Today’s Senate hearing on online video was interesting for a few reasons. The most important of these, to me, was that no one questioned whether the Internet was the future of video. It’s apparent to most observers by now that it is. Just a few years ago Mark Cuban was saying that online video at scale was economically and technologically impossible. He’s still defending his thesis but in the meantime the explosive growth of Netflix, Amazon Prime Video, and so forth has put lie to the claim that the Internet can’t support the amount of high-quality video people want to watch. Traditional one-to-many video delivery (broadcast and cable, mostly) still has an edge for delivering live programs, but no one ever said that online video would compete with traditional video by imitating its model. If online video becomes dominant then on-demand will probably be dominant along with it.
There were no programmers at the hearing. And there were no cable or satellite program distributors, and no broadcasters, either. Instead, the hearing was about the future of video, not the present or past, and that means companies like Microsoft (represented by Blair Westlake), Amazon (represented by Paul Misener), and IAC (a company that controls many online video services like Vimeo and Aereo, represented by Barry Diller). Neilson (represented by Susan Whiting) was there, too, to give some insight into how it measures online video usage and how it sees the industry evolving.
The three Internet companies were united about a few things. They all recognized that they need an open Internet, and access to consumers, to succeed. All of them made some mention, even if oblique, of net neutrality, usage caps, or both. Microsoft said that broadband providers should not adopt policies that discourage Internet use, and Amazon encouraged policymakers to monitor usage caps. But Microsoft and Amazon both triangulated a little. They both see online video as the future but value their current relationships with incumbents, both for access to content and for access to customers.
Diller, however, was less coy. He pointed out that the Internet is “ready now” to be a video delivery platform that is equal to cable, broadcast, and satellite, and went through some of the issues that are standing in its way. He spoke convincingly on many points, and I’d like to repeat two of them.
First, many Senators are concerned about the high cost of cable. Usually the focus here is on how increased competition could drive down prices. But Diller discussed how the very structure of the current cable/broadcast system, as distinct from its competitiveness, keeps prices high. The bundled nature of cable offerings means that most people pay for programs they don’t want. Bundles can make sense for consumers up to a point but not when you have to pay for the entire grocery store just to get a dozen eggs and some orange juice. He also pointed to some of the redundancies in the current overly-complex video distribution system. Consumers pay to support not just program creators but several other layers of middlemen–networks, affiliates, and cable systems, most often. When there are at least three middlemen between creators and viewers prices are bound to creep ever-upward.
Second, he gave the best defense of Aereo I’ve heard, and it relates not to technical arguments about copyright law but to the role of broadcasters. Diller reminded the Senators that broadcasters are given free use of the public airwaves with one condition–that they serve the public interest. The most important, and oddly overlooked part of this is that they are expected to provide free service to the public. But in recent years they’ve grown addicted to retransmission consent fees paid by cable and pay satellite TV systems, and consequently value their (indirectly) paying viewers a lot more than their over-the-air viewers. Given this you can understand why a broadcaster would be upset about a service like Aereo, that makes it easier for viewers to watch TV over-the-air by providing a remote antenna. But understanding is not agreeing and when it comes down to it, if broadcasters want to become cable networks they have that option. They should not have it both ways, operating on the business side like ESPN or Comedy Central but continuing their free ride on the airwaves, which are multi-billion dollar public assets, just to give themselves negotiating leverage with the pay TV systems they really care about.
I shall conclude with bipartisan praise. Though I disagree with his specific video reform bill, Senator DeMint understands very well how the current regulatory structure that shapes the video marketplace coddle incumbents and discourages new entry. And Senator Rockefeller showed today that he understands that competition shouldn’t just be promoted for its own sake, but to improve the lives of citizens by giving them greater control over what they watch, giving them better choices, and saving them money. Overall this was a valuable hearing, and I hope it will be the first of many, to tackle the future of video distribution. There are a lot of tricky policy, legal, and business issues that need to be worked out, and that need a higher profile. Hearings like this are one of the best ways to get policymakers to start paying attention.