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The Department of Justice is looking into cable providers’ power over how and where consumers can access television content via the Internet, according to the Wall Street Journal. It’s a step that finally acknowledges the vertical integration of cable providers as well as their ability to influence consumer behavior because of their control over the last mile.
The investigation likely arose not just because of the issues surrounding access to cable over devices and data caps, but also due to a realization by the Justice Department that if the cable companies sell their spectrum to Verizon and eliminate Verizon as a wireline broadband competitor, the cable industry becomes the nation’s most advanced source of last-mile broadband. And since the DoJ is in the course of deciding whether the spectrum deal is anti-competitive, perhaps it realized that it had better understand a bit more about how cable is influencing and directing the future of television by virtue of its control over broadband.
The WSJ article cites sources at video providers such as Netflix (s nflx) who say that the DoJ has been asking questions over issues like data caps and deals that cable providers sign with content companies. It also looking at authentication, the process by which TV services ask viewers for a cable subscription before showing them content. My own sources have confirmed the DoJ’s interest.
Where’s there’s smoke, there’s a fire.
The rise in authentication is troubling, because it prevents customers who want to subscribe to alternative forms of content from being able to do so without buying a full-on cable package. For example, when the Olympics are broadcast this Summer, customers who want to see all of the events as they happen in real time will have to have a cable subscription, while those without will have to make do with broadcast.
The issue of broadband caps is harder for most customers to grasp because they aren’t faced with authentication screens, but are instead going to have to think about the potential of hitting a broadband cap after using too much data each month. And since caps are often high enough for most people to avoid, while still forcing them to think about their streaming, it’s for now a pretty mild deterrent. FCC Chairman Julius Genachowski has said that the broadband cap issue isn’t one that’s he’s concerned with, but it’s one we at GigaOM have watched closely.
There are two potential issues with caps. One is that it undercuts the idea of unlimited wireline broadband for consumers and thus acts as a deterrent on innovation, and two is that it serves to protect the video offerings of many providers. An hour of video can consume between 1 gigabyte and 2 gigabytes depending on the length and screen resolution of the content. For families that stream a lot of video, hitting the old Comcast cap of 250 GB per month isn’t impossible. And even though Comcast recently raised the cap to 300 GB per month, it’s still creating a ceiling that consumers could conceivably hit if they watch a lot of video.
Who gets to avoid the caps? That’s the question.
Comcast is at the heart of another data cap issue — namely what should regulators do when a cable provider lets some content avoid its caps. Comcast recently announced that it’s Xfinity on demand service would be available through the Xbox, but that content streamed only from that particular device wouldn’t count against its cap. Following that news, others reported that Comcast was prioritizing its own traffic that was served through the Xbox even when the quality of rival services such as Netflix suffered.
There’s a technical explanation for this that isn’t as nefarious as it might seem, but this doesn’t change the fact that the DoJ should nonetheless ask how Comcast chooses the vendors who can offer service that doesn’t count against the cap. The risk is that alternatives to cable video, which can cost consumers roughly $86 a month, will be stymied because cable providers like Comcast have the market and infrastructure advantage to keep rivals from delivering online video.
And that in a nutshell is what’s occurring. The Department of Justice should be asking about this, not because a consumer may not want to pay for cable and still wants to Watch Game of Thrones on demand, but because an entire market is undergoing disruption because of the Internet, and cable providers are trying to use their dominant position to halt that innovation.