Commentary

Walled Gardens: Good Or Bad For Consumers?

The month of February witnessed news, discussions, and potential relationships between cable operators, cable programmers and network broadcasters regarding online distribution of video content.  First hulu.com shut down video content distribution to Boxee and TV.com. On the tails of this announcement, the Wall Street Journal reported "top cable-television providers and TV networks are exploring a sweeping solution to the threat of online video: putting large numbers of cable shows online, but accessible only to cable subscribers."

A lot of rhetoric followed these newsworthy items.  But there was very little discussion on whether controlling content distribution and walled gardens is good or bad for consumers.  First, let me say I am pro-net neutrality, as I don't believe that broadband providers should be able to restrict Web navigation.  But after giving thought to programmers controlling content distribution and cable operators providing selected content available only through walled gardens, I'm taking the position that, YES!, these businesses have the fundamental right to do so and it's good for me as a consumer, as long as we have the right regulation for net neutrality.

Why do I say this?  

1)    As a consumer, I want the most entertaining content, consumed any way I choose, at lowest possible cost, preferably free.  

2)    I recognize that the value chain -- broadband providers, video programmers, content creators and owners, actors, script writers, grips, etc. -- must earn a positive return on their expenditures and time, otherwise their businesses will cease to exist.  

3)    Content owners, like book authors and software developers, have the fundamental right to do with their intellectual property as they choose; whether that means giving away their efforts free of charge or maximizing an economic return through subscription fees or advertising.
 
Before you write me a scathing response that cable operators and cable programmers are just trying to protect their turf, take a time out and look at what has occurred and is occurring in cable television offerings for the consumer. 

With television today we can choose different packaged offerings: 100 channels, 1,000 channels, premium movie channels, etc.  And we can choose among cable, satellite or telco operators.  Every week there seems to be a better, richer and less expensive television offer showing up at my home.  Each time I review one of these solicitations, I question the dollar value of all television delivery offerings as there is a finite number of hours available for television video consumption, and more choices for alternative delivery methods due to innovation.  Fifteen years ago, would 500 television channels and every movie channel offered be worth $100/month?  Absolutely.  Is it worth it today?  Maybe.  Will such an offering be worth $100/month in five years?  No way!  Technical advancement has lowered the barrier (cost) to create, produce and distribute video content.  In economic terms this means more supply, more choice, and a lower median value for video delivery and video content. 

With net neutrality, we're free to navigate to any site we choose.  We have choices among broadband providers, and we have entertainment alternatives.  If broadband providers want to strike deals with content owners for exclusivity on video content, I say go for it!  Allowing broadband providers to charge a premium for their offerings and attract new or keep existing customers is the way they and the rest of the value chain will and should be rewarded.  If the economic toll (subscription fees) or interruptive activity (commercial breaks) is too significant then I will vote with my wallet and find other video or alternative means of entertainment.

This economic reality rewards the value chain while keeping it in check.  In fact,  Adam Smith's "invisible hand" metaphor has never been more evident than when applied to the Internet and innovation.  Our market system works best when combining choice, competition, innovation, a reasonable framework of regulation, and the ability to get an economic return. 



 

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8 comments about "Walled Gardens: Good Or Bad For Consumers? ".
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  1. Michael O'faolain from Redwood Guardian - The Lost Scripts, March 3, 2009 at 5:30 p.m.

    You are, of course, located in an urban area.

    Comcast acquired my cable system as a loser in the Adelphia bankruptcy. Comcast cannot provide any significant HD content in our system and the population density per mile of cable is about 5% of that of any urban or suburban area, so the economics are not there to improve the cable system. (About 50 miles of roads and 1,500 homes.) And while they do provide pretty solid high speed internet, it is well below the speeds available even 30 miles south of us.

    So we get quality HD TV from satellite. And we have watched TV content from the web a few times when we've missed a show.

    If Comcast wants to charge 99 cents for watching an episode of Heroes on the web, fine. But if they want me to subscribe to cable, not so fine. In fact, that would be terrible, something like an average of $5 minute for the very occasional web source TV show we've watched.

