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Did the dam just open for internet TV? What the FCC news means for the cable industry and you

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Why can no one figure out how to sell TV over the internet? Some of the biggest names in tech have tried and flamed out, like Intel, or offered only half-hearted solutions, like Apple TV. The reason these companies have come up short has less to do with technology than it does with a business and regulatory logjam that protects incumbents.

Now, that logjam is about to break. This week, the FCC announced a process that is poised to change the TV business and let everyone from [company]Apple[/company] to Aereo line up to compete with the cable companies.

What exactly did the FCC announce?

FCC Chairman Tom Wheeler said in a blog post he is passing around a proposal that would allow would-be internet TV providers to operate the same way that cable and satellite companies do. The goal is to create a “technology-neutral” regime for TV.

Why is this a big deal?

This is important because, right now, internet services are shut out of a special law that lets the cable guys offer broadcast channels like CBS and Fox — which are the core ingredient of any pay TV package. If Wheeler’s plan works, it will “break open the dam” for internet competitors, in the words of one person familiar with the industry, by letting them offer those channels too.

Will it change the price I pay for TV?

Possibly. But keep in mind that any new breed of internet TV companies that come under the same legal umbrella as the cable and satellite companies would also have to pay “retransmission fees,” which broadcasters can demand as the price to air their signals. Various reports suggest those fees are $1 to $2, meaning a fledgling internet TV provider might have to pass along $8 in retransmission fees every month just to offer the four big broadcast networks (CBS, NBC, ABC and Fox).

Add in the internet TV providers’ own costs, and price of any speciality channels (such as $7.72 for ESPN or $1.92 for TNT) they might offer, and the final figure could look a lot like a cable bill. But the difference is that, with the arrival of more competitors, consumers could have the option of getting only the channels they want. (It’s also likely that internet TV companies would include other offerings, such as DVR storage or music subscriptions, along with the channel packages.)

Who are the winners and losers?

If the proposal passes, consumers will have more choices to escape their cable companies — making them clear winners. Also among the winners are tech companies like [company]Apple[/company] and [company]Google[/company] and would-be disruptors like Aereo: if they have access to broadcast channels, and predictable regulatory regimes, they can go full-speed with new TV investments.

Meanwhile, count cable companies like Comcast among the losers. The current Cable Act restricts who can come to the TV table, and Wheeler’s plan for “technology-neutral” TV platforms would undercut that advantage.

As for the broadcasters, their statement suggests they are happy with the FCC proposal. This is likely because “technology-neutral” will mean more companies paying retransmission fees, which are an increasingly important revenue source at a time when advertising dollars are moving away from live TV.

When will we know more details about how this will work?

It’s still early days. Wheeler has yet to publicly release the proposal itself, and for now is circulating it internally among other FCC Commissioners. If they support it, the agency will publish a draft in the next few weeks that will be the subject of a public comment process.

Will this actually happen?

The process could take up to a year to wind its way through the FCC process. Meanwhile, Congress could step in and start writing a law that supersedes the whole thing. But for now, Wheeler’s plan appears to be a popular one — meaning there’s a good chance that consumers in 2015 could have a bevy of new TV choices.

12 Responses to “Did the dam just open for internet TV? What the FCC news means for the cable industry and you”

  1. spixleatedlifeform

    I’ll “pay” for TV, regardless of end provider, when I don’t have to endure ANY advertizing to do so. Otherwise, whatever “solution” beyond free TV is offered, they can go soak!


  2. “as long as cable companies control the internet pipes”? Jeff, the cable companies built the internet pipes. They invested multiple billions of dollars so that you and I don’t have to rely on dial-up, so that you and I can converse this way, so that you and I can watch TV on our smartphones etc.
    A-la-carte programming, whether through broadband or through “cable” or satellite will cost infinitely more per channel than the bundle. The Programmers will not give up the masses. (and the license fees and advertising dollars that come with it)
    Programmers receive over $40 Billion dollars a year in license fees from cable, satellite and Telco companies by way of you and me and the little old lady who doesn’t watch anything but CBS news and Hallmark channel. That is also why we have such great television shows that pop up from small relatively unwatched networks.
    Mad Men put AMC on the map for example. If AMC did not receive license fees that they negotiate with the cable operators, a small company like that, way back when, would not have had the funds to invest quality programming.
    The cable bundle is the best deal out there. (And I don’t work for a cable company.)

    • Thanks for the comment, Peter, but I disagree that preserving the cable co’s monopoly over pipes is necessary to produce great content. Don’t get me wrong – I agree that good TV requires someone to pay for it. But as Stephen notes, others will step up. Indeed, Netflix and Amazon are already doing so.

      • Netflix, Hulu, etc. have prospered because of the investment in broadband. Netflix would not exist in dial-up mode. The companies who built the internet should be allowed to prosper and cable is not a monopoly. It started as a gov’t “regulated monopoly” because multiple companies could not/would not invest billions of dollars to “wire” America only to get 15 or 20 percent of the customers. Therefore the gov’t offered companies “franchises” to invest BILLIONS of dollars to build what we have today. When Netflix was a DVD business, they didn’t cry about paying the USPS money to deliver their DVD’s. There is no difference. Netflix should pay the company that built the infrastructure that has made them so prosperous.

    • People no longer want linear TV — except when they do. Sports, election results, breaking news, etc mean linear TV will always have a certain hold, and that’s why live channels are likely to remain table stakes for most TV package offerings..
      But I take your point that, most of the time, no one cares about linear TV — on the internet or elsewhere.. (and there’s also the point that TV everywhere has been an unloved debacle)

    • Fred Sanford

      Yes, put and end to arrogant cable companies and their stupid commercials with underlying social politically correct messages. Why have we tolerated it so long. If my wife can ever be weaned off these brain numbing programs, I personally take a sledge hammer to every tv in my house!!!!!!!