Commentary
Combating Internet Video
- by Philip Leigh , August 3, 2010
Some contend that Internet Video will never achieve its promise in the United States because the parent companies of the dominant Internet Service Providers (ISPs) are hostile to it. More specifically, CATV operators and telecos consider it a competitive threat to their conventional television subscription services. Furthermore, the threat intensifies as growing numbers of consumers discover that modern televisions can also be used as display monitors for computers or other appliances capable of accessing the Internet.
As a result, it is argued that the ISPs will adopt usage-sensitive Internet pricing. In short, they will charge consumers for the bandwidth consumed, thereby making it uneconomic to watch television shows and movies via the Internet instead of over conventional subscription services. Although consumers will object, their protests will be impotent because there are no realistic competitive alternatives to CATV and Telco ISPs. As AT&T Labs research compellingly documents, metered pricing of communications services severely restricts per-subscriber network usage.
A detailed analysis of whether ISP bandwidth metering is economically justified is beyond the scope of this article. However, a few summary points merit comment. As outsiders, we are only going to be permitted to see data the providers choose to reveal, such as graphs of exponential traffic growth. However, fifteen years ago Internet pioneer Bob Metcalfe predicted a catastrophic collapse of the Internet in 1996 by pointing to similar charts. In short, Internet traffic growth has always been exponential, yet there has been no apocalypse.
Additionally, one independent analysis in Ars Technica last month examined Time Warner Cable data and concluded that metered pricing is unjustified for two reasons. First, annual facilities investments have actually been declining in recent years even as ISP revenues were soaring. Second, operating expense ratios have not increased, even though the company maintained that labor is its biggest ISP cost. <
Whether WiFi, WiMax, or an alternative network could represent effective competition is a technical debate I will leave to others -- at least presently. <
However, in terms of its power to attack monopolistic pricing, the concept of competition needs to be evaluated in a larger context. The United States must function in a competitive World market. If monopolies insist upon providing a 20th century Internet as the country tries to compete in a 21st century world, the United States will become a second-rate economic power.
It should be obvious that the Internet is an essential technology. It is fundamentally transforming media, communications, and commerce. If our country has a second-rate Internet, our media, communications, and commerce will necessarily also be second-rate. In such a scenario, residents of other countries would be routinely executing commercial transactions that would be crude, or nonexistent, here. It would retard our economic progress as severely as if we adopted ruinous protective tariffs. Imagine if the only automobiles were those available from GM, Ford, and Chrysler. Or, imagine if today's dominant steel producers were companies like U.S. Steel and the defunct Bethlehem, Republic, National, Inland, McLouth, Crucible, and Youngstown Sheet & Tube -- all once important companies.
According to Akamai's latest "State of the Internet" report, the United States already ranks a disappointing 16th in average connection speed. Not only are we behind industrial leaders such as South Korea and Japan, but we also trail former "Iron Curtain" nations such as Latvia, Romania, and the Czech Republic.
In terms of economic importance, today's Internet may be as significant to us as railroads were in the nineteenth century. In that context, consider that when the Civil War split the nation, the North had 22,000 miles of railroad while the South had only 8,500. Moreover, those in the South were often of different gauges thereby requiring passengers and freight to be shifted from one train to another. Consider also that the first transcontinental railroad in the United States was completed in 1869, while Russia did not complete the Trans Siberian Railroad until forty-four years later, in 1913. Four years thereafter, the Bolsheviks took over that country. I trust we can do better.
Philip's points are right on target. The ISP's have been and will continue to roadblock Internet video in every possible way. This really isn't any different than the a al carte issue with cable some time ago. However, what is at stake is much greater.
Anyone who has traveled by road in Eastern Europe and has seen the difference in railway gauges can see what an impediment a few inches can make in impeding commerce.
That being said, I'm not sure I agree with the analogy.
During the 90s, one of my roles at what was then the largest cable TV company in the world was to meet with telecom and government officials from all over to give them the broadband vision. Almost all of the countries had antiquated phone systems, and as long as they were going to make the move from landline to mobile, they wanted to see what this "Internet" thing could do for them. Consequently, the same investment that enabled them to modernize their telephone infrastructure also resulted in their leapfrogging the US as it relates to the United States.
During this time, our Japanese trading partner, Sumitomo, had an interesting observation. During the 1980s and 1990s, the era of the microcomputer, the United States had one dominant operating system, while Japan had a number of operating systems. As a result, Japanese software developers spent a disproportionate amount of time adapting their software to work on each of the operating systems, while American software companies had a much easier time because they focused most of their energy on Microsoft, and as a result virtually all innovation came from American software. Sumitomo made the point that Japan had only one dominant mobile carrier, and America had a number of wireless companies. Because of that, they opined that the roles would soon reverse themselves.
Fast forward to today, and talk to developers. American broadband is a complex mishmash of wireless/wireline and handsets whose capabilities may differ depending on the carrier. Google's Droid platform is especially stark in its lack of cohesiveness from handset to handset, carrier to carrier.
I've been watching how internet video innovations happen elsewhere, like tuangou, and I'm left with the impression that so long as we have a multiplicity of carriers with different networks, our broadband infrastructure will continue to lag other countries. No amount of FCC intervention is going to solve the development issues that are a natural externality of different equipment vendors and architectures.
In the meantime, if the United States is serious about being competitive, it should spend more time thinking about "industry" - business models that get money from "over there" to "over here", as opposed to finding new and novel ways to provide free content, or worse, tax ourselves.
This is a well expressed article about how dense as in incompetent to understand, the population of the U.S. is. Brian H. speaks about business models getting money moved from over here to over there. It is more like conglomerates "getting over" on the masses for their own kingdoms not what it can do for the economy. However, this time in history, once control is apprehended by those conglomerates, it will take a major destruction to even possibly disassemble the over intricate sodered webs.
@ Brian Hayashi, total agreement with your desire for business models that get money from "over there" to "over here" -- and the obstacles that wireless carriers pose in streamlining broadband. It's in their interest to promote inefficiencies that line their own pockets. Just as it was in Asian automakers' interest to manipulate currency values so as to flood our market with low-cost imports while denying US manufacturers access to their own markets. Market manipulation will always distort a productive economy. Innovation certainly won't come from the wireless industry, it will come from outside it. Paula, I don't share your despair at seeing a disruptive broadband video technology emerge to challenge the barrier imposed by wireless industry groupthink. It will come, sooner than you think. The stakes are simply too high.
We agree completely with the idea of high speed wireless service wherever it can be deployed. In South Korea and Denmark does the government subsidize the cell providers?
We see that the deployment of iToys will dramatically increase cellular loads and there will be rigid efforts by AT&T, Verizon to meter and charge. There may be smaller carriers who try unlimited data for set reasonable fee. They will force competition . . . however, it will take some years to actualize high speed wireless unlimited service.
Consider that an increasing number of mobile devices act as "hot spots" and can support numerous consumers on one connection. How do you see working around such consumption?
It might be beneficial to understand the situation if we go to the mouth of the funnel. Money is the biggest equation. The Telcos want you to be on broadcast TV because the AD revenue sits on it. And from standpoint of infrastructure, its easy to scale and get n+1 customer on the TV without taxing bandwidth. A shift will happen if the dollar shifts a tangible % from broadcast TV to online TV/video.
From interface standpoint, it is completely possible to provide out-of-the world user interactivity and innovation around online video distribution platforms to enable unlimited monetization. So it all depends on how good visionaries we are in implementing such platforms to deliver ROI that is measurable and multiplicable 10-20X television.
Remember that Internet TV and video frameworks can create sustainable viewership and consumers who can engage and follow while vendors can re-purpose inventory to monetize recursively - which conventional TV can't.