TV anticompetitiveness, a la carte

Scott Cleland Contributor
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Freedom isn’t free.

And quality video programming certainly is not free. It takes tens of billions of dollars to produce, protect, and provide service each year.

Senators McCain and Blumenthal are co-sponsoring a misnamed piece of legislation, the Television Consumer Freedom Act of 2013, which aims to curb expensive cable bundles. As is typical with Washington-speak, it has little to do with freedom and everything to do with its opposite — regulation.

Fortunately it has virtually no chance of passage, but the potential destructiveness of this heavy-handed regulatory thinking warrants exposure and strong opposition.

American consumers already enjoy unprecedented TV freedom.

They have the freedom of choice to watch hundreds of channels and thousands of programs. They can choose free broadcasting or one of many pricing tiers of subscription TV. They can even choose from multiple competitors and technology platforms.

In return for this exceