M&E Forecast: Slowing Growth, Tighter Choke Points

Two five-year forecasts issued this week together paint a picture of a much tougher business environment facing media and entertainment companies over the next half decade.

According to PwC’s annual Outlook report, the media and entertainment industries are nearing a revenue “plateau,” particularly video-centric industries, as many historical growth drivers are running out of steam. Worldwide, PwC expects M&E revenue to rise from $1.8 trillion in 2016 to $2.2 trillion in 2021, representing a compound annual growth rate of 4.2 percent– a ratcheting down from the 4.4 percent CAGR it forecast last year.

For the U.S., revenue is projected to grow even more slowly, increasing from $635 billion in 2016 to $759 billion by 2021, for a CAGR of 3.6 percent. Read More »

Netflix Ponders Life Without Net Neutrality

Netflix CEO Reed Hastings did as much as anyone to shape the Federal Communications Commission’s net neutrality rules. CEO Reed Hastings’ aggressive public lobbying for what he termed “strong” net neutrality, after Comcast and AT&T successfully forced Netflix to pay for access to their last-mile networks, was largely responsible for putting interconnection arrangements between ISPs and edge providers at the center of the debate and helped persuade former FCC chairman Tom Wheeler to push through reclassification of broadband access as a Title II telecommunications service, which gave the commission jurisdiction over those deals.

Yet, as Republicans in Congress and on the commission sharpen their knives to disembowel Wheeler’s hard-won rules Netflix says it no longer needs the protection.

“Weakening of US net neutrality laws, should that occur, is unlikely to materially affect our domestic margins or service quality because we are now popular enough with consumers to keep our relationships with ISPs stable,” Hastings said in his Q4 letter to shareholders this week.

Translation: we’re too big now even for Comcast to push around, a point Comcast itself obliquely acknowledged in November by integrating Netflix into its flagship X1 set-top box. Read More »

Court to ISPs: You Really Are Just Dumb Pipes

Back when the clamor began to reclassify broadband access as a Title II telecommunications service, in the wake of the DC Circuit Court’s ruling overturning the Federal Communications Commission’s effort to impose net neutrality rules under its Title I authority, there was a lot of grumbling among Verizon’s peers that the telco should have left bad enough alone instead of challenging the commission’s 2010 rules in court.

Though Verizon won the case, largely on technical legal grounds, it poked a hornet’s next that threatened the far-greater sting of reclassification. But now that the same DC Circuit Court has handed down its ruling on reclassification and the FCC’s revised net neutrality rules, many of those grumbling last time are probably wishing they’d followed their own advice.

FCC_buildingNot only did the FCC win the case this time around, but the court majority’s opinion delivers a series of roundhouse blows to most of the ISPs’ claims about the value of their services, if not yet to their market valuations.

In essence, the court concluded that as service providers, ISPs add almost no value beyond basic connectivity. And that goes for wireless as well as fixed-broadband providers.

Apart from their objections on procedural grounds to the FCC’s rulemaking, the ISPs and their trade associations argued they could not fairly be classified as utility-style telecommunications providers because the services they offer consumers include a range of complex, value-adding information-processing functions, such as email, online storage, content caching and DNS lookup. Read More »

The FCC’s Imperfect Path To Increased Video Competition

The conditions the Federal Communications Commission has attached to its approval of AT&T’s merger with DirecTV are being met with a predictably mixed response. Some groups, such as Comptel, a Washington-based lobbying group representing Netflix, Amazon, Cogent Communications, Level 3 and other network operators and service providers, praised the FCC for requiring AT&T to disclose details of its network interconnection deals. Others, such as Free Press, blasted the conditions for not going “nearly far enough” to address the problem of pay-TV consolidation.

