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The future of TV isn’t TV, it’s broadband.

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As government strives to keep up with the broadband age, the Senate’s Commerce Committee held a hearing today covering the future of television, but midway through the hearing I realized that the Senate has it all wrong. The future of TV isn’t to be found in deregulation — it’s on the Internet. We just have to let it happen. And to do that, Congress needs to look at how broadband providers control access to content, through caps, specialized offerings and deals.

Unfortunately, Congress didn’t do all of that. It danced around the problems of pipe owners also owning content providers and pay TV distribution businesses. It didn’t ask about caps on broadband and how that serves the interests of the pay TV business, and despite the fact that network neutrality was brought up several times and was cited by Barry Diller, the chairman of IAC (s iaci), and Amazon’s (s amzn) public policy lead Paul Misener, the way that Comcast (s cmcsk) is sidestepping network neutrality by not counting content streamed over the Xbox against its data cap was never mentioned.

So what was the Senate’s tangent today?

Netflix is 27.6 percent of broadband traffic in the U.S. according to a new report from Sandvine.

Instead the call during the hearing was for a rewrite of the 1996 Telecoms Act, which deregulated the telecommunications agency, helped establish the rules that let the Internet grow and brought about the rise of competitive local exchange carriers. But in an election year, such a rewrite seems unlikely, and frankly, worrisome given the power that ISPs and content companies have in Washington at the moment. Instead, the law that might make headway is the The Next Generation Television Marketplace Act, which was proposed in December, and was the basis for the hearing today.

The proposed act deals primarily with deregulating the broadcast industry to eliminate some required coverage mandates and to allow broadcasters to negotiate retransmission rates with pay TV providers just like cable programmers such as ESPN or AMC do. As a consumer this would likely lead to higher cable costs and the loss of public interest programming. The fundamental question that should be asked with regard to this legislation is whether or not the broadcasters’ access to public airwaves means they should have limits set upon them to serve the public interest? (The FCC gives them their airwaves in exchange for following certain rules and carrying certain types of programming.)

But that wasn’t really the focus of the hearing, despite a few questions asked of Diller, who is an investor in Aero, one of the most interesting startups to come out of the convergence of the web and television. Aereo, provides access via the web to over the air content for a fee. Consumers pay a set amount each month and then can get access to over the air television from any device. The value-add is that consumers who can’t receive the over-the-air signals from their broadcaster can still get access to the programming, can record it for later consumption and can get it on any device. Of course, it’s being sued.

So what is the real issue?

The hearing did clarify a fundamental issue about both television and broadband. The two are now intertwined, so from a regulatory perspective the fight will now be about who holds the power in terms of relationships with consumers and in terms of their relationships with content companies. On one side, we have the broadcast industry and the ISPs, which also own broadband and in many cases pay TV service access. On the other are the startups and online behemoths that want to deliver TV to the consumer when and where they want it using a variety of business models. In the middle are content creators trying to walk the line between finding an audience today and finding one tomorrow. And consumers just want to pay for exactly what they want, when they want it without spending money on superfluous channels or content.

As Barry Diller testified, the Internet is ready to provide a new platform for content distribution but the interests of pay TV providers and content companies that are linked to distribution companies also want to interfere with how content is accessed. He said eliminating the distribution companies as middlemen given content creators more creative freedom and they wouldn’t have to sign away as many of their rights, adding,”How can that not be in the public interest?”

When Blair Westlake, Corporate VP, Media & Entertainment Group at Microsoft (s msft) explained that he saw TV changing more in the past 18 months than it had in the last five years, he focused on some of the cool things Microsoft is doing with the Children’s Workshop, the producers of Sesame Street. He described children of the future interacting with the characters using the Kinect and even seeing themselves onscreen. This is cool, but sidesteps some of the issues the hearing didn’t really delve into.

Where Congress, and regulators must focus.

The Internet has become a platform for services and TV is just one of those services. We need to start thinking about TV in terms of who can deliver it at a transport layer (the pipes), how it gets delivered (via a pay TV subscription, YouTube channels, Netflix subscriptions) and where the value is and who gets to charge for that.

There is no question that the content is valuable. There is also no question that consumers find value in access that content online from any device whenever they want as Susan Whiting, vice chairman of Nielsen, testified.

So Congress should focus on who will capture the value of the new means of delivering TV, and whether or not certain players have an advantage that Congress or the FCC should investigate. Many of the Senators asking questions have come pretty far by recognizing the importance of broadband access when thinking about the future of TV.

