Pay TV providers have long complained that TV networks force them to carry channels they don’t want. But in recent weeks, those complaints have turned into action, with Cablevision suing Viacom to break up the network’s bundle, and Verizon starting to talk about paying programmers based on their performance, as opposed to a flat fee for a bundle of channels.

So who is trying to break up the bundle, and how? Check out our list:

Verizon: Putting its money where your eyes are

Verizon execs have been talking for some time about changing things up, to the point where director of consumer video services Maitreyi Krishnaswamy, who is responsible for the company’s FIOS TV service, said last year that cord cutting wasn’t growing fast enough for the company. The logic behind those remarks? If consumers cut the cord, then programmers are going to be more willing to rethink the deals they’re having with Verizon.

Verizon sells bundles – but it would like to change them.

Looks like this is now beginning to happen, at least on a smaller scale. The Wall Street Journal reported this weekend that Verizon is pressing smaller channels to pay them based on their actual performance, as opposed to a flat fee per subscriber. The result wouldn’t actually be a pick-and-choose TV lineup. Instead, Verizon would potentially distribute even more channels — but only pay the ones that are actually attracting eyeballs.

Making this model work won’t be easy for Verizon, especially when it comes to the biggest cost drivers, which are sports channels like ESPN. But some smaller channels might be eager to sign on. This could potentially lead to some cheaper bundles that offer actually more content, save for some of the most expensive fare.

Cablevision: Suing to get rid of the duds

Cablevision has chosen to take its attack on the big bundles to the courts: The company sued Viacom last month to get out of a contract it struck just two months earlier, arguing that Viacom is forcing the company to carry a number of channels its customers don’t want. The lawsuit is about a total of 12 channels like MTV Hits and VH1 Classic, but it could ultimately threaten the whole concept of a bundle — which is why it will likely get settled out of court.

Aereo: A new kind of bundle

Aereo is circumventing the cable bundle altogether with an offer that’s squarely aimed at cord cutters: The company offers streaming of broadcast networks like ABC, CBS and NBC for as little as $8 a month.

Aereo’s tiny antennas could have a big impact on bundles.

It’s undercutting the cable companies through the use of a legal loophole, which involves an elaborate setup of miniature antenna farms, and resulted in a lawsuit brought against the company by those very broadcasters. However, the company won a first round last year, and is now looking to expand to close to two dozen cities this spring.

To learn more about Aereo and the company’s take on the future of television, check out our upcoming paidContent Live conference, where I’m going to chat with the company’s CEO Chet Kanojia about these very issues.

Boxee: Unbundling the DVR

Boxee’s new Boxee TV device comes with a promising proposition: The device won’t just let you watch major broadcast networks without paying for cable, it will also upload any show airing on those networks to a cloud DVR with unlimited storage and streams them not only to your TV, but also to your iPad or computer. Boxee’s cloud DVR is currently only available in limited markets, and the device itself has been met with mixed reviews – but the idea behind it is definitely disruptive, because it’s essentially TV Everywhere without the expensive cable price tag.

Netflix: Showing that you can succeed without a bundle

Netflix has long shied away from discussions around cord cutting and cable bundles, with execs insisting that that wants to be complementary to cable, and that it will eventually just be another channel that consumers subscribe to, just like HBO.

Netflix’s House of Cards is like a cable show, but without a cable bundle.

However, the big difference is that you can only get HBO as part of a premium cable bundle. Netflix, on the other hand, is available to anyone, no matter whether they pay $50, $120 or nothing at all for cable.

That strategy has been working well for the company: Not only does Netflix now have 33 million subscribers, investors have also given the company a thumbs-up on its original content strategy, with stock roughly doubling since the beginning of the year.  And with new, original shows about to debut on Netflix every month this spring, the company seems to demonstrate HBO that you can, in fact, succeed without being part of a bundle.

Image courtesy of Flickr user HarshPatel;Photographer.

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The operator now wants to invalidate a deal the two parties struck just two months ago, and instead just get the good stuff. You know, Comedy Central, Nickelodeon, and maybe a little bit of MTV proper.

Cablevision sent out the following statement about the lawsuit:

“The manner in which Viacom sells its programming is illegal, anti-consumer, and wrong. Viacom effectively forces Cablevision’s customers to pay for and receive little-watched channels in order to get the channels they actually want. Viacom’s abuse of its market power is not only illegal, but also prevents Cablevision from delivering the programming that its customers want and that competes with Viacom’s less popular channels.”

A Viacom spokesperson sent us the following statement in response:

“At the request of distributors, Viacom and other programmers have long offered discounts to those who agree to provide additional network distribution. Many distributors take advantage of these win-win and pro-consumer arrangements. Reflecting the highly competitive cable programming business, these arrangements have been upheld by a number of federal courts and on appeal. Viacom will vigorously defend this transparent attempt by Cablevision to use the courts to renegotiate our existing two month old agreement.”

The lawsuit also alleges that Viacom threatened “massive financial penalties” if Cablevision refused to carry the 14 lesser-watched channels in question. The operator is asking for a permanent injunction that would bar Viacom from bundling its lesser-watched channels with its more popular core offerings.

On paper, this lawsuit is an interesting challenge to the cable bundle, which has been largely dictated by the broadcasters. Operators have long said that they would like to sell their customers smaller and more flexible bundles. Broadcasters have made this impossible by either directly bundling all their channels into one big package, or by other conditions that make sure operators can’t sell bundles without certain channels.

However, it’s unlikely that this lawsuit will be fought out until the bitter end. Because at the core, this is about something else: Broadcasters have in recent years significantly increased the carriage fees for their fares, leading to a number of nasty fights that left consumers without their favorite channels for weeks. In the end, content owners always won, and carriers caved in, agreeing to pay more before their customers have yet another reason to cut the cord.

Cablevision and Viacom negotiated a last-minute carriage agreement in late December. Details of that deal were not made public, but it’s obvious that Cablevision wasn’t happy with the outcome. Now it wants to get a better deal, and threatening the bundle is the biggest asset it has in this fight.

Image courtesy of Flickr user  nyghtowl.

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In the last month, cable companies have switched from justifying their caps as a means to handle congestion — or bandwidth hogs — and are now saying it’s about recovering the billions invested in their network. In January the NCTA president (and former FCC Chairman Michael Powell) said when asked about caps as a means of controlling congestion: “That’s wrong. Our principal purpose is how to fairly monetize a high fixed cost.”

After the FCC has decided to take a half-hearted interest in caps and users and industry participants questioned the accuracy of how such caps are measured and the implemented, the cable industry is changing its justification for their policies. The problem is that its latest justification is just as false as its previous one.

The fixed costs to deliver broadband are refuted by the high profit margins broadband delivers to cable firms, the fact that upgrades to higher speeds costs relatively little and that most of the infrastructure cable providers built is already paid for.

The Open Technology Institute, a policy group that, yes, takes money from Google, has released a report attempting to quell this line of argument form the cable industry. Data points cited in the report include the ever popular fact that cablecos get 95-97 percent profit margins on their broadband services, that the billions invested in their networks in the early 2000s were to compete with new pay TV products from the telcos and the satellite broadcasters, and that adding broadband to existing cable infrastructure costs very little.

To back up that last claim check back to Cablevision’s comments to Wall Street that upgrading to DOCSIS 3.0 which provided faster upload and download speeds, were $70 per home (Cablevision doesn’t have a cap.) Other analysts pegged that number at about $100.

From the report:

Yes, cable companies and others have invested billions in building networks, but they have received more than healthy returns on those investments for several decades. According to analyst estimates listed on the NCTA website, cable companies invested over $185 billion in capital expenditures between 1996 and 2011. But these networks generated close to $1 trillion in revenue in the same time period. Moreover, both Comcast and Time Warner Cable are now spending less on capital expenses relative to revenue than in past years.

