YouTube is the ‘ultimate à la carte’

Scott Cleland | Chairman, NetCompetition

The marketplace long ago provided what some in Congress now want to mandate.

Senate Commerce Committee Chairman Jay Rockefeller just introduced legislation, the “Consumer Choice in Online Video Act.”

It “aims to enable the ultimate a la carte – to give consumers the ability to watch the programming they want to watch, when they want to watch it, how they want to watch it, and pay for only what they actually watch.”

Mandating that video programming be bought and sold in one government proscribed manner is not consumer choice; it is old-fashioned rate regulation of video content and service.

The legislation incorrectly assumes that the hundred million American households who freely choose pay TV have no choice.

That the choice to view video free or for pay from either over-the-air broadcast, coax cable, DBS, fiber cable, copper cable, or over-the-top online video is somehow not choice.

That the choice of basic packages, premium packages, a la carte premium and sports channels, Netflix, Hulu, Amazon, or YouTube are not choices.

Consumer video choice already abounds in the marketplace!

Moreover, the video nirvana the legislation seeks already is a consumer choice in the market. The “ultimate a la carte” is exactly what Google-YouTube’s no-pay-TV business model is. Consumers don’t need a government mandate on everyone to get what they already can choose for themselves. No legislation needed.

Think about it. According to Google, YouTube has over a billion viewers viewing six billion hours of video each month. It claims to reach more 18-34 adult Americans than any U.S. cable network. And it boasts it has thousands of channels making six figures a year.

Relative to their nearest Internet video competitor, YouTube commands 21 times more U.S. videos viewed and 17 times more U.S. unique video viewers, per comScore.

Anyone immediately can upload most anything to YouTube without any review or authorization by anyone. They then can immediately offer it to the world and potentially earn advertising on who views it, unless users choose to skip their ads, which 75% of users do.

Also Google reports it has taken down 200 million pirated videos from YouTube in 2013 alone.

Interestingly, Google’s blind eye to piracy has been instrumental to YouTube’s “ultimate a la carte” model becoming the dominant Internet video distributor in the U.S.

The other key attribute to YouTube being the “ultimate a la carte” video offering is that their “open” no curation policy. With no supervision or accountability, YouTube conducts business in ways that quality content producers cannot, and do not want to broadly associate with.

YouTube’s lowest video curation standards in the industry mean YouTube will host and advertise: age inappropriate, improper, indecent and illegal videos until someone other than Google objects.

Most quality brands need and want the choice to not affiliate with potential video choices of actual beheadings, sex trafficking of teenagers, or illegal drugs for sale.

What the recently announced legislation fails to recognize, is that in a competitive marketplace that produces the most demanded video content in the world, consumers are not the only ones with choice.

Content suppliers have distribution choices too. That’s how markets work. Supply meets demand where it is economic and good business to do so.

U.S. content creators can choose to sell their content to those who are most effective in protecting it, and to those who enable them to make a return on investment on their copyrighted property.

They can choose to not do business with those who do not provide an economic return; those who turn a blind-eye to piracy; or those who generally devalue their product in the marketplace. That’s choice-driven competition. And it’s made the American video programming market the envy of the world.

And America’s unmatched $1.2 trillion in private investment in competitive broadband facilities over the last fifteen years is also the envy of the world.

America’s competitive broadband marketplace allows for different companies to offer the choice of using different technologies in different ways to meet the varied needs, wants and means of America’s broadband consumers. That’s successful consumer-choice-driven competition.

So what about Chairman Rockefeller’s online video legislation? However well intentioned it may be, it is not pro-competition, but actually heavy-handed, unwarranted, implicit price regulation. It would profoundly distort the marketplace in several destructively uneconomic ways.

It would not promote competition based on economics and property; it would simply favor one type of business model over all others. That would foster competition for government favors, not competition for Americans’ business.

The legislation should repeal the obsolete 1992 Cable Act, because it incorrectly assumes that cable is a monopoly when nearly half of America’s video households, 46 million, get service from a cable competitor.

Specifically, it seeks to treat online video distributors, the way Congress treated DBS companies in 1992, with mandated program access. In 1992, DBS providers were completely new entrants facing a then effective cable monopoly.

Those market facts warranted government intervention to jumpstart competition. Today those market facts no longer exist.

Consider the primary beneficiaries of this legislation. They aren’t new entrants and they aren’t facing an effective monopoly.

First, Google-YouTube already has a billion viewers, is the third most valuable company, and generates $30b in gross annual profit. The other is Netflix, which is the largest video distributor by subscribers in the U.S., and which enjoys a stratospheric market valuation and a billion dollars in annual gross profit.

The legislation would effectively grant these two online video juggernauts, who consume half of the nation’s peak downstream bandwidth, with implicit, multi-billion dollar, bandwidth and content subsidies. That’s not competition. That’s corporate welfare for billionaires.

In sum, American consumers already enjoy the most unfettered video choice in the world.

This legislation perversely would destroy consumer video choice because it would destroy the sound and sustainable economics of the current vibrantly competitive video marketplace.

It nonsensically would force content producers and bandwidth providers to offer their products at prices and on terms where they could not earn any return on their investment.

Simply, government mandates naturally limit consumer choices. In contrast, market-based competition naturally promotes consumer choice.

Scott Cleland is Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests and President of Precursor LLC, a research consultancy for Fortune 500 companies. Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration.

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