Please join me for the complimentary "Demystifying Net Neutrality" webinar tomorrow, Thurs, Feb. 4th at 11am PT / 2pm ET. This is the first of six webinars VideoNuze is presenting in 2010, in partnership with The Diffusion Group, one of the leading digital media research firms. The webinars are sponsored exclusively by ActiveVideo Networks
TDG's Colin Dixon and I will host the webinar, and we will have 2 expert guests with us who are on opposite sides of the net neutrality debate: Barbara Esbin, Senior Fellow and Director, Center for Communications and Competition Policy, Progress & Freedom Foundation (against) and Chris Riley, Policy Counsel for Free Press (for). Barbara and Chris will advocate their positions and then Colin and I will question each of them before opening it up to audience Q&A.
The webinar promises to be a deep-dive educational session examining all of net neutrality's pros and cons. For anyone with a stake in broadband/online content delivery and over-the-top video specifically, it will be a must attend session.
With the new Apple iPad receiving wall-to-wall coverage this week, it was easy to overlook other significant news. Here are 4 items worth noting for the January 25th week:
1. Netflix Q4 earnings increase my bullishness - On Wednesday, Netflix reported blowout results for Q4 '09, adding almost 3 million subscribers during the year (and a million just in Q4), bringing their YE '09 subscriber count to 12.3 million. Netflix also forecasted to end this year with between 15.5 million and 16.3 million subscribers, implying subscriber growth will be in the range of 26% to 33%. Importantly, Netflix also said that 48% of its subscribers used the company's streaming feature to watch a movie or TV show in Q4, up from 41% in Q3 and 28% a year ago. Wall Street reacted with glee, sending the stock up $12 yesterday to a new high of $63.04.
VideoNuze readers know I've been bullish on Netflix for some time now, and the Q4 results make me more so. A key concern I've had has been around their ability to gain further premium content for streaming. On the earnings call, CEO Reed Hastings and CFO Barry McCarthy addressed this issue, offering up additional details of their content strategy and how the recent Warner Bros. 28-day DVD window deal will work. On Monday I'm planning a deep dive post based on what I heard. As a preview, I'm now convinced that Netflix is the #1 cord-cutting threat. Cable, satellite and telco operators need to be watching Netflix very closely.
2. Nielsen announces combined TV/online ratings plan, but still falls short - This week brought news that Nielsen intends to unveil a "combined national television rating" in September that merges traditional Nielsen TV ratings with certain online viewing data. This is data that TV networks have been hungering for as online viewing has surged, potentially siphoning off TV audiences. I pointed out recently that the lack of such a measurement could seriously retard the growth of TV Everywhere, as cable networks hesitate to risk shifting TV audiences to unmeasurable online viewing.
Nielsen's move is welcome, but still doesn't go far enough. As reported, it seems the new merged ratings will only count online views that had the same ads and ad load as on-air. That immediately rules out Hulu, which of course carries far fewer ads than on-air, and sometimes uses custom creative as well. Obviously if the new Nielsen ratings don't truly capture online viewership they'll be worth little in the market. Ratings are a story with many future chapters to come.
3. AOL acquires StudioNow in bid for to ramp up video content - Also not to be overlooked this week was AOL's acquisition of StudioNow for $36.5 million in cash. StudioNow operates a distributed network of 3,000 video producers, creating cost-effective video for small and large companies alike. I'm very familiar with StudioNow, having spoken with their CEO and founder David Mason a number of times.
AOL is clearly looking to leverage the StudioNow network to generate a mountain of new video content, complementing its Seed.com "content farm." In addition, AOL picks up StudioNow's recently-launched Video Asset Management & Syndication Platform (AMS) which gives it video management capabilities as well. For AOL the deal suggests the company is finally waking up to video's vast potential. But with the rise of online video syndication, it's still a question mark whether creating a whole lot of new video is the right strategy, or whether AOL would have been better served by just partnering with a syndicator like 5Min.
Meanwhile, AOL isn't the only portal realizing video is the place to be. In Yahoo's earnings call this week, CEO Carol Bartz said "Frankly, our competition is television" and as Liz wrote, Bartz also said "that makes video really important." Yahoo just partnered with Ben Silverman's new Electus indie video shop, and it sounds like more action is coming. Geez, the prospect of AOL and Yahoo competing on acquisitions? It would be like the old days again.
4. Net Neutrality webinar next Thursday is going to be awesome - A reminder that next Thurs, Feb. 4th at 11am PT/2pm ET The Diffusion Group and VideoNuze will present a complimentary webinar "Demystifying Net Neutrality." The webinar is the first in a series of 6 throughout 2010, exclusively sponsored by ActiveVideo Networks. Colin Dixon from TDG and I will be hosting and we have 2 fabulous guests, who are on opposing sides of the net neutrality debate: Barbara Esbin, Senior Fellow and Director of the Center for Communications and Competition Policy at the Progress and Freedom Foundation and Chris Riley, Policy Counsel for Free Press.
Net neutrality is a critically important part of the landscape for over-the-top video services, and yet it is widely misunderstood. Join us for this one-hour session which promises to be educational and impactful.
Enjoy your weekend!
I'm excited to announce that VideoNuze has partnered with The Diffusion Group, one of the leading digital media research firms, to host a series of 6 complimentary webinars in 2010. The webinars are sponsored exclusively by ActiveVideo Networks. Each webinar will focus on one specific topic key to the evolving online video/digital media landscape (suggestions are welcome btw!). Colin Dixon from TDG and I will host the webinars and we will also have 1-2 expert guests joining us each time to provide diverse perspectives and insight.
The first webinar in the series will be "Demystifying Net Neutrality" on Thursday, February 4th at 11am PT / 2pm ET. If you're in the digital media industry, it's been hard to miss the intense recent debate over net neutrality, sparked by FCC Chairman Julius Genachowski's speech last September, which called for the FCC to impose unprecedented new Internet regulations. However, earlier this month, the DC Court of Appeals indicated it may invalidate the FCC's 2008 order punishing Comcast for blocking BitTorrent traffic, suggesting the FCC may not even have proper authority to regulate the Internet after all. Meanwhile, large and small media and technology companies have continued to heavily lobby the FCC, providing data and arguments on both sides of the issue.
Net neutrality is so important, the argument goes, because as new over-the-top players (e.g. Netflix, Xbox, Roku, Boxee, etc.) seek to bring video services into the home, they need to be assured their services won't be impaired by broadband ISPs like cable operators Comcast and Time Warner Cable or telcos like Verizon and AT&T, who also happen to be the largest incumbent video providers themselves. Opponents essentially argue that net neutrality is a solution in search of a problem, and that the Internet has thrived until now due to the government keeping its hands off, and it should stay that way.
On the webinar, Colin and I will untangle all of this, with the assistance of Chris Riley, Policy Counsel for Free Press, a national, nonpartisan organization working to reform the media, which is a leading proponent of net neutrality and another guest, TBD who is opposed to net neutrality. The webinar promises to be a deep-dive educational session examining all of net neutrality's pros and cons. For anyone with a stake in broadband/online content delivery, it will be a must attend session.