I’m not actually against the 95 percent profit margins or even caps if the market for broadband were competitive. Unfortunately, when more than thee-quarters of American homes have the choice between only two providers it’s clear that competition for the basic broadband service is limited. And when you look at how competitive the services are based on speeds there are big differences. For example, AT&T U-Verse tops out at 24 Mbps on the download side while cable tops out at 50 Mbps or even 100 Mbps.

But as someone who has documented legitimate questions about caps; their size, their spread, their rationale and their effect on innovation, I’m hoping that more and more consumers, lawmakers and regulators wake up to the fact that these caps aren’t necessary and that they pose a tax on innovation.

The NCTA has issued a statement in response to the report. I’ve included it below:

“It is regrettable that New America’s latest salvo merely repeats misleading statistics and shop-worn arguments. Their entire analysis is based on a flawed understanding of the broadband business, and the historic and ongoing investments necessary to build and operate world class networks. As the FCC and numerous economists, scholars and commenters have pointed out, tiered pricing models promote fairness by more equitably apportioning burdens between high volume and low volume users. New America’s old advocacy has gotten stale.”

This story was updated at 3 pm with a statement form the NCTA.

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The ConnectNYC Fiber Challenge, which is taking applications until Nov. 27, will offer $12 million worth of wiring work by Time Warner and Cablevision to wire winning businesses. The city’s Economic Development Corporation, which is leading the competition, expects to provide a fiber connection to 100 businesses in the first year and up to 240 by the second year.

Fiber with strings attached

That’s right. The city is helping sponsor a contest where the winner will get free fiber wiring to a premise and a one-year contract at a negotiated rate with either Time Warner Cable or Cablevision. In exchange Time Warner and Cablevison get a new customer (that they get to approve ahead of time) who is locked into a negotiated contract for a year, and who will also sign away publicity rights for the following three years.

In some ways this is a smaller version of Google’s competition to choose a city where it would deploy a fiber-to-the-home network. The search giant eventually got applications from more than 1,000 municipalities, but at least in that case Google was building out an entirely new network with miles and miles of new infrastructure. Plus Google would cover a larger area and the winning city didn’t have to agree to contract to buy service for a whole year.

If this is what it takes to get high speed broadband deployed in this country, we are screwed. Letting ISPs pick and choose where and who they elect to cover puts even more power into the hands of uncompetitive ISPs. Plus they are making the end consumer do the work of getting their landlord on board with the build out –something ISPs have employees to take care of when they plan their expansions. And while ISPs do sometimes add the cost of deploying fiber-to-the-premise for business customers who ask for fiber, that’s not always a given.

That NYC gets a sweepstakes instead of an all-in fiber-to-the-premise deployment is frustrating. New York’s slow broadband has been a common complaint among startups in the city. Fred Wilson blogged last year that New York’s startup community needed more bandwidth and more fiber connections to thrive. So while this contest is nice in that it could offset the cost of wiring for fiber, it’s also not the answer to the city’s overall broadband problem.

Here’s what you need to know

Fiber Challenge applicants will be judged on how much impact a fiber connection will provide for workers and productivity; how close the applicant is to other businesses or industry clusters; and whether they are in an underserved area for broadband. Winners will be selected early next year according to four categories corresponding to where they are located: in a Cablevision or Cablevision Industrial Business Zone; or in a Time Warner or Time Warner Industrial Business Zone.

The final winners will be selected by the ISP “based upon the feasibility of wiring a finalist’s location and the potential revenue to the ISP.” So if wiring a business is too difficult or is not expected to bring back enough revenue, you may be out of luck. It costs an average of $50,000 to build out fiber to a business.