Some questions Washington should be asking

Here are a few questions they can — and should — ask to take the conversation further:

  • If broadband is a platform for TV, should broadband providers also be TV distribution providers and content companies? How can they use that horizontal integration to their advantage? Are monthly data caps a method for them to stymie competition?
  • Do deals to provide services to specific devices without counting against a cap sidestep network neutrality?
  • Should the dearth of independent broadband providers (those providing the platform only without a pay TV business) concern Congress?
  • What rules and regulations does a horizontally integrated broadband/distribution/content player need to follow to preserve access to real competition and inovation? Are the merger conditions associated with Comcast buying NBCU enough?
  • Where is the value in the new TV business? Is it content? Access? Distribution?
  • What are the most promising new business models that can support the industry?
  • How many of those business models will require the end consumer to give up their privacy?

I can think of several more questions, including those related to protecting the rights of content creators in a completely digital world, ensuring that children’s programming meets certain standards or even mandating accessibility for all on the Internet. However, to ask these questions requires Congress to view the Internet as not just a new way to communicate and share ideas, but as a new platform that will subsume the older industries of TV, voice communications and publishing and transform them into even richer mediums to share ideas, consume entertainment and even change how we work.

It’s not an adjunct, it’s a replacement. Or it can be, if we prevent the old-line industries that will see some of their lines of businesses replaced by IP technologies from walling up the promise of the web with data caps, friendly deals with certain hardware makers and over-inflated concerns about piracy and content theft.

Congress could help by asking tough questions or doing a real overhaul of the Telecommunications Act with this framework in mind, but I don’t think it’s viewing the web yet through the right lens. It needs to think of the Internet at two levels — the transport mechanism for the bits and the services that ride on top of them. We need a regulatory conversation that recognizes this divide and encourages it.

23 Responses to “The future of TV isn’t TV, it’s broadband.”

  1. Nissan Thomas, Esq

    Comcast knew what they were doing when it decided to buy NBCU. The days of being exclusively a MSO are numbered. Americans should be in an uproar at the FCC allowed such a merger without specifically precluding the practice that Comcast has undertaken with Xfinity and the XBox. However, a la carte programming is not about saving the consumer money. It is more about the consumer having more control over the content they watch. The value in a la carte programming is the consumer experience, and the choice the consumer has in deciding what they want to watch, for how long etc. An earlier post mentioned selling themed packages on MSO’s around sports, music, news etc. That’s a novel concept, but again if I want the sports package, most likely I’ll watch ESPN, or my local regional sports network, but many of the other sports channels will not get watched, and so I am back to paying a bunch of money for only a limited amount of channels. Consumers want more freedom of choice, and that’s the value that a la carte programming will unlock. Actually, the MSO’s and the networks they carry will make more money!

  2. Scott Jensen

    Sorry, Stacey, but you’re stuck in old tech as much as the Senators you complain about.

    The future of ALL entertainment is … cellphones. Cellphones have taken over “old” tech (anyone here still possess and use a pager?), is taking over current tech (video-on-demand’s biggest growth area is “mobile”, a.k.a. cellphones), and will take over future tech (and be it). Fortunately, this means LOTS of competition between them. You don’t like caps on your downloads? Fine, there’s an app for … sorry … there’s a competitor for that.

    It is only a matter of time before cellphone companies come out with a USB cellphone that you can plug into the USB port on your computers and TVs. Bye, bye, cable TV companies.

    As for content, you can also forget about pay TV (a la carte or whatever) since the future of TV is free TV. Corporations sponsoring shows and paying for product placements in them. This free content coming over the Internet.

    The only thing Congress can do is damage the transition to the above future. Congress isn’t the answer but part of the problem. Contrary to what politicians believe, you cannot legislate utopia. The marketplace will work all this out IF left alone to work it out.

    • Phillip Dampier

      Cellphones? I assume you mean “wireless.” I can assure you that is a very, very long way off. Broadband video transport over 3G/4G networks is highly constrained because of spectrum issues, shared network usage diluting speeds, and costs.

      Carriers are already adopting usage limits and throttles to discourage video apps. Ground based wi-fi may supplement spectrum-short 3G/4G service, but when users share the connection, speeds drop quickly.

      This reminds me of people who used to say WiMAX was going to solve everything — don’t bother with fiber. Now carriers can’t run away from that outdated technology fast enough.

      For at least the next 25 years, fiber to the home service offers the most robust bandwidth, fiber to the curb can be a budget-minded incremental way to get closer to that, cable broadband DOCSIS 3 (and forthcoming 4) will keep cable in the game, and phone companies will ditch ADSL except in rural America. Wireless will be heavily rationed until cell companies adopt a different model (smaller cells, neighborhood-based antennas, major increase in Wi-Fi, antenna tech upgrades, etc.) With the natural usage growth curve, these solutions will only help keep up. Widespread Hi-Def video over wireless will remain out of reach for all but the most casual users who can stay within the caps.

