MESSAGE
| DATE | 2013-06-13 |
| FROM | Ruben Safir
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| SUBJECT | Subject: [NYLXS - HANGOUT] televsion content wars
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http://www.nytimes.com/2013/06/13/business/media/gatekeepers-of-cable-tv-try-to-stop-intel.html?adxnnl=1&partner=rss&emc=rss&adxnnlx=1371096830-x/OtCo3pCt+DGK85QUC7Zg
Gatekeepers of Cable TV Try to Stop Intel
By BRIAN STELTER
WASHINGTON — As Intel tries something audacious — the creation
of a virtual cable service that would sell a bundle of television
channels to subscribers over the Internet — it is running up against
a multibillion-dollar barricade.
That barricade is guarded by Time Warner Cable and other cable and
satellite distributors, which are trying to make it difficult — if
not impossible — for Intel to go through with its plan. The
distributors are using a variety of methods to pressure the owners of
cable channels, with whom they have lucrative long-term contracts, not
to sign contracts with upstarts like Intel, that way preserving the
status quo.
Intel, however, is undeterred, and its executives intend to begin its TV
service by the end of the year. They are ready and willing to pay more
than existing distributors do for channels. But to date the company has
not announced any deals with channel owners.
To Intel, and to some analysts, the behavior by the existing
distributors — in some cases giving financial incentives to friendly
channel owners, in other cases including punitive measures in contracts
— has an anticompetitive whiff. The antitrust division of the
Justice Department is looking into the issue as part of a broad
investigation into cable and satellite company practices, according to
people contacted by the department, who spoke on condition of anonymity
because they were not authorized to speak publicly. A department
spokeswoman declined to comment.
Public attention about the issue, which gained new life this week during
the cable industry’s annual conference here, might also spur the
Federal Communications Commission to afford would-be Internet
distributors like Intel the same legal protections as those that already
exist. The commission has been considering such a change for more than a
year.
“The government has to step up and protect these companies, or the
incumbents are going to kill them in their cradles,” said Gigi B.
Sohn, the president of the public interest group Public Knowledge.
Prospective products like Intel TV, delivered through the broadband
Internet infrastructure of Comcast, Time Warner Cable or another
provider and sometimes called “over the top TV,” have the
potential to radically alter the media marketplace in the United States.
Unlike Netflix, which sells a library of TV episodes and mainly
supplements cable, a service like Intel’s — with dozens of
channels, big and small, streaming through a modern interface —
could cause more consumers to cancel their cable subscriptions. (They
would have to keep a broadband subscription, however, unless or until
wireless capacity improves.)
It could also stir further innovation within the industry. If
Intel’s service ever goes on sale, industry executives predict that
others will quickly follow — either because they want to, or they
feel they have no choice.
Apple, Microsoft and Sony are often mentioned as possibilities, but the
more immediate competition might come from Comcast, Time Warner Cable
and other major distributors, which could suddenly compete directly in
markets all across the country. Comcast has quietly been working on an
“over the top” service for well over a year.
“Suddenly there’d be a whole new world of competition,” said
one of the executives, who declined to express support for the “over
the top” option for fear of angering the existing distributors.
Most of those companies declined to comment on the record, but some
representatives said privately that they are taking common-sense steps
to protect their businesses. Each confidential contract between a
distributor and a channel owner is different, they said.
Some contracts include clauses that expressly prohibit the channels to
be sold to an Internet distributor like Intel, while other contracts
merely discourage such competition by including financial incentives or
penalties. So-called most favored nation clauses, which are common,
exist to ensure that if another distributor receives a cheaper rate for
a channel later, that rate applies across the board. Some of these
provisions have been in place for years.
But critics said that the contractual language makes it much harder for
new companies to enter the marketplace. A Justice Department official
said in a presentation last year that “contracts that reference
rivals” have the potential to harm competition.
Within the cable industry, the practice of discouraging new Internet
distributors has been suspected but not widely documented. The issue
attracted new attention on Tuesday during the cable industry’s
conference when Richard Greenfield, an analyst at BTIG Research, wrote
in a blog post that at least one unnamed distributor had prevented a
channel owner from selling to a service like Intel. Whether illegal or
not, “it most certainly is bad for consumers, as it limits
competition and prevents the emergence of distributors who can provide
revolutionary new ways of experiencing” TV, he wrote.
Mr. Greenfield did not name any names, but several channel owners and
smaller distributors said Time Warner Cable, the nation’s
second-largest cable company after Comcast, had been by far the most
aggressive in its dealings with channels. When Comcast acquired
NBCUniversal in 2011, it signed a consent decree with the government
that prohibited it from trying to block budding Internet distributors.
Time Warner Cable declined to elaborate on its practices on Wednesday,
but said in a statement that “it is absurd to suggest that, in
today’s highly competitive video marketplace, obtaining some level
of exclusivity is anticompetitive. Exclusivities and windows are
extremely common in the entertainment industry; that’s exactly how
entertainment companies compete.” It cited the N.F.L. deal with
DirecTV and the Netflix distribution of the former cable show
“Arrested Development,” among other examples.
Mr. Greenfield rejected that explanation. “They are not paying for
exclusivity,” he said. “They are saying you can sell to X, to Y
and Z, but you are forbidden from selling to this new class, called
A.”
A spokesman for Intel declined to comment. But this week the company had
a suite at a hotel, one block from the cable conference site, and held
demonstrations of its service for potential partners. What Intel needs,
according to people briefed on their plans, is the support of a critical
mass of channels — not the entire universe that Comcast or DirecTV
has, but enough to have a viable service. Intel will not introduce the
service without that.
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