Get Ready to Rumble; FCC Launches Net Neutrality Rollback

Here’s how high tension is already running over the Federal Communications Commission’s proposal to undo it’s own net neutrality order: At Thursday’s open meeting where the commission voted 2-1 to proceed with the first phase of the rollback, with security on high alert over online threats aimed at commissioners, security personnel “manhandled” long-time Capitol Hill reporter John Donnelly and removed him from the building for approaching commissioner Michael O’Reilly in a hallway and attempting to ask him a question outside of an official press conference.

FCC Commissioner Mignon Clyburn

Tensions are only likely to get higher as the proposal moves forward. This week’s vote kicks off at least a three-month period of pubic comments, during which the commission can expect to be deluged with input, ranging from the substantive to he hysterical. Democrats on Capitol Hill, meanwhile, are vowing “all out war” to prevent any rollback.

Democratic commissioner Mignon Clyburn used Thursday’s public meeting as a platform to denounce the proposal and to call on members of the public to challenge the rollback in court, a tactic many legal experts say would stand a reasonable chance of success, given that the commission’s abrupt reversal on rules implemented just two years ago could well meet the legal definition of the sort of “arbitrary” and “capricious” actions federal agencies are supposed to avoid.

There’s also the possibility that Clyburn herself will leave the FCC at the end of June, when her current term expires, which would leave the already depleted commission one commissioner shy of the quorum needed to give any of its actions the force of law. Efforts to fill the by-then three vacant seats on the panel could well set off a major battle between the White House and Democrats on the Hill, which given the current chaos in Washington (Nostrovia!) could drag on indefinitely.

All of which is to say, we’re a long way from any formal rollback of the rules taking effect. Between now and then, though, we’re likely to hear a lot of overheated rhetoric and exaggerated claims from all sides of the debate.

As with the first time around, much of the public debate will focus on the alleged dangers of introducing “fast lanes” and “slow lanes” on consumer broadband connections or the blocking or throttling of disfavored content by ISPs.

For the streaming industry, however, the most substantive of the proposed changes would be the elimination of the current regulations’ “general conduct” standard for reviewing possible violations of open internet principles not covered under the rules.

That somewhat nebulous concept was introduced by previous FCC chairman Tom Wheeler to give the agency the authority to review interconnection agreements between edge providers and last-mile ISPs without issuing formal rules governing those arrangements, which were still evolving at the time.

That effort was in someways the linchpin of the entire previous rulemaking, including Wheeler’s decision to reclassify broadband access as a Title II telecommunications service. Whereas rules prohibiting blocking and throttling likely could have been sustained under the FCC’s existing authority without reclassification, asserting authority over interconnection arrangements could only be sustained if internet access was brought fully under FCC jurisdiction, with its public interest standard. Legally, that could only happen if internet access were formally classified as a telecommunications service under Title II of the Communications Act.

For all the sturm und drang over fast lanes and slow lanes, the number of confirmed cases of content-based throttling of consumer bandwidth is very small. Prioritization of favored content via zero-rating is increasingly common, and in some cases paid for, but it’s not clear that providing consumers with what amounts to free bandwidth qualifies as the sort of consumer harm that the FCC could or would prohibit, even under Title II.

Interconnection arrangements, however, were the source of fierce and genuine disputes between streaming services like Netflix and ISPs like Comcast, Verizon, and AT&T.

You could argue, as many do, that the government should stay out of such disputes and let market forces sort out the arrangements. But you can’t argue that interconnection arrangements aren’t directly material to the business of streaming. For better or worse, rolling back Title II would likely end the FCC’s jurisdiction over those arrangements, which could well rekindle the peering wars.

 

Competing With Paid

The rise of subscription streaming services, in both the music and video industries, has given the lie to the old complaint that consumers won’t pay for content online. But to many in the music industry, to say nothing of streaming investors, too many of them still don’t.

Ad-supported free streaming services remain the bête noire of the record labels and music publishers. They rail against YouTube, even as they’re making deals with it, and have fought to restrict the copyright safe harbors that allow YouTube to profit from music posted without license by users. They’ve maintained pressure on Spotify to shift more of its free users to its paid subscription tier, a tune now echoed by potential investors as Spotify eyes an IPO or public listing of its shares, and have begun to restrict when new releases are made available on the service’s free tier.

Pandora, the largest free streaming platform after YouTube, felt compelled to roll out a new subscription tier as it tries to woo investors and potential suitors.

To hear many in the music business tell it, the industry would be better off if free streaming went away altogether.

The video streaming business, however, has lately been moving in the opposite direction, at least on certain fronts. While over-the-top subscription streaming services continue to proliferate, streaming platforms continue to invest in free, ad-supported content.