As 2009 winds down, in the spirit of accountability, it's time to take a look back at my 5 predictions for the year and see how they fared. As when I made them, they're listed below in the order of most likely to least likely to pan out.
My least controversial prediction for 2009 was that video would continue to flow freely among content providers numerous third parties, in what I labeled the "Syndicated Video Economy" back in early 2008. The idea of the SVE is that "destination" sites for online audiences are waning; instead audiences are fragmenting to social networks, mobile devices, micro-blogging sites, etc. As a result, the SVE compels content providers to reach eyeballs wherever they may be, rather than trying to continue driving them to one particular site.
Video syndication continued to gain ground in '09, with a number of the critical building blocks firming up. Participants across the ecosystem such as FreeWheel, 5Min, RAMP, YouTube, Visible Measures, Magnify.net, Grab Networks, blip.TV, Hulu and others were all active in distributing, monetizing and measuring video across the SVE. I heard from many content executives during the year that syndication was now driving their businesses, and that they only expected that to increase in the future. So do I.
When the history of mobile video is written, 2009 will be identified as the year the medium achieved critical mass. I was bullish on mobile video at the end of 2008 primarily due to the iPhone's success and my expectation that other smartphones coming to market would challenge it with ever more innovation. The iPhone has continued its amazing run in '09, on track to sell 20 million+ units. Late in the year the Droid, which Verizon has relentlessly promoted, began making inroads. It also benefitted from Verizon highlighting AT&T's inadequate 3G network. Elsewhere, 4G carrier Clearwire continued its nationwide expansion.
While still behind online video in its development, mobile video is benefiting from comparable characteristics. Handsets are increasingly video capable, just as were computers. Mobile content is flowing freely, leaving the closed "on-deck" only model behind and emulating the open Internet. Carriers are making significant network investments, just as broadband ISPs did. A range of monetization companies have emerged. And so on. As I noted recently, the mobile video ecosystem is healthy and growing. The mobile video story is still in its earliest stages, we'll see much more action in 2010.
Given all the problems the Obama administration was inheriting as it prepared to take office a year ago, I predicted that it would not expend energy and political capital trying to restart the net neutrality regulatory process. With broadband ISP misbehavior not factually proven, I also thought Obama's predilection for data in determining government action would prevail. However, I cautioned that politics is a tough business to predict, and so anything can happen.
And indeed, what turned out is that in September, new FCC Chairman Julius Genachowski launched a vigorous net neutrality initiative, despite the fact that there was still little data supporting it. With backwards logic, Genachowski said the FCC would be guided by data it would be collecting, though he was already determined to proceed. In "Why the FCC's Net Neutrality Plan Should Go Nowhere" I argued, among other things, that the FCC is way off the mark, and that in the midst of the gripping recession, to risk the unintended consequences that preemptive regulation carries, was foolhardy. Now, with Comcast set to acquire a controlling interest in NBCU, net neutrality advocates will say there's even more to be worried about. It looks like we can expect action in 2010.
The well-funded category of ad-supported premium video aggregators was due for a shakeout in '09 and sure enough it happened. Players were challenged by little differentiation, hardly any exclusive content and difficulty attracting audiences. The year's biggest casualty was highflying Joost, which made a last ditch attempt to become a white label video platform before being quietly acquired by Adconion. Veoh, another heavily funded player, cut staff and changed its model. TidalTV barely dipped its toe in the aggregation waters before it became an ad network.
On the positive side, Hulu, YouTube and TV.com continued their growth in '09. Hulu benefited from Disney coming on board as both an investor and content partner, while YouTube improved its appeal to premium content partners and brought on Univision and PBS, among others. Aside from these, Fancast and nichier sites like Dailymotion and Babelgum, there isn't much left to the aggregator category. With TV Everywhere services starting to launch, the opportunity for aggregators to get access to cable programming is less likely than ever. And despite their massive traffic, Hulu and YouTube have significant unresolved business model issues.
This was my long ball prediction for '09, and unless something happens in the waning days of the year, I'll have to concede I got this one wrong. Netflix has remained independent and is charging along with its own streaming "Watch Instantly" feature, now used by over half its subscribers, according to recent research. Netflix has also broadened its penetration of 3rd party devices, adding PS3, Sony Bravia TVs and Blu-ray players, Insignia Blu-ray players this year, in addition to Roku, XBox and others. Netflix is quickly becoming the most sought-after content partner for "over-the-top" device makers.
But as I've previously pointed out, Netflix's number 1 challenge with Watch Instantly is growing its content selection. Though it has a deal with Starz, it is largely boxed out of distributing recent hit movies via Watch Instantly by the premium channels HBO, Showtime and Epix. My rationale for the Microsoft acquisition is that Netflix will need far deeper pockets than it has on its own to crack open the Hollywood-premium channel ecosystem to gain access to prime movies. For its part, Microsoft, locked in a pitched battle with Google and Apple on numerous fronts, could gain advantage with a Netflix deal, positioning it to be the leader in the convergence era. Meanwhile, others like Amazon and YouTube continue to circle this space.
The two big countervailing forces for how premium video gets distributed in the future are TV Everywhere, which seeks to maintain the traditional, closed ecosystem, and the over-the-top consumer device-led approach, which seeks to open it up. It's hard not to see both Netflix and Microsoft playing a major role.
What do you think? Post a comment now.
Following are 4 items worth noting for the Nov 16th week:
1. FCC raises "Open Access" possibility, would further government's control of the Internet - As reported by the WSJ this week, the FCC is now considering an "Open Access" policy that would require broadband Internet providers to open up their networks for use by competitors. The move comes on top of FCC chairman Julius Genachowski's recent proposal for formalizing net neutrality, a plan that I vigorously oppose. Open Access gained steam recently due to a report released by Harvard's Berkman Center that characterized the U.S. as a "middle-of-the-pack" country along various broadband metrics. The report has been roundly dismissed by service providers as drawing incorrect conclusions due to reliance on incomplete data.
The FCC is in the midst of crafting a National Broadband Plan, as required by Congress, aimed at providing universal broadband service throughout the U.S. as well as faster broadband speeds. Improving broadband Internet access in rural areas of the U.S. is a worthy goal, but the FCC should be pursuing surgical approaches for accomplishing this, rather than turning the whole broadband industry upside down. As for increasing speeds, major ISPs are already pushing 50 and 100 mbps services, more than most consumers need right now anyway. Broadband connectivity is the lifeblood for online video providers and any government initiative that risks unintended consequences of slowing network infrastructure investments is unwise.
2. Broadcast TV executives waking up to online video's challenges - Reading the coverage of B&C/Multichannel News's panel earlier this week, "Free Streaming: Killing or Saving the Television Business" featuring Marc Graboff (NBCU), Bruce Rosenblum (Warner Bros.), Nancy Tellem (CBS) and John Wells (WGA), I kept wondering where were these sentiments when the Hulu business plan was being crafted?