      Phillip Dampier

    • Scott, you are right and wrong.

      Mobile is hip, happening and whatever, but a small little mobile screen is just that – good enough to play games on, maybe FB..but I cannot imagine watching a mega hit like avatar on a mobile or a tablet screen, with a bunch of pals lounging around, and feeling great about it!

      Of course you also talk about using “mobile as a modem” and piping content from it. Am afraid that this is not going to be a smart solution in the coming 3-5 years – for various reasons. Big screens are not mobile, so you can always find a cheaper way to pipe in the content to a big screen – ethernet (the whole point of this blog!) and cable/satellite/terrestrial will continue to be more cost-effective and offer better quality. In conclusion, mobile will not kill TV, even if (hypothetically) spectrum becomes dirt-cheap.

  3. Jared Benson

    A world of possibilities open up when people begin to perceive their television not as its historical role, but rather as a large digital display in the home— capable of delivering value to the household even when users are not actively watching tv/movie content.

  4. Feels like ISPs will eventually just become another “utility” company, similar to power, water, etc. To me, it seems obvious that the value is in the content, and that’s why distributors (e.g. Comcast) see value in buying content providers (e.g. NBCU). Consumers will always pay for content AND the means to access that content, but the distribution is just a utility that will eventually be recognized as essential to living in our modern era (similar to power, water, etc.).

  5. Pamela Wolf

    Thank you Stacey for sharing insights. Very interesting. I totally agree with you that the battle/issue is regarding internet usage and rights. Question I still don’t have answered is where do the Telecoms fit in? Given that more and more people “consume” entertainment on the fly, they ultimately end up using telecom service – 3G/4G, Wifi and whatever else in the future. As far as I can see, the battle is about who controls customer data and today the telecoms seem too. They control streaming, payment, etc. They don’t yet know what to do with it, but that’s just a question of time….. Any new regulation that does not take data control (and am not just talking privacy) into account will eventually be faced with a bigger issue in the future. Data is the currency of tomorrow, so who is the banker?

  6. Imagine this hoarding showing up some 30 years ago “The future of restaurants is not restaurants – it is fast food”.

    Sorry to set a cat amongst the pigeons, but why should broadcast and broadband be mutually exclusive ? Fast food coexists with traditional restaurants – and perhaps the same will hold for TV and internet as well.

    There will always be a cost dividend associated with the distribution of premium/live content – and cable/satellite/terrestrial options fit the bill in a lot more economical (and ahem, sustainable/green!)way than broadband would.

    There will always be that nice cute youtube like vid that one would like to watch, based on social recommendations. Also movies that one would like to watch at a whim. Or old TV shows for, well, old times sake. These will be ripe for download/streaming, and why not!

    Advertisers will come to terms with this new reality (at least for the foreseeable future) and will place ads wherever eyeballs are present. Sadly, no escaping the ads on either medium.

    Users will not mind the two different options, offering possibly different content, or at least serving different needs. Users will learn. So will device makers – both traditional ones such as Tv/STB makers but also the wanna-bees such including Google and Apple.

    One final request : “The future of TV”, sorry to say, is too cliched. Time to rethink the future of TV predictions.

  7. Greg Fitzgerald

    I’d be willing to pay another 50% more for my broadband connection in return for an a la carte option for cable TV. Cable TV is one of the few business models that forces the customer to pay for what he/she doesn’t use. Imagine if you had to get 250 magazines delivered to your door each week or month in order to get the 10 or 12 magazines you read.

  8. Jim Reynolds

    You forgot the most important question…In the two Americas, who is responsible for building broadband network neutrality and is it fair to price grocery store end caps more than shelf space?

    • Jim, what was that endcap question referring to? I was at a loss when the Senator asked. Your first question is one I struggle with. If we were truly competitive net neutrality wouldn’t be an issue. But we’re not, so it is. And if the government (taxpayers) doesn’t want to pay then broadband is private and needs to be profitable. And there are certainly places in the U.S. where deploying broadband isn’t profitable. So then the debate is how far the government can/will go to deliver competition and the methods by which it does this.

      • Ernie Johnston

        While the cable companies and the telcos have done a great job introducing consumers to high speed broadband, there will never be true competition until there is a third provider. One way for that to occur is for a new entrant that uses 21st century technology, such as Fiber-To-The-Home & Small to Medium-sized Businesses with Small Cells for wireless, to deliver converged Fixed & Mobile, Live & On-Demand, Video, Audio (phone & radio) & Data (Internet) to customers TVs, Laptops, Tablets & Smartphones. A third provider would ensure net neutrality.