It’s not clear how big an impact the fiber build out will have on the startup community. If the ISPs seek out clusters of businesses in one building, it will be a help but could leave out many others who don’t happen to work alongside other applicants. But at least a quarter of the money will be spent on small companies in Industrial Business Zones, which are usually not as wired for high-speed broadband connections as other parts of the city.

The challenge is the latest step in New York’s efforts to build a local technology hub. The city has been trying to position New York as the competitor to Silicon Valley but it still struggles with some basic issues like broadband and talent, something the city’s Mayor Michael Bloomberg has been tackling with more Wi-Fi and a new technology campus.

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What we talk about when we talk about caps.

The rise in caps has let ISPs influence the internet in subtle ways — most of which seem harmful to innovation. The first is to take away the idea that wireline broadband is an unlimited service, despite the ability of smaller ISPs to build out networks that don’t come equipped with caps. As you can see from the chart below, most of the ISPs are implementing overage charges associated with their caps. This isn’t really about managing their networks for congestion. If it were, they’d implement a different type of pricing model that cost users more to surf at peak times. No, this is about protecting their entrenched TV businesses as well as keeping the price for service high, despite the decreasing costs to send traffic over the network.

It’s also about grabbing more of the profits from the growth in internet services such as Netflix and Google, although caps take out those frustrations on users as opposed to the over-the-top providers. Instead of providing faster speeds for users and encouraging the growth of services that would require users to upgrade to those speeds, ISPs have taken their control of the last mile and are charging for bytes. So instead of paying more for better service, customers will pay more for what they use. This is a model that works for certain industries (think gasoline and electricity) but when it comes to encouraging more usage and innovation on the internet, the utility model seems short-sighted. Other ISPs may be thinking this same way.

For example, what if Intel had told game developers or Microsoft not to write software that would stress its chips — or penalized programmers for every megahertz of performance they used over a certain threshold? We’d end up with crappy software running on slower machines. Instead Intel encouraged people to write software for its chips and invested billions in making them faster so people would upgrade. Along the way it opened up market after market for the PC. Utility industries aren’t typically hotbeds of innovation.

The Federal Communications Commission, which is charged with tracking the spread and quality of U.S. broadband, has so far been quiet on this issue, not even collecting data to track how the shift to capped broadband has affected users, much less the industry. That may be changing. But it’s time that we ask if we want the internet to look like the utility or a source of continued innovation.

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On Tuesday, for example, Cablevision announced that its Optimum app will now be available for Kindle Fire users, further proliferating the technology that lets the cable company’s users stream live TV programming from their receivers to notebooks, tablets and smart phones anywhere within their home.

Also read: Few cable users aware of TV Everywhere

Cablevision says that 1 million of its 3.2 million video subscribers are using Optimum.

TV Everywhere, of course, was the broad pay TV initiative introduced by Time Warner Inc. and Comcast back in 2009, intended to let cable and satellite subscribers watch programming on next-generation devices.

TV Everywhere player apps provided by content providers are still profoundly limited based on what deals have been cut with the myriad pay TV operators and device makers.

For example, I can download the Watch ESPN app for my iPad 2, but I can’t use its core functions because Disney hasn’t yet made a TV Everywhere deal with my multichannel company, DirecTV, for ESPN.

Also read: One TV Everywhere deal down (Many more to go!)

At least in my home, however, I can watch a live stream of ESPN — or any channel I subscribe to — on my tablet or iPhone via the DirecTV Everywhere app, provided my DirecTV digital video recorder is connected to my home network.

Currently, the box is not connected. But I called the satellite carrier’s tech support center Tuesday, and a friendly rep agreed to next-day me free of charge the company’s “Cinema Connection Kit,” which he said will connect the receiver to my home network with minimal setup.

A Cablevision rep I spoke to right after said his company offers a similar gear free of charge. However, since Cablevision is also the internet service provider for most of the customers it delivers video too, most of its boxes are already connected to users’ home networks.

For its part, Cablevision also announced its second-quarter earnings Tuesday, reporting a 0.5 percent increase in revenue to $1.7 billion and a 16.7 percent profit decline to $26.3 million. Video subscribers stayed flat at 3.2 million.