Hulu is of course the poster child for providing free access to the networks' programs, with just a fraction of the ad load as on-air. While the panelists agreed that the industry should be dissuading consumers from cord-cutting, Hulu is (purposefully or not) the chief reason some people consider dropping cable/satellite/telco service. For VideoNuze readers, it's old news already that broadcast networks have been hurting themselves with their current online model. What was amazing to me in reading about the panel is that what now seems obvious should have been very apparent to industry executives from the start.
3. Motorola Droid sales off to a strong start - The mobile analytics firm Flurry released data suggesting that first week Verizon sales of the Motorola Droid smartphone were an estimated 250,000. Flurry tracks applications on smartphones to estimate sales volume of devices. While the Droid results are lower than the 1.6 million iPhone 3GS units sold in that device's first week, Flurry notes that the iPhone 3GS was available in 8 countries and also had an installed base of 25 million 1st generation iPhones to draft on.
The Droid's success is important for lots of reasons, but from my perspective the key is how it expands the universe of mobile video users. As I noted in "Mobile Video Continues to Gain Traction," a robust mobile ecosystem is developing, and getting more smartphones into users' hands is crucial. I was in my local Verizon store this week and saw the Droid for the first time - though it lacks some of the iPhone's sleekness, the video quality is even better.
4. AOL's downsizing suggests further pain ahead - AOL was back in the news this week, planning to cut one-third of its employees ahead of its spin-off from Time Warner on Dec. 9th. The cuts will bring the company's headcount to 4,500-5,000, down from its peak of 18,000 in 2001. As I explained recently, no company has been hurt more by the rise of broadband than AOL, whose dial-up subscribers have fled en masse to broadband ISPs. Now AOL is going all-in on the ad model, even as the ad business itself is getting hurt by the ongoing recession. New AOL CEO Tim Armstrong is clearly a guy who loves a challenge; righting the AOL ship is a real long shot bet. I once thought of AOL as being a real leader in online video. Now I'm hard-pressed to see how the AOL story is going to have a happy ending.
Enjoy your weekends!
Following are 4 items worth noting from the Oct 19th week:
1. FCC kicks off net neutrality rulemaking process among flurry of input - As expected, the FCC kicked off its net neutrality rulemaking process yesterday, with all commissioners voting to explore how to set rules regulating the Internet for the first time, though Republican appointees dissented on whether new rules were in fact needed.
Leading up to the vote there was a flurry of input by stakeholders and Congress. Everyone agrees on the "motherhood and apple pie" goal that the Internet must remain open and free. The disagreement is over whether new rules are required to accomplish this, and if there are to be new rules what specifically should they be. As I argued here, the FCC is treading into very tricky waters, and law of unintended consequences looms. Already telco executives are talking about curtailing investments in network infrastructure, the opposite of what the FCC is trying to foster. The FCC will be seeking input from stakeholders as part of the process. Even though chairman Genachowski's bias to regulate is very clear, let's hope that as the data and facts are presented, the FCC is able to come to right decision, which is to leave the well-functioning Internet alone.
2. New Cisco research substantiates video, social networking usage - Speaking of the well-functioning Internet, Cisco released its Visual Networking Index study this week based on research gathered from 20 leading service providers. Cisco found that the average broadband connection consumes 4.3 gigabytes of "visual networking applications" (video, social networking and collaboration) per month, or the equivalent of 20 short videos. (Note that comScore's Aug data said of the 161 million viewers in the U.S. alone, the average number of videos viewed per month was 157.) I'm not sure what the difference is other than Cisco is measuring global traffic and comScore data is at U.S. only. Regardless, the Cisco research continues to demonstrate that users are shifting to more bandwidth-intensive applications, and the Internet is scaling up to meet their demands.
3. Netflix reports strong Q3 '09 earnings, streaming usage surges - Netflix continues to stand out as unaffected by the economy's woes, reporting its Q3 results late yesterday that included adding 510,000 net new subscribers, almost double the 261,000 from Q3 '08. The company finished the quarter with 11.1 million subs and projects to end the year with 12 to 12.3 million subs. If Netflix were a cable operator it would be the 3rd largest, just behind Time Warner Cable, which has approximately 13 million video subscribers.
Netflix CEO Reed Hastings also disclosed that 42% of Netflix's subscribers watched a TV episode or movie using the "Watch Instantly" streaming feature during the quarter, up from 22% in Q3 '08. Hastings also said in 2010 the company will begin streaming internationally, even though it has no plans to ship DVDs outside the U.S. He added that in Q4 Netflix will announce yet another CE device on which Watch Instantly will be available (just this week it also announced a partnership with Best Buy to integrate Watch Instantly with Insignia Blu-ray players). Net, net, Watch Instantly looks like it's getting great traction for Netflix and will continue to be a bigger part of the company's mix. Yet as I've mentioned in the past, a key challenge for Netflix is making more content available for streaming.
4. Yahoo's pact with GroupM for original branded entertainment raises more questions - Shifting gears, Yahoo and GroupM, the media buying powerhouse announced a deal this week to begin co-producing original branded entertainment for advertisers. The idea is to then distribute the video throughout Yahoo's News, Sports, Finance and Entertainment sections. GroupM has had some success in the past, as its "In the Motherhood" series, created for Sprint and Unilever, was picked up by ABC, though it was quickly canceled. As I pointed out in my recent post about Break Media, branded entertainment initiatives continue to grow.
Less clear to me is Yahoo's approach to video. CEO Carol Bartz said last month that "video is so crucial to our users and our advertisers..." that "there's a big emphasis inside Yahoo on our video platforms" and that "a big cornerstone of our strategy is video." OK, but these comments came just months after Yahoo closed down its Maven Networks platform, which it had only acquired in Feb '08. Having spent time at Maven, I can attest that its technology would have been well-suited to supporting the engagement and interactivity requirements of these new Yahoo-GroupM branded entertainment projects. Yahoo's video strategy, such as it is, remains very confusing to me.
Note there will be no VideoNuze email on Monday as I'll be in Denver moderating the Broadband Video Leadership Breakfast at the CTAM Summit...enjoy your weekend!
Following are 4 items worth noting from the week of Oct 12th week:
1. Bell Canada is first to offer "TV Everywhere" type service - While U.S. operators have been busy with their TV Everywhere trials, Bell Canada, which has 1.8 million linear video subscribers, has jumped into the lead, announcing this week the launch of "TMN Online." The service, available through the Bell TV Online portal, allows subscribers to The Movie Network premium channel to gain online access to about 130 hours of content.
I spoke briefly with Peter Wilcox, Bell TV's director of product strategy, who explained that ExtendMedia's OpenCASE is being used for content management, in conjunction with Microsoft's Silverlight and PlayReady DRM. Users login with their Bell user name and password and are authenticated against the billing database as valid TMN subs. Only 1 simultaneous log-in is allowed, and Bell is also geo-blocking, so for example, there's no accessing TMN Online from outside Canada. The launch is part of what Bell calls "TV Anywhere" - a broader context for eventual distribution to its mobile subscribers, and further content being added. The deployment is the first milestone in what promises to be a busy 2010 on the TV Everywhere news front.