        ObtW: Pricing Delivery (Internet) separately from Content (cable channels) would most likely drive down the cost of programming to under $30 per month for Extended Basic cable. More reasonable in most users eyes. In fact, one HUGE pipe that delivers all services would most certainly be more efficient and lower the costs of such services. In addition,it would be flexible for the introduction of new uses we have not thought of yet.

  9. Billy Polcha

    The “public internet” was not built for Video thus it will not be the disruptive force some think it will be. I think the MVPD’s have a great product that is fairly priced. “A La Carte” would destroy the quality of the content.

    • The question might be can the public Internet adapt to video through technologies like adaptive bit-rate streaming and will ISPs allow it to adapt. I’m glad you like cable and find it fairly priced. For those who do not, the Internet should and could provide ore options, thus competition. If the pay TV guys don’t get in the way. Going a la carte might mean we get less of certain types of content, but I have faith to industry can adapt and deliver what consumers want and still get paid.

      • Unfortunately Stacey, while I agree with you stating that internet could and should provide more options that sad fact is that the ISPs won’t allow that to happen if it damages their current revenue stream. While I believe “cord cutting” is real it will never be allowed to be adopted by the masses as a way to save money without some major government intervention which isn’t likely to happen given how much influence companies have in Washington. The way I see it to do any amount of video streaming you need a high speed internet connection which the cable companies provide. Who is to say that if tens of millions of people dropped pay TV service that they wouldn’t raise the price of internet to counter that lost revenue OR offer a huge discount on internet service when bundled with a pay tv subscription. Either way I don’t see my $160 comcast bill going down substantially in the near future unless I hook up my tv to a pair of old fashioned “rabbit ears”.

      • Billy Polcha

        Public Internet video distributors have adapted & that technology is called: Content Delivery Networks(CDN). Problem is, building, then maintaining a CDN & paying for Broadband is far more expensive than originally planned.

      • Billy Polcha

        However, the future of TV could be IP(Internet Protocol) based but it will not be the Public Internet. Private IPTV networks could be the future, think ATT’s UVerse.

      • realist50

        I think it’s a myth to believe that a la carte will lead to substantially lower bills for consumers. Almost all channels are $1 per month per subscriber or less – usually substantially less – so it is essentially an elaborate system of cross-subsidies for anyone who watches at least a few programs per week.

        The one area that looks like an exception is sports programming, because those fees have gotten so high. As an example, Viacom’s CEO has noted that ESPN’s carriage fees (per month, per subscriber) are higher than those for all Viacom channels combined. In most areas, the 3 or 4 most expensive networks are all sports networks. If those went a la carte, people who don’t watch sports would see a discount.

    • Excuse me! Ala carte can be served by the current broadcast distribution methods. I don’t want to pay for channels I will never use. There’s no inducements for me, the consumer to watch the addition channels, they are stuffed down my throat.

    • Completely wrong. Consumers almost universally agree that Cable TV is filled with junk content, and once you understand the cable industry’s perverse incentive models, its easy to see why so many people are dissatisfied. Because channels specifically cannot be de-bundled by a consumer, networks are incentivized to create a very small sliver of “must have” content; content that the cable companies must obtain, to keep consumers minimally satisfied. But the cable company can’t buy just the content they want, they must buy the entire network, leading to a system where the network is incentivized to fill the remainder of their air time with the cheapest programming possible to maximize profit. The cheapest programming, not coincidentally, is also the stuff that sucks to watch.

      A La Carte would result in a far smaller amount of content, but overall much higher quality content.

      • Phillip Dampier

        The entire model of linear cable programming networks really needs to be re-examined. We don’t need a 500 channel universe — and frankly most of those channels repurpose/repeat programming and cram program length ads in the free space.

        The answer here is a combination of core cable networks and on-demand for everything else. Do you need to waste spectrum showing Murder, She Wrote on Hallmark and other networks four times a day when you could simply put the entire show library up for on-demand viewing? What about Discovery’s endless mini-nets that exchange content between themselves? Why not have one Discovery Channel with on-demand access to their library of content?

        A-la-carte is a great concept, but the industry will not toss out their current business model, so the pay-per-channel retail rate will be outrageous and result in little savings. A better option might be a theme pack of similar networks. Don’t want sports? Don’t add the sports channel pack. Want news but no music? Buy the news/info pack of channels and not the music pack.

        Niche networks can still come along for the ride and get needed compensation to survive, but consumers also can delete entire groups of channels they absolutely will never watch.