q06 |
| Customers | 0.364 | 0.478 | 0.601 | 0.731 | 0.865 |
| Quarterly net adds | 0.092 | 0.114 | 0.123 | 0.130 | 0.134 |
| Penetration of Optimum Voice | 8.2% | 10.7% | 13.4% | 16.3% | 19.2% |
| Circuit-Switched | 1Q05 | 2Q05 | 3Q05 | 4Q05 | 1Q06 |
| Homes marketed | 0.157 | 0.157 | 0.157 | 0.157 | 0.157 |
| Customers | 9,002 | 8,592 | 8,224 | 7,810 | 7,251 |
| Penetration | 5.7% | 5.5% | 5.2% | 5.0% | 4.6% |
| Residential Voice - Total | 1Q05 | 2Q05 | 3Q05 | 4Q05 | 1Q06 |
| Total Residential Voice Subs. | 0.373 | 0.487 | 0.609 | 0.739 | 0.873 |
| % of homes passed | 8.4% | 10.9% | 13.6% | 16.5% | 19.2% |
The picture is so bright that Cablevision upped some key parts of its financial guidance for the year. The company is now projecting basic video subscriber growth at 2.5% to 3.0% (instead of the earlier 2.0% to 2.5%) and net revenue generating unit additions of 1.3 million to 1.5 million (replacing the earlier projection of 1.0 million to 1.25 million).
During the earnings call, COO Tom Rutledge said that Cablevision is gearing up to launch its switched video service company-wide. That option, which increases bandwidth dramatically, will be applied to the creation of a 30-channel foreign language package priced at $4.95/month for digital customers or $14.95/month for non-digital customers.
Rutledge also said that Cablevision is getting ready to roll out a business high-speed Internet service that delivers maximum speeds at a price comparable to residential high-speed options. This move will no doubt spur Verizon to step up its competitive efforts with Cablevision.
Those efforts, Rutledge said, don’t seem to be having much of an impact on Cablevision’s customer penetration. In response to a question, he also said that Verizon has been putting out “false” information regarding the success of its FiOS video services in Massapequa, a small town in Cablevision’s service territory.
Verizon claims that it achieved 6.5% video penetration in Massapequa in the first three months following the launch of its fiber-based video services there. “We don’t believe that number and don’t understand how anyone can argue that they have that number,” Rutledge said. “It looks they’re marketing to concentrated areas so that they can get a press release and indicate that they’re being successful.”
Rutledge said that Cablevision lost 200 subscribers in the 8,500-home hamlet and managed to ultimately lure back 28 of those customers. “We think their number is false,” Rutledge said.
Posted by Cynthia Brumfield at 2:17 PM | Print | Comments (0)
Slate’s Séan Captain has this essay about how the laptop won’t replace the TV set, not for a long time. He makes some good points, but once again, folks who insist that it’s either TV or the PC are missing the fact that the rise of web-based video is a new phenomenon that really can’t be compared to traditional TV.
Captain points out, correctly, that the Internet isn’t a good medium for high-definition video and then touches upon, but doesn’t directly raise, some of the issues at the heart of the network neutrality debate. He says that without some kind of prioritization, fat content can’t make its way to viewers easily.
Money is a better motivator than technological idealism. A more likely scenario is that the Internet will eventually prioritize traffic based on the customers who send and receive the data, with those who pay more getting faster service. (Network providers like Verizon may also give preference to their own video services.) This would improve video delivery for big players like the TV networks but would probably shut out low-rent sites that distribute unique, Web-only offerings.
Although Captain notes that the popularity of web video proves that viewers are willing to trade off quality for convenience, he ultimately decides that TV will win the day.
But given the choice between the Web and traditional broadcasts, most people will pick the higher performance (and instant gratification) of traditional TV. And don’t just assume that the Web will catch up in a year or two. While Internet bandwidth and video quality will improve, so will our standards. There’s already talk of increasing the color gamut and resolution of HDTV. Television quality is a moving target that the Internet already fails to hit.
Well of course TV will win the day when it comes to traditional delivery of video programming. Viewers that want to sit back and zone out with an HDTV version of CSI aren’t going to hunt the web for weird video mash-ups. That’s not the point of Internet-based video.
The web has given rise to a new kind of entertainment, a new kind of video, and it’s this newness, this user-generated, not-on-TV programming that is exciting. Besides, compression technology and bandwidth expansion might very well lead to the day when the Internet, when PCs, are just as capable as TVs of delivering high-def content.
Posted by Cynthia Brumfield at 9:47 AM | Print | Comments (1)YouTube got another smackdown from a surprising source: C-SPAN. The non-profit cable network, which is generally a good egg about the redistribution of its content, asked YouTube and iFilm to pull from their listings the controversial video of Stephen Colbert’s performance at the White House Correspondent’s Association dinner.
C-SPAN asked the online video outlets to remove the Colbert video because it is copyrighted and they have a pact with Google Video. Google Video has agreed to show the entire dinner video, not just the Colbert bit, and Google has agreed to link back to C-SPAN’s site. According to YouTube, Colbert’s “roast” of President Bush, which some observers (including the President himself) thought was sneakily mean, was viewed 2.7 million times within 48 hours of its posting.
The video is now available at GoogleVideo.
Posted by Cynthia Brumfield at 9:04 AM | Print | Comments (0)
Former scourge of the motion picture industry BitTorrent is slowly turning its ship toward acceptance by Hollywood’s establishment. The latest evidence that P2P distribution is becoming legit: BitTorrent has signed a deal with Warner Brothers to distribute movies and TV shows via the web using the file-sharing company’s technology.
Starting this summer, BitTorrent will make 200 Warner Brother films, plus various TV shows, available on the web for downloading to PCs, with the film content available on the same day and date as DVD retail releases. But Warner Brothers is obviously not completely comfortable with the technology, despite its stated embrace of BitTorrent’s DRM technology.
The films, which include “Harry Potter and the Goblet of Fire,” “The Matrix,” and “Tim Burton’s Corpse Bride,” will only be available for viewing on PCs — no DVD burning allowed. Still, in a statement Warner Brothers executive Darcy Antonellis, EVP of Distribution Technology and Operations, indicates that the studio “gets” the notion that web-based distribution of entertainment is here to stay.
Warner Bros. is in the business of making its movies and TV shows available to as wide an audience as possible. The launch of a legal BitTorrent online video service allows us to extend our reach to places our content would not ordinarily be found legally and opens up new opportunities. Entering into agreements such as this to distribute our content is not only a better way to reach existing and new customers but a reflection of the critical role distribution technologies play in the future of the entertainment industry.
Warner Brothers has some experience with P2P distribution of content — the company has tested the technology in Germany via a venture there called In2Movies.
Update: The New York Times’ Julie Bosman and Tom Zeller have a closer look at this announcement. Clearly, Hollywood is hoping that this pact stems the tide of illegal file-sharing, even if only to a small degree. The article quotes Kevin Tsujihara, the president of Warner Brothers Home Entertainment Group:
“If we can convert 5, 10 or 15 percent of the illegal downloaders into consumers of our product, that is significant.”Posted by Cynthia Brumfield at 7:23 AM | Print | Comments (0)
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