    In the end, we're talking about a public utility. No other comparable solution for internet access exists for us (the new unregulated AT&T used it's invisible hand to give us rural Americans the finger and abandon any attempt to provide DSL). We already have substandard cable TV.

    I know you urban Americans abandoned the social compact for universal access to utilities for a reasonable cost (try to get a cell phone signal at our house). But there is no "invisible hand" at play here for universal access to high speed internet. It's so invisible it doesn't exist for us rural Americans in dealing with these utilities.

  2. Lynne Tierney from Nightly Business Report, March 3, 2009 at 5:55 p.m.

    The difference between the needs of urban and rural customers is why a universal solution will not work. Steve is right that if the companies cannot be profitable they will cease to exist, and the need of customers won't bring them back. So rural localities should seek local solutions rather than looking for yet another national regulation. Talk to your local representatives -- maybe there's a way to band together with other rural communities to negotiate a rural rate.

  3. Joao-pierre Ruth from NJBIZ, March 3, 2009 at 5:56 p.m.

    Here's the backlash....

    If media content, be it episodes of 24 or the latest Will Smith movie, continue to erode in value, this market risks severe attrition.

    The dilemma extends beyond cable or satellite operators. The entire value chain may dwindle to levels where few players will even bother creating, supplying and feeding quality video to the public. If the carriers see even less ROI, eventually it lands back on the producers of the show.

    If content quality diminishes in response to the trend towards free access, what will America be left watching?

  4. Gabor Keller from Kaposlogisztika Ltd., March 3, 2009 at 6:53 p.m.

    Dear Steve,
    I have read Your post and the last sentence, expressed as a summary of everything, and I can agree with this: market, innovation, regulatory framework, as well as the need to meet the demand generated. If you are not wrong, then you (United States), the service sector of the economy 60% share, but 100% of your day to meet the expectations, the customer's needs. In practice, this top performance it is impossible, therefore, varies widely and ranges from the supply side, from which the consumer mood, and choose according to your taste.

  5. Gerard Babitts, March 3, 2009 at 8:23 p.m.

    One other issue not addressed is the infighting among content producers (networks, production companies) and cable operators over a solution. Unless and until they can put aside their historical bickering and fighting, they will never find a solution. This inability to put aside their competitive nature is what led the record industry's to the irreversible decline of their business model.

  6. Pierre Wolff from Livefyre Inc., March 3, 2009 at 9:25 p.m.

    Steve,

    I'm not sure which of us is misunderstanding the net neutrality issue, but as I understand it, the issue is less about exclusive content and more about exclusive (or enhanced) access. There's no reason that a content provider couldn't strike an exclusive relationship w/a cable provider, but slowing down other traffic or providing preferred access speeds to this most-favored-nation content over others is where the prohibitions come to play. It's this that I believe is the crux of the net neutrality issue and hence why it's a prob.

  7. Matt Weeks from WorkersCount, Inc., March 6, 2009 at 12:02 p.m.

    We think walled gardens are obsolete, out of date, and represent artificial scarcity and control of content and access that will position content creators, publishers and distribution networks in opposition to consumers.

    We'd rather see the great minds and great debates center around ways to open up the ecosystem to ubiquitous content in ways that can preserve business models for everyone, and at the same time thrill consumers.

    Only through better ad performance and more successful ad campaigns will this become an easy business decision to make.

    Let's recommit this year to run at least as fast at those consumer-centric questions as we run at "preventing" erosion of revenue to the incumbents.

    Matt

  8. Pinaki Saha from Me!Box Media Inc., March 19, 2009 at 12:51 p.m.

    Walled Gardens and their viability depends on what these networks-cable operators-content producers want to accomplish together for a win-win.

    The biggest disconnect of the existing eco-system is its inability to understand the changing nature of consumer attitude around content consumption in densely populated urban locales. Further, the rapid growth in online play portal by numbers has also created a confusion and duplicacy (they call it syndication!) in the content distribution landscape. This in turn is not allowing the initial groundwork needed for a solid biz model that can sustain and benefit all even if the walls of these gardens are brought down.

    The solution is there. Just needs a little more foresight and passion to pursue for it.

    http://twitter.com/pinakis

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