2. BlackArrow launches ad insertion for Comcast video-on-demand - BlackArrow, the multiplatform ad technology provider, announced its first customer deployment this week, with Comcast's Jacksonville, FL operation. I talked to company CEO Dean Denhart and President Nick Troiano, who gave me an update on how the company dynamically inserts ads in long-form premium content across TV, broadband and mobile. As I wrote 2 years ago, BlackArrow has bitten off the hardest challenge first: working with cable operators to get its system into their headends/data centers. Dean and Nick believe that if the company can succeed in this goal then it will have created formidable differentiation that can be leveraged for the other two platforms.
The key risk is that cable operators are famous for grinding down promising technology startups with their endless testing and brutal negotiating tactics (I say this from personal experience with a promising technology startup earlier this decade, Narad Networks). Robust VOD ad insertion is plenty strategic for the industry, but years since cable operators launched free VOD, the fact that it still isn't widely deployed is a telling sign, particularly while ad insertion technology in broadband is now fully mature. Comcast's role as an investor in BlackArrow should help its odds of success. I'm rooting for BlackArrow; their holistic approach to multiplatform advertising is right on. Whether they have the juice to fully succeed remains the big question.
3. Political battle over net neutrality is heating up - This week brought fresh complaints from Republican Senators who are coalescing to fend off new FCC chairman Julius Genachowski's plan to introduce net neutrality regulations for both broadband ISPs and wireless carriers. B&C reported that 18 Republican senators wrote to Mr. Genachowski concerned that the FCC's process is "outcome driven" and unsupported by data.
I rarely find my views aligning with Republicans, but net neutrality is an exception. As I wrote last month in "Why the FCC's Net Neutrality Plans Should Go Nowhere," Mr. Genachowski's plan is deeply flawed and completely illogical. The core premise of the new regulations - that they're needed to ensure continued broadband investment and innovation - misses the reality that the market is already functioning well. As one example, investment in broadband-related technology is continuing apace. By my calculations, over $180 million was raised in Q3 '09 by video-related companies whose very viability depends on open broadband and wireless networks. The sector's potential is amplified by the fact that venture capital fundraising itself is at its lowest level since 2003, with new capital raised by the industry in 2009 down 58% from 2008. Despite the VC industry's troubles, it continues to bet big on video. Why do we need new Internet regulations to sustain innovation?
4. Have you seen the 9 year-old hockey player's trick goal? On a lighter note, you have to love the serendipity of online video sharing. For example, though I don't consider myself a hockey fan, when a friend sent me this video clip of a 9 year-old hockey player pulling off this incredible trick shot, I was reminded just how much fun online video is and promptly passed the clip on to my circle (it's also now all over YouTube). See for yourself, it's just amazing. And nothing fake about it either.
Enjoy the weekend!
Daisy Whitney and I are pleased to present the 33rd edition of the VideoNuze Report podcast, for September 25, 2009.
This week Daisy and I first discuss Daisy's New Media Minute topic of how technology firms should balance free/revenue-sharing business models with paid/licensed approaches. Daisy reports on two companies that have successfully migrated to licensing. The so-called "Freemium" business model has been in the news a lot recently, especially with Chris Anderson's new book, "Free," so the discussion is timely.
Then I touch on my post earlier this week, "Why the FCC's Net Neutrality Plan Should Go Nowhere," which has generated plenty of reader reaction, and has been circulated widely. I'm very dismayed by new FCC chairman Genachowski's decision to intervene in the well-functioning Internet market, and only hope that as the FCC goes through its planned data collection process, it will rethink things and conclude that no new regulatory action is needed at this time.
Click here to listen to the podcast (14 minutes, 6 seconds)
Click here for previous podcasts
The VideoNuze Report is available in iTunes...subscribe today!
My hopes that the FCC, under its new chairman Julius Genachowski, would undergo a much-needed course correction with respect to net neutrality, were dashed yesterday. VideoNuze readers will remember that my 3rd prediction for 2009 was that net neutrality, under President Obama's pragmatic leadership, would likely remain dormant.
Mr. Genachowski's policy address, "Preserving a Free and Open Internet: A Platform for Innovation, Opportunity, and Prosperity" made clear that regrettably, he will be a forceful advocate for unprecedented Internet regulation. Mr. Genachowski has proposed codifying the FCC's four existing principles into Commission rules, and adding two new, additional principles. But read beyond the high-minded rhetoric about "preserving the openness and freedom of the Internet" and need for "fair rules of the road," and what you'll instead find is a jumble of illogical premises, inflammatory and threatening admonitions and pre-emptive, non fact-based conclusions.
I know my opposition to net neutrality regulations will bother many of you. So before I'm accused of being a cranky regulatory libertarian with nothing but distaste for government intervention, let me assure you I am anything but. In fact, I'm a strong believer that when market failures occur, the government should aggressively intervene. If you've had the experience of hearing my rants on the gross incompetence of our nation's financial regulators in contributing to our recent near catastrophic market meltdown, you will have no doubt about the sincerity of my beliefs.
That said, I'm also a fierce proponent of allowing market forces and competition to work in determining winners and losers, and that when this occurs, government influence, which is often distortive, should remain in check. If ever there was an example of a well-functioning market, it is the Internet, which since bursting into the public's consciousness 15 years ago has operated virtually regulation-free. This open and free Internet has spawned myriad innovative services that consumers enjoy today. And while the Internet has created billions of dollars of wealth for astute investors and entrepreneurs, it has also ruthlessly gobbled up many other billions of dollars ventured on ideas of illusory potential. In this respect, it could be argued that among the Internet's many marvels, it is likely the most efficient capital allocation mechanism we human beings have ever created.
By far the most sizable capital investment in the Internet landscape has been in the so-called "last mile" of broadband access. The 70 million American homes, thousands of educational institutions and countless businesses of every size that receive fast, affordable broadband Internet access is largely attributable to the hundreds of billions of dollars of investments that cable operators and telephone companies have made in upgrading their networks over the past 15 years - upgrades that continue to this day and are planned well into the future. Investments, it should be noted, that were made without a penny of government subsidies, tax breaks or bailout funds. These companies were driven by robust supply and demand forces, quantifiable business cases, vigorous competition, technological innovation and supportive lenders and shareholders. It is not an exaggeration to say that the broadband networks these companies built are the very foundation of our 21st century economy.
You might think that in a major policy speech premised on the importance of the Internet to our daily lives and commerce, the new FCC chairman might dwell for a few minutes on these contributions, if for no other reason than to demonstrate his understanding of what's truly at the core of today's Internet experience. But you would be wrong; instead the new FCC chairman used just over 50 words in a passing reference. You might also think that these companies' track records of being market driven might also influence the new chairman with regard to whether decisive regulatory action, particularly in the thorny area of network management, is now necessary. Here again you'd be wrong.