Here’s what we know, from a statement issued Wednesday by FCC chairman Tom Wheeler:

An order recommending that the AT&T/DirecTV transaction be approved with conditions has circulated to the Commissioners. The proposed order outlines Federal Communications Commission (FCC) Chairman Tom Wheeler gestures at the FCC Net Neutrality hearinga number of conditions that will directly benefit consumers by bringing more competition to the broadband marketplace. If the conditions are approved by my colleagues, 12.5 million customer locations will have access to a competitive high-speed fiber connection. This additional build-out is about 10 times the size of AT&T’s current fiber-to-the-premise deployment, increases the entire nation’s residential fiber build by more than 40 percent, and more than triples the number of metropolitan areas AT&T has announced plans to serve.

In addition, the conditions will build on the Open Internet Order already in effect, addressing two merger-specific issues. First, in order to prevent discrimination against online video competition, AT&T will not be permitted to exclude affiliated video services and content from data caps on its fixed broadband connections. Second, in order to bring greater transparency to interconnection practices, the company will be required to submit all completed interconnection agreements to the Commission, along with regular reports on network performance.

Importantly, we will require an independent officer to help ensure compliance with these and other proposed conditions. These strong measures will protect consumers, expand high-speed broadband availability, and increase competition.

Read More »

Netflix Flexes Its Muscles

Having played a pivotal role in persuading the Federal Communications Commission and the Department of Justice to reject Comcast’s attempted merger with Time Warner Cable, Netflix has seemingly done an about face and given its blessing to Charter Communications’ bid to acquire TWC. In a letter to the FCC dated July 15, VP of global public policy Christopher D. Libertelli said, “Netflix  supports the proposed Charter – Time Warner Cable transaction if it incorporates the merger condition proposed by Charter.”

reed_hastingsKey to the apparent change of heart was precisely that “merger condition proposed by Charter,” specifically a commitment by Charter to offer settlement-free peering with edge providers like Netflix across its entire expanded footprint.

“Charter’s new peering policy is a welcome and significant departure from the efforts of some ISPs to collect access tolls on the Internet,” Libertelli wrote. “Charter’s policy will promote efficient interconnection with on line content providers and with the transit and content delivery services that smaller online content providers rely on to reach their consumers. Charter’s endorsement of the policy as an enforceable merger condition will ensure that consumers will receive the fast connection speeds they expect.”

Charter outlined the new policy in a separate filing with the FCC, also dated July 15.

Comcast’s successful effort to impose interconnection fees on Netflix was the main reason Netflix aggressively opposed Comcast’s bid for TWC. Peering agreements were also the main focus of Netflix’s lobbying in support of net neutrality, urging the FCC to require open interconnection policies as part of its Open Internet order (in the end the FCC did not include specific rules for interconnection arrangements in its order, but set up a process for reviewing complaints against ISPs brought by consumers or edge providers). Read More »

HBO Leaves in the Middle Man

HBO just can’t quit the bundle. With HBO Now, its new, over-the-top streaming service, the network for the first time is making its content available to stream without a pay-TV subscription. But HBO still hopes to sell it as part of a bundle. The only differences are the the other components of the bundle and the identity of the bundlers.

At launch, HBO Now will be sold exclusively by Apple and available on Apple devices only. According to HBO’s FAQ, “you can subscribe to HBO NOW using your iTunes account. Customers can access HBO NOW by going to HBONOW.com, through AppleTV® or by downloading the HBO NOW app in the Apple App Store®.” Apple and HBO will then share customer support duties. Read More »

Finger-pointing over interconnection

When a consumer’s OTT video stream starts rebuffering, or suffers packet losses resulting in degraded quality, it’s often hard to know where to direct blame. The problem is typically caused by congestion somewhere between the content’s originating server and the consumer’s receiving device. But exactly where in the chain of transit that congestion is occurring, and more importantly who is responsible and why, can be difficult even for engineers — and virtually impossible for consumers — to ascertain.

045448280-maclean-d-deshler-m-baldwinBack when it appeared the FCC was poised to classify interconnection arrangements between last-mile ISPs and third-party transit and content providers as a new, distinct type of Title II service the question of liability for congestion in the chain of transit suddenly became urgent for those involved in wholesale traffic exchanges. Read More »