Ad-supported streaming service Tubi TV this week announced a new, $20 million funding round led by Jump Capital, bringing its total funding since in launched in 2014 to $34 million. While Tubi is targeting the same cord-cutting consumers being catered to by the likes of Hulu, Netflix, CBS All Access and HBO Now, founder and CEO Farhad Massoudi thinks there’s a limit to the amount of paid content consumers will support.

“I think the market is delusional if they think consumers are willing to pay and subscribe to all these apps,” Massoudi told the Wall Street Journal. “In the next year or so these apps are going to disappear, or they’ll see there’s no clear path to significant scale.”

Tubi counts Lionsgate, MGM, Paramount and Starz among its 200 content providers, according to the Journal, and boasts a library of 50,000 movie and TV titles — an indication that TV rights owners are still open to distributing content via free platforms.

Little, if any of the content on Tubi TV is in its first release window, of course, and in many cases has been thoroughly monetized already. So the circumstances are not entirely comparable to the music business. But free, ad-supported video streaming is nonetheless attracting a growing amount of direct and indirect investment in new production.

Facebook, which has made ad-supported video streaming central to its growth strategy, is preparing to debut a slate of original series in June, ranging from mobile-friendly 5-10 minute fare up to more traditional, 30-minute episodes suitable for watching on TV.

Word of Facebook’s plans comes as YouTube is developing its own slate of 40 new original series intended primarily for its free, ad-supported platform. In a recent interview with Adweek, YouTube chief business officer Robert Kyncl made clear the primary role that ad-supported content plays in YouTube’s evolving long-form video strategy:

For many years, [marketers] have been asking me, “When you are going to do big original shows?” Of course, in their minds they mean free [programming] with ads. As you know, two years ago, we started a team to focus on originals, and we created YouTube Red with no ads. At the beginning of last year, we started to think about the fact that advertising is our core business. And big brands and big agencies are our biggest partners. This is something they have been asking for for a very long time, and we should deliver on that…

Secondly, when I started to look at the statistics, they showed a share shift from advertising-supported shows to ad-free shows, which started to increase. I just think that’s a trend that’s not favorable to our biggest partners. We are the biggest video platform in the world. We should play a role in changing that.

Even traditional media companies are eyeing investment in original, ad-supported streaming content, as the list of TV networks and studios lining up to create TV-like content for Snapchat attests.

The reasons for the differences in attitudes toward free, ad-supported channels are both historical and structural. Historically, the music industry’s primary ad-supported business — terrestrial broadcasting — was conducted under compulsory license by broadcasters. Rights owners earned only royalties based on use, under a formula set by the government, or, in the case of sound recording owners, nothing at all.

In contrast, advertising was for many decades the exclusive means of monetization for TV content and the industry’s corporate structure was built around that paradigm. Critically, TV rights owners controlled and conducted the majority of the advertising sales, claiming 100 percent of the revenue it generated.

In the streaming era, music rights owners have been able to tie their earnings more directly to the total advertising revenue pie, but they still don’t control ad loads or prices, and their slice of the pie is still calculated in part by the government. Video rights owners, in contrast, have been able to carry over their direct control of ad sales into the streaming era.

So, could the music business ever accommodate itself to ad-supported business models as the video industry has done? Not without major copyright and structural reforms. But the video industry’s experience suggests that paid and free channels are not inherently incompatible.

 

 

Apple Tip-Toes Into Original Video

The Wall Street Journal reported this week that Apple has begun talks with producers in Hollywood about buy rights to original TV series and movies. If true it would represent at least the third attempt by the iPhone maker to crack the TV code, so far without notable success, although its strategy this time appears to be different from its previous efforts.

I say “appears” because, according to the Journal, Apple itself  “is still working out details of its business strategy built around original content.”

The new shows, which could begin appearing by the end of this year, will reportedly be made available to subscribers of Apple Music, suggesting this isn’t an attempt (yet) to build a direct competitor to Netflix and Amazon Prime. The fact that Apple is targeting individual movies and TV series rather than networks suggests this is also not some sort of skinny bundle play to compete with Sling TV and the new Hulu service. Read More »

Red Zone: Why Apple Music Should Fear YouTube Red

The most notable feature of YouTube Red is what’s missing. There is no more Music Key, the long-awaited YouTube subscription music service that has been in beta for much of the past year but never gained much traction. Nor will there be any more dedicated subscription channels, where users could get ad-free access to a single creator’s channel.

Instead, for 10 bucks a month, you’ll get ad-free access to virtually everything on the YouTube platform, including YouTube Gaming and Apple_Music_iPhoneYouTube Kids. There’s also a YouTube Music app for those who simply want to use the service for listening to music.

YouTube Red subscribers will also automatically be subscribed to Google Play Music, Google’s subscription streaming and cloud storage service that up to now had cost $10 a month on a standalone basis.

In effect, Google is now making all of its music and video content services available on both a free, ad-supported basis, and an ad-free subscription basis. (Those who are complaining that YouTube is being mean by hiding the videos of creators who have not yet signed up for the subscription program are missing the point. The point is to have two identical services with two distinct monetization strategies, and letting the consumer decide which to use.) Read More »

Competing With Free

The RIAA reported had some good news and some not-so-good news this week about the state of the music business. The good news is that while sales of CDs and permanent downloads continue to fall, revenue from paid-streaming subscriptions through the first half of 2015 was up a solid 25 percent from the first half of 2014, to $478 million. The not-so-good news is that the number of Americans actually paying for music subscriptions is growing much slower, up a sluggish 2.5 percent, or 200,000 subscribers, to 8.1 million.

Optimists noted that the first-half data did not include Apple Music, which launched June 30th, and that second-half numbers should be show faster growth. The New York Post reported this week, citing “music industry sources” that 15 million people had signed up for Apple’s paid-streaming service during the three-month free trial RIAA_paying_subscribersperiod, which ends Sept. 20th, and that roughly half those folks — 7.5 million — had not (yet) turned off the automatic payment feature the will soon turn them into paying subscribers. It wasn’t clear from the report, however, how many of those 7.5 million are in the U.S.

The optimists also note that while the number of paying subscribers was relatively flat, average revenue per subscriber was up 21.6 percent, to $118, perhaps reflecting a shift by consumers to more expensive services like Jay-Z’s Tidal.

Yet while growth in the paid-subscriber base flags, free, ad-supported streaming services like Pandora and Sirius XM continue to be hugely popular. Pandora claims to have 80 million active monthly listeners, only a tiny fraction of which pay for its ad-free tier. Due to licensing issues, Pandora is only available in the U.S., Australia and New Zealand, so the bulk of those 80 million users must be in the U.S. Read More »

NAB 2015 Recap: Top Live, Linear & OTT Trends

LAS VEGAS–Last week’s National Association of Broadcasters convention here saw multiscreen, over-the-top broadcasting move, physically and figuratively, from a back corner of the Las Vegas Convention Center to front-and-center of the discussion.

“Broadcasting obviously does not exist in isolation, but as a vital piece of the dynamic and ever-changing media and entertainment landscape,” NAB president Gordon Smith said in his keynote address. “As we get closer to realization of the next generation of television broadcasting, we are beginnN15_ShowOpening_GordonSmith_1ing to envision the new business opportunities it could enable. I believe next gen may be the key to building TV’s future.”

Evidence of that future was everywhere at the show, from cloud-based IP workflows that support both over-the-air and over-the-top delivery to panels on programmatic ad strategies and multi-platform ad insertion to the dedicated pavilion for “connected media.” But broadcasting’s over-the-top future involves more than new workflows and devices. It also means new viewing behaviors, new monetization strategies and new financial models.

Here’s a rundown of the top themes and trends in live, linear and over-the-top video Concurrent Media spotted at the show, along with profiles of some of the leading trendsetters: Read More »

Apple’s Bring-Your-Own-Streams OTT Hedge

ipad_remote_appAccording to a report by Recode’s Peter Kafka, which apparently is not a joke despite its April 1 dateline, Apple is asking the TV networks to provide their own streaming infrastructure and handle their own video delivery as part of Apple’s planned subscription OTT service.

The two leading theories for why Apple is looking to take such a hands-off approach are a) to avoid the costs involved in building out its own streaming infrastructure, and/or b) Apple thinks cable-based ISPs would be less likely to engage in f@ckery against the service if the networks are delivering the streams.

Neither theory is entirely persuasive.

The costs associated with streaming video are not prohibitive. The markets for transit and CDN services are very competitive and Apple would have not trouble attracting very aggressive bids for its business.

Read More »

Apple’s Least-Favored Network: NBC

Ever since the Wall Street Journal reported earlier this month on Apple’s evolving plans to launch a multichannel subscription streaming video service, much has been made, largely by those already inclined to be suspicious of Comcast’s motives, of the reported absence of Comcast-owned NBC from the talks Apple is said to be holding with the other broadcast networks.

apple_tv“It appears from press reports that Comcast may be withholding its affiliated NBC Universal (“NBCU”) content in an effort to thwart the entry of potential new video competitors. Apple reportedly is planning a Fall 2015 launch for an over-the-top (“OTT”) bundle of TV channels,” the consortium Stop Mega Comcast wrote to the FCC last week. “If the reports are accurate about Apple, it would be consistent with Comcast’s prior conduct in attempting to leverage affiliated content to thwart rival services, even when faced with merger conditions.” Read More »