In fact, with yesterday's remarks, Mr. Genachowski has picked up where his predecessor, Kevin Martin left off: pre-emptively tagging the nation's cable and telco broadband ISPs as untrustworthy conspirators plotting to wall-off the Internet to all but their own favored services. Though professing to "ensure that the (FCC's) rulemaking process will be fair, transparent, fact-based and data-driven," by first proposing the rules be adopted, before evidence of their very need has been established, the chairman has only ensured that the rule-making process will be anything but what he says he wants it to be. Deciding that net neutrality regulations are essential, after being officially on the job for less than 90 days and absent supporting data to point to, does not inspire confidence about the likely fairness of the Genachowski-led Commission.
Mr. Genachowski further upped the ante by suggesting that if such regulatory action is not taken, perilous consequences to the Internet's openness await. His choice of words - that we could see "the Internet's doors shut to entrepreneurs," "the spirit of innovation stifled," "a full and free flow of information compromised" and that "if we wait too long to preserve a free and open Internet, it will be too late" - represent the kind of inflammatory, unjustified hyperbole that only serves to distract from the facts and data yet to be reported. Such comments virtually guarantee that the debate will be transformed quickly into an escalating war of opinionated arm-waving (as have prior FCC open sessions). Did we not just witness our crucially important health care debate devolve into just this sort of spectacle? And did candidate Obama not remind us, rightfully, that "words matter?"
But worst of all is that despite the new chairman's lengthy service in the private sector, his remarks suggest a fundamental misunderstanding of how product innovation and the broadband market actually work. His view is that the government must pre-emptively step up to the plate to ensure that the Internet remains free and open, or innovation and investment will be curtailed, is just plain wrong.
The reality is that aside from random acts, no pattern of broadband ISP misconduct has ever been proven. Major industry players know this and their actions suggest they are utterly untroubled by the current state of laissez-faire Internet regulation. Consider recent deals predicated on the belief that the Internet will remain open and bandwidth plentiful: NBC, Fox and Providence Equity Partners (and later Disney) invested $100M in Hulu at a $1B pre-launch valuation; Cisco acquired Pure Digital, maker of the Flip video camera for $600M in a bid to further fuel user-generated video; and Marc Andreessen's investment firm is participating in a buyout of Skype valuing the firm at $2.75B. Then there's Apple, which has invested untold tens of millions of dollars upgrading the iPhone and iPod Nano to have video capabilities. And let's not forget Netflix, Intel, Sony, Microsoft and many others who are moving aggressively forward with bandwidth-heavy broadband video products and services. Looking ahead, as I suggested last week looms "TV Everywhere 2.0," portending massive over-the-top video competition.
But it's not just the giants that are investing. By my analysis, early and mid-stage broadband video-related companies raised almost $220M over the last 3 quarters, in the midst of the worst venture capital slump in memory. And as I'll report next week, Q3 '09 has been the highest fund-raising quarter of the last four. Deals are being done because history has repeatedly shown investors that in order to remain competitive and meet surging consumer demand, network operators are certain to continue to invest in upgrading their networks. When I helped start Continental Cablevision's high-speed Internet business 15 years ago, 1.5 mbps service was breakthrough; now 100 mbps or more is the state-of-art for wireline broadband.
Contrary to Mr. Genachowski's fear that the market will be immobilized absent FCC intervention, industry participants are moving briskly forward, confident that market and competitive forces will compel network operators to continue creating abundant, open bandwidth to support their new services.
This phenomenon appears to be true in the mobile space as well. AT&T's recent decision to accelerate its 3G wireless buildout is due mainly to high iPhone data traffic. And it should be noted that Apple's rejection of the Google Voice app (which continues a pattern of unfettered App Store selectivity by the company) raises the important question of who's the real gatekeeper when it comes to open wireless services - the network operator or the handset maker? How does Apple's newfound power figure into the FCC's regulatory paradigm?
Let's be clear: it is absolutely essential that the Internet remain open. But imposing new net neutrality and Internet regulation is not the way to ensure this. Instead, net neutrality remains a solution in search of a problem. With brushfires burning in every corner of the American economy, Washington's policy-makers would be wise to focus on real problems, not imaginary ones. The Internet has worked magnificently to date and there's every reason to believe it will continue to do so. The last thing we need are the unintended consequences that government intervention often brings. For now, FCC vigilance is required, but new regulations are not.
What do you think? Post a comment now.
Daisy Whitney and I are pleased to present the 29th edition of the VideoNuze Report podcast, for August 28, 2009.
In this week's podcast we discuss comScore's rankings of video ad networks' potential reach for July, 2009. I offered a first look at these rankings in Wednesday's post. As I pointed out, these rankings represent the aggregate reach of each ad network's publisher list. This is different from a ranking of actual reach, which comScore is working on, and plans to begin releasing at some point in the near future. Daisy and I remind listeners that potential reach is an imperfect measure, but it is still an important filter for media buyers trying to gain insight into who the major video networks are.
Unrelated, I touch base on last week's podcast in which Daisy and I discussed the Southeastern Conference's shortsighted ban on fan-generated video in stadiums. I raise the topic because earlier this week I had the pleasure of taking my 9 year-old daughter to Fenway Park to see a Red Sox-White Sox game. All around us were people taking pictures and video. And go to YouTube and you'll find plenty of fan video of key Red Sox moments.
Somehow fan video doesn't seem to bother MLB as it does the SEC. I don't claim to understand the difference in thinking, but Daisy notes that MLB has been among the most forward-looking sports leagues around. Daisy is so peeved at the SEC that she's protesting by vowing never to attend an SEC game (a relatively insignificant threat since she's in fact never attended an SEC game and lives on the other side of the country!)
Click here to listen to the podcast (13 minutes, 53 seconds)
Click here for previous podcasts
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In case you missed it, last Friday the FCC took the unprecedented step of sanctioning Comcast for what it considered unreasonable network management policies. Before you deem this "inside-the-beltway" bureaucratic wrangling and click away to your next piece of business, I suggest you take a moment to consider the broad-reaching implications of the FCC's action, and how they will undoubtedly affect you and your video business long-term.
(If you'd really like to dig in, the FCC commissioners' opinions are here)
There has been a lot written about what precipitated the FCC's action, so I won't restate all the gory details here. Very briefly, last Fall formal complaints were filed with the FCC alleging that Comcast treated certain of its broadband subscribers' use of BitTorrent, a peer-to-peer (P2P) application, in a discriminatory manner vis-a-vis other network traffic.
After collecting comments and taking testimony from experts, the FCC concluded (with its Republican chairman leading the charge) to sanction, but not fine, Comcast for its actions. Importantly, it also stipulated that Comcast has to submit its network management plans to the FCC going forward, effectively anointing the FCC as the nation's new broadband network management czar.
I submit that for those in the broadband video industry, nothing good will come from the FCC's action. The FCC and other governmental bodies are understaffed and ill-equipped to be making highly technical network management decisions. The FCC's decree may well usher in an era of confusion and sclerotic decision-making, forcing broadband ISPs to curtail network investments at exactly the time when they need to be increasing their spending to enable more video traffic to flow.