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Thankfully, the Federal Communication Commission started collecting data to help consumers (and the agency) see if consumers get what they pay for when it comes to broadband. And for the most part, they do. The accuracy of an ISP’s advertised speeds are just one measurement of broadband quality offered in the FCC’s latest report. So check out the charts below to see how your ISP fares.

The FCC uses a variety of tests to get this information, including sending out routers to households that report back speed and packet quality information (I’m one of the test homes). It first reported this data last August as part of an effort to improve the type and quality of data it had about U.S. broadband providers. The most recent report, released Thursday, involves a lot of FCC chest-thumping about how its measurements have improved service to consumers over the last year.

But here’s what really matters to consumers. How good is your provider? In general, fiber-to-the-home services such as Verizon FiOS performed closest to or above advertised speeds and had the lowest latency, followed by cable and then DSL providers. Latency is a measure of how long a packet takes to traverse the network, and it matters for services such as voice calling over IP lines, gaming and video streaming.

Here are providers with the best peak and average download speeds.

Note that in the above chart the peak and average speeds are fairly closely aligned. This means that network congestion at peak times isn’t really causing a problem for consumers when it comes to speed.

Here’s how those same providers fare on peak and average upload speeds.

The report also takes a look at data consumption and when people consume it. Generally during the 8-10PM block is when the FCC saw providers fall below their advertised speeds, presumably as their networks became more congested. Some ISPs have more even speeds than others, indicating that they may have less reliable ways of handling congestion.

The report has plenty of great information, such as the quality of service broken down by speed tiers as well as a chart indicating that as you give people faster speeds they tend to consume more data. That may be obvious, but it’s always nice to have numbers that can back this information up. And it’s even nicer to see areas such as advertised speed improve over the previous year when the FCC began collecting the data. Shining light on broadband performance does improve it.

Speedometer photo provided by Nathan E Photography.

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A spokesman for the FCC notes that the FCC is still looking at both the spectrum and the competitive issues associated with the deal. Those competitive elements are the marketing agreements and the Joint Operating Entities that the cable companies and Verizon would form, could mean for consumers.

As I’ve written, I think both would be bad, with the Joint Operating Entities being potentially worse for consumers as the cable providers and Verizon seek to control technology that they could use to cut other players out of consumer’s homes — to the consumer’s detriment. As I wrote in February:

The marketing agreements create a shadow joint-operating entity (JOE) between Verizon and the cable companies. This JOE is worrisome to those of us who realize that getting Verizon in a room once a month with the executives at the nation’s largest cable companies could lead to agreements about technology, deployment strategies and R&D that will be controlled by the large ISPs. The fear is that this organization will be able to slowly stifle new innovations for Internet services or even devices attached to wireline networks by creating technologies and standards that are only available to the JOE participants. Perhaps others might be able to license those technologies, but there’s no guarantee of that, or that the JOE would do so for a fair and reasonable amount.

Verizon’s expanding its fiber-to-the-home empire has goaded the cable companies to constantly boost their broadband speeds, but if the deal get approved that competitive dynamic disappears. It also means cable companies might not sign partnerships with smaller, or hungrier wireless companies such as T-Mobile or Sprint.

So far, the idea is that the DoJ and/or the FCC could put some conditions on the JOE to prevent collusion among the cable companies and Verizon as well as try to extract concessions related to guaranteed speed improvements, but those conditions would then require dogged enforcement and only last so long.

If there is any doubt in the regulators’ minds that this deal is primarily about airwaves, they should put the kibosh on the marketing and joint operating entity associated with the deal and watch the cable companies renege on the deal. Nationwide licenses with 20 to 30 MHz of spectrum for $4 billion is pretty cheap. My hunch is if the marketing agreements and JOE were killed, we’d see the cable companies try to back out and get the true value of those airwaves.

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