It is worth noting that the Internet's periodic growing pains have been overcome not by the government stepping in, but by the government stepping away. This surely seems counter-intuitive to regulatory traditionalists. But it works because the ethos of the Internet's technical community is by and large collaborative and forward-looking. Supplanting that spirit with litigious, bureaucratic sprawl benefits nobody. In saying all this, I'm guided by pragmatism, not political bias.
Though we all want to be able to use the Internet free from any interference, the problem is that the Internet is still a wild west of sorts, where lawless and lawful behavior can be heavily intertwined. P2P is a perfect example. While legal (when used appropriately), its use can wreak havoc for other users and for network operators. Previously, there were no clear rules about how operators should respond when a handful of P2P users swamp the network. The Comcast sanction doesn't change that, it just puts the FCC in the position of judging, case-by-case the reasonableness of the network operator's containment actions.
So here we are. An odd stew including a militantly anti-cable FCC chairman, two flag-draped Democratic cohorts, a clutch of freedom of speech instigators and a large ISP (Comcast) which flunked PR 101 in how it implemented and communicated its network management practices, has opened up a new era in broadband regulatory policy. Ugh.
What do you think? Post a comment now!
The explosion in broadband video consumption is creating a significant and growing hairball for broadband Internet Service Providers, content providers, regulators and others. The core problem is that ISPs' networks are getting overwhelmed by the sheer volume of video being consumed each day.
ISPs have several ways to address the situation, but unfortunately none are perfect. For example, Comcast's approach until recently has been to use network management tools to block or slow certain kinds of traffic, such as peer-to-peer. P2P is a particular issue for cable ISPs because it uses scarce "upstream" bandwidth. Network management is highly technical, making it hard for policy-makers to understand it, let alone legislate it. So Comcast is now facing a sanction from the FCC over its network management practices (which it says it's moving away from anyway), because the FCC didn't consider them "reasonable" by its own vague definition.
Time Warner Cable is experimenting with another approach: tiers of service carrying bandwidth caps for users. This is a little bit like today's cell phone model - you buy a package of minutes, and if you go over, you pay extra. Though that may sound reasonable, it invites all kinds of confusion for consumers (e.g. "do I watch that show on CBS.com? Maybe I'd better not, I think my kids have watched a lot of YouTube clips this week and I don't want to go over my cap."). Content providers are justifiably concerned about this potential scenario. Separately, for its part, AT&T recently tried to clarify what its users can and cannot expect from their broadband subscriptions.
Yet another route is for broadband ISPs to adopt a much more expansive technical approach to how content is hosted in their networks and delivered to their users. Equipment vendors like Alcatel-Lucent and Cisco believe that ISPs could convert the current bandwidth problem into a full-fledged business opportunity. This would involve ISPs deploying hardware and software that would enable "managed services," each to be delivered at a specified quality level and for a specified price. So rather than a consumer buying a tier, they would buy a specific service offering (e.g. unlimited Hulu, with HD delivery guaranteed).
This wouldn't be a totally unfamiliar concept. Content providers have been buying managed hosting/delivery services for years from CDNs like Akamai, Limelight, Level 3 and others which guarantee certain delivery metrics. But these CDNs' guarantees can't reach into the "last mile" the ISPs' networks serve. So as ever-more bandwidth intensive content is launched such as HD and long-form, content providers should have an increasing motivation to see last mile ISPs offer comparable managed services offerings from ISPs as well.
However, ISP managed services would require fundamental changes in how these companies currently work together, and also invites concerns from "net neutrality" advocates that ISPs could bias in favor of one content provider or another when making their deals. Though compelling in concept, there are many details to sort out in the managed services approach, making it a longer-term option.
All of this just scratches the surface of the growing bandwidth hairball. Layer on the free-speech advocates like Free Press and Public Knowledge and the politicians looking to make hay with constituents and it's evident that the debate over bandwidth is only going to intensify.
What do you think? Post a comment now.
At the end of each month I plan to step back and recap a few key themes from recent VideoNuze posts. Here are three from February '08:
Brand marketers embrace broadband video
One clear theme from the past 4 weeks has been brand marketers' accelerating moves into the broadband video space. This was on full display by select Super Bowl and Oscar advertisers. We are witnessing an unprecedented commitment by brands to create their own entertainment/information video content and also to induce consumers to create brand-related video through user-generated contests. As I detailed in yesterday's webinar, examples in the former category include Kraft/Tassimo, J&J, CIT Financial and GoDaddy.com, while examples in the latter category include TideToGo/MyTalkingStain.com, Heinz/Top This, Dove Cream Oil Body Wash and T-Mobile/Current TV.
Through VideoNuze I track all brands' broadband video initiatives, and it is clear that their involvement in this new medium is intensifying. Faced with splintering audiences, ad-skipping DVRs and changing media consumption habits - particularly by younger demos - brands have no choice but to get into broadband video. This results in an entirely different awareness/engagement paradigm than we're accustomed to from the world of interruptive TV advertising. Brands today increasingly recognize that a key way to create loyalty (and generate sales!) is by engaging the audience on its terms, using broadband and other technologies to accomplish this.
Monetization is the #1 challenge
Another key theme of the past month was the ongoing quest for broadband video monetization. As I also mentioned in yesterday's webinar, this is the number 1 business challenge for all broadband video industry participants - both content and technology providers. Two companies I wrote about this month, EveryZing and Veveo, are focused on improving content discovery, which leads to more consumption and revenue-generating opportunities. I also wrote about Jake Sasseville, a young entertainer who is pioneering multi-platform initiatives to forge a new revenue model.
Innovation is key in this space. Next week I'll be writing about Freewheel, an innovative startup that's just surfaced, which is providing a new approach to managing broadband video advertising. And yesterday, Magnify.net, one of my favorite early-stage companies, which focuses on enabling video content distribution, announced that it has raised an additional $1 of financing.
In addition, the big dogs of the technology and media landscape are in hot pursuit of improved video monetization as well. This month alone brought news of Yahoo's acquisition of Maven Networks, an ad-centric video platform, Google's beta rollout of AdSense for video, and the hostile bid by Microsoft for Yahoo, a deal that has vast longer-term implications for online and broadband video advertising. In short, monetization is a key focus for all large and small industry participants - cracking this nut is crucial to the long-term health of the industry.
Net neutrality re-surfaces
Lastly, this month also brought a lot of news on the regulatory front. Twice I wrote about "net neutrality," a regulatory concept its proponents believe will keep the Internet free from discrimination by broadband ISPs. While I don't agree with their viewpoint, what is clearly true is that net neutrality is being spurred by the massive adoption of broadband video, which places an unprecedented load on broadband ISPs' networks.
So that's it for this leap year month. Three themes you'll be hearing much more about going forward: brand marketers' broadband video initiatives, video monetization and net neutrality. See you on Monday for the start of a new month!
Yesterday I ignored the well-worn admonition that "there are two things you don't want to see made - sausage and legislation," by attending the FCC's open meeting on broadband network management at Harvard Law School. The hearing's purpose was to collect more information regarding "net neutrality" to help the FCC develop policy and recommendations on the subject, with a particular focus on what role the FCC should play in determining what are "reasonable" network management practices. As I've said before, net neutrality is very much driven by the surge in broadband video usage.
I have written two posts on this recently, "Net Neutrality Rears Its Head Again" and "Net Neutrality in 2008? Let's Hope Not," and so my views on the subject are well-known. For today, I just want to offer some quick observations about the FCC's meeting and what this implies about how the fight over net neutrality is likely to play out.
The agenda for the day-long session is here. I stayed until the lunch break, so I got a pretty good flavor for the proceedings. On the policy panel I witnessed, all of the non-Comcast/Verizon panelists were in favor of greater government intervention. Despite their articulate views on the subject, one thing that was entirely absent from all of their remarks was any factual data about whether there is currently a market failure necessitating government intervention. Even Vuze CEO Gilles BianRosa, who prior to the panel provide a demo of his company's service, and said his company is playing a "cat and mouse" game trying to stay ahead of Comcast's management practices, did not offer any specific evidence or data of how his company is currently being harmed.
The law school professors were adamant about stricter government oversight of broadband ISPs seemingly because they just cannot be trusted. Unlike economists who rely on empirical data to formulate their viewpoints, the law school professors seem to rely more on a political philosophy regarding government's role to intervene as their primary guiding logic.
On the other hand, Comcast's EVP, David Cohen emphatically denied that Comcast blocks any kind of Internet traffic. He allowed that the company manages its networks, just like all other network providers and has six guidelines. Cohen said Comcast only manages traffic during limited periods, in limited geographies, only for upstream traffic, and then only when there's no simultaneous downstream traffic. It only delays traffic, and only when there's real network congestion that needs to be alleviated. All of this would only impact a small number of customers, and only then imperceptibly, Comcast believes. Comcast's goal is "vigilant restraint," with an eye to helping the vast majority of its customers have a superior Internet experience.
All of this leads me to believe that while Comcast may have the facts on its side, this war will be waged on the PR battlefield. Proponents wrap themselves in the flag, emphasizing the Internet's free-flow of data is paramount to our country's free speech and commerce, while disregarding the fact that to date this has been accomplished with a laissez-faire regulatory policy. Meanwhile network operators like Comcast argue they're already abiding by current regulatory principles and are sufficiently motivated by profit motives to do the right thing. Picking sides, especially in an election year, will be a challenge for all.
What do you think? Post a comment and let us all know!
Last November, Jeff Richards, VP of VeriSign's Digital Content Services, suggested to me that "net neutrality" would be the hottest broadband video topic in 2008. I was skeptical, believing that this was a classic "solution in search of a problem" and that yet again this topic would fail to gain traction among regulators and policy-makers. Based on events of the past week, it looks like Jeff may be right and I may be wrong.
Before getting to what happened this week, let's quickly understand what net neutrality means, and why it's important to all of us. To date the Internet has functioned as a level playing field of sorts. Anyone putting up a web site could be confident in the knowledge that broadband ISPs would neither favor nor disadvantage one player's access to users over another's.
Big online content and technology companies now want to codify this tradition in legislation commonly referred to as net neutrality. Big broadband ISPs (i.e. cable operators and telcos) regard this as needless regulatory meddling that would insert the government in network and technical matters it can barely understand, let alone figure out how to regulate.
This week brought news that Congressmen Ed Markey and Chip Pickering have introduced the "Internet Freedom Preservation Act of 2008" which would make net neutrality the guiding U.S. broadband policy, give the FCC additional oversight powers to ensure broadband ISPs weren't discriminating against certain traffic, require the FCC to hold 8 public "broadband summits" to bring together parties to "assess competition, consumer protection and consumer choice issues related to broadband Internet access services" and finally to report all this to Congress along with any recommendations for how to "promote competition, safeguard free speech, and ensure robust consumer protections and consumer choice relating to broadband Internet access services."
Broadband ISPs have precipitated some of this renewed interest in net neutrality with the recent news that they're de-prioritizing or blocking illegal video file-sharing traffic from services like BitTorrent (all of which was already widely understood in the Internet community). Net neutrality proponents have publicly seized on these incidents as evidence that broadband ISPs have discriminatory tendencies in their DNA, and that we're on a slippery slope to a world where broadband ISPs willy-nilly block certain traffic (i.e. their competitors) while favoring other traffic (i.e. their own services).
Last November in "Net Neutrality in 2008? Let's Hope Not." I wrote that there is no substantive current evidence to support this concern and that preemptive net neutrality legislation is unwise and unwarranted. In fact, I believe it's a net positive that broadband ISPs are proactively trying to manage their networks to ensure that legal traffic, generated by paying subscribers, is not adversely affected by the few heavy video file-sharers who diminish the network's performance for everyone. Broadband ISPs' actions help them run more efficient networks and better manage their investments, to the benefit of paying users.
Unfortunately, like many things in Washington, net neutrality is boiling down to a PR battle about how to shape policy-makers' perceptions, regardless of the underlying facts. For its part, Google is unabashedly framing this debate in populist terms, saying "net neutrality is...about what's ultimately best for the people, in terms of economic growth as well as the social benefit of empowering individuals to speak, create, and engage one another online." Huh? How does all that patriotic-sounding babble address the reality that network operators are grappling with 15 year-old kids downloading pirated HD movies, causing real and serious network congestion for everyone?
To defeat net neutrality, broadband ISPs better sharpen up their PR efforts. Congress is notoriously IQ-challenged and politically-motivated. My cynical belief is that its knee-jerk reaction will always be to do what looks best, rather than what actually is best. Then there's the current FCC chairman Kevin Martin, who has a serious anti-cable bias and will likely welcome an opportunity to smack operators. Regrettably, when taken together, Jeff Richards may indeed be right. This might be the hottest broadband video topic of 2008 and the year when net neutrality legislation finally does succeed.
Somebody needs to seriously clue in Kevin Martin, the chairman of the Federal Communications Commission, who has somehow gotten it into his head that America's cable TV industry needs to be burdened by all kinds of new regulations, despite the fact that competition is coming at the industry from every direction imaginable.
On the probability that you don't think too much about the FCC's actions, nor what they might mean to you, I have a reminder for you: when America's top communications regulator seeks to drive the industry that is America's #1 provider of broadband Internet service into a regulatory ditch, that's a problem for anyone who works in the media, entertainment, telecommunications and technology industries. Mr. Martin's cockeyed plans threaten to do this.
First, a quick recap. In the last several weeks Mr. Martin has sought to use hand-selected (and highly questionable) data to resurrect an arcane FCC prerogative known as the "70/70" rule. It is not worth reviewing what this rule is or whether or not it applies. What is important to know is that Mr. Martin has sought to use this rule to introduce regulations forcing cable companies to submit to federal arbitration to resolve carriage disputes with cable networks and to reduce the prices of certain leased access channels by upwards of 75%. Lingering in the background are further regulations, such as forcing "a la carte" unbundling of cable channels for unfettered consumer choice.
Last week wiser heads prevailed with the other FCC commissioners, many members of Congress and the White House intervening to check-mate Mr. Martin's plans. In fact, so perturbed by Mr. Martin's recent actions is the House Energy and Commerce Committee chairman John Dingell that has opened an investigation into Mr. Martin's handling of the FCC's affairs.
Now, in retreat, Mr. Martin has come up with a new regulation capping any one cable operator's U.S. coverage at 30%. This is particularly targeted at Comcast, which, with 27% coverage, is just a whisker away from hitting the proposed cap.
In criticizing Mr. Martin, let me make clear that I'm no cable apologist nor am I a regulatory libertarian, against all forms of government intervention. I worked in the cable industry from 1990-1998 and know the good, the bad and the ugly of the industry quite well. The government has intervened in the past to correct legitimate market failures caused by clear industry bad actors. But those days are past. Now the cable industry is fighting for its life against the triple threat of satellite, telco and broadband "over the top" competition.
So how is it possible that Mr. Martin has so completely "missed the memo" that America's consumer communications services - video, broadband Internet access and voice - are more competitive today than ever, and that re-regulation is completely wrong-headed? And that technology is enabling a wealth of new services that are causing traditionally distinct industries to compete against one another, with the ultimate winner being consumers? And that real, skilled, high-paying, American jobs which are tied to the innovative media, entertainment, technology and communications markets he oversees will certainly be adversely affected by these onerous new regulations he is proposing?
Of course, I cannot get inside Mr. Martin's head to explain his actions. All I can guess is that somehow he arrogantly believes that Washington's bureaucracy is better suited to sort out the hyper-competition and innovation sweeping these industries than are the free markets and myriad technologies being introduced. How profoundly incorrect that belief is. Last time I checked Mr. Martin's bio, he personally has exactly ZERO day-to-day business operating experience, so maybe someone can remind me what his particular expertise is in these matters? As if all this isn't enough, don't forget about how reckless it is for a regulator to mess around with one of the few remaining vibrant pockets of the American economy.
Mr. Martin's recent actions have shown him to be just another in a long line of seemingly intelligent, but ultimately clueless presidential appointees. Particularly in these tenuous economic times, America can ill-afford to have poor judgment in its chief policy-makers. For all of us who work in the media, entertainment, technology and telecom industries, let's hope the checks-and-balances system continues to work and Mr. Martin's misguided re-regulatory policies don't gain any traction.
Network or "net" neutrality, a confusing legislative concept being promoted by large online and content players, may be the hottest broadband video topic in 2008, at least according to Jeff Richards, VP of VeriSign's Digital Content Services, who makes his case at his blog Demand Insights.
I had the pleasure of informally debating net neutrality's merits with Jeff (who's officially neutral on the subject by the way) over cocktails at a VeriSign customer event I just spoke at. Jeff is persuasive about why net neutrality is such a hot button issue, and that its resolution - one way or another - has broad repercussions across the technology, content and Internet industries.
First, a primer for those not familiar with net neutrality. To date the Internet has functioned as a level playing field of sorts. Anyone putting up a web site could be confident in the knowledge that broadband ISPs would neither favor nor disadvantage one player's access to users over another's.
Big online content and technology companies now want to codify this tradition in legislation commonly referred to as net neutrality. Big broadband ISPs (i.e. cable operators and telcos) regard this as needless regulatory meddling, a classic "solution in search of a problem" that would unnecessarily limit their future business dealings and influence their investment decisions.
Interest in net neutrality legislation has waxed and waned, as lobbyists for the pro-net neutrality side (content and technology firms) try to convince legislators that this really is an important issue for constituents and that this isn't just a "rich vs. richer" debate that should be left to the industry's participants to figure out, while anti-net neutrality lobbyists (cable and telco firms) argue the opposite point of view.
So what might precipitate the resurgence of interest in passing net neutrality legislation? In two words, broadband video.
As Jeff points out, the massive adoption of broadband video, which still disproportionately comes from illegal video file-sharing networks, is motivating ISPs to reevaluate current policies. Stoking this reevaluation is the awakening that the really big money is now being made by legitimate companies like Google (current market cap $200+ billion) which ride freely over ISPs' networks. As such, ISPs are wondering whether the balance of economics has gotten out of whack and if they can get a bigger share of the pie.
Some ISPs are now blocking or "shaping" certain types of traffic. The most recent example that came to light was Comcast, who the AP recently found is blocking BitTorrent's traffic in the Bay Area. Comcast's vague response, coupled with ill-thought out earlier remarks from telco executives about their own business intentions, have inflamed conspiracy theorists' worst fears about what kind of world could result absent immediate net neutrality action.
Yet for me, preemptive net neutrality legislation can only be justified if you buy into one or both of the following two assumptions.
First, that any new premium tier of service ISPs may want to sell to certain preferred providers (e.g. Google is search engine of choice, so its results somehow load faster) must, by definition, mean that some other provider is disadvantaged as a result. But this presupposes a zero-sum ISP network, which is not true. To enable a high quality-of-service ("QOS") tier for preferred partners does not technically necessitate a degrading other non-preferred services. Not to mention degrading other services would be a foolish, provocative thing for ISPs to do.
The second assumption is that regardless of whether ISPs create QOS-enabled premium tiers, they cannot be trusted not to block or harmfully shape traffic, whether it's legitimate or not. While there have been random acts of blocking by smaller ISPs, this does not seem to be a rampant problem right now. And it's important to distinguish between blocking legitimate vs. illegitimate traffic. For instance, when Comcast blocks illegitimate P2P file-sharing traffic then to me that's a good thing. It frees up network resources for the rest of us who are paying to use the network for legitimate purposes. I'm not going to cry for some 15 year-old kid who can't speedily download a pirated copy of the latest Hollywood thriller, nor should you.
While the pro-net neutrality folks obviously believe ISPs will be bad actors, to my mind, even if you make the above assumptions, this does not form the basis for preemptive net neutrality action now. Sure it's tempting to believe that cable and telco companies, still with plenty of monopolistic DNA flowing through their corporate veins, would indeed act unfairly, for now it is most appropriate to give them the benefit of the doubt.
Washington's laissez-faire attitude toward Internet regulation has been one of the key reasons for the Internet's continued innovation and growth. Attacking broadband video and the Internet, which are among the last few bastions of economic growth left in America is unwise, particularly given the fact that the "law of unintended consequences" is virtually synonymous with all recent telecommunications regulation. Preemptively impose network neutrality and who knows what the actual result will be.
So for now net neutrality regulation should stay on the backburner. When and if it's appropriate, it can be re-prioritized. Instead, I'd prefer keeping Washington's focus on cleaning up a separate, larger and far more pressing problem caused by another rush to preemptive government action (hint, it starts with an "I" and ends with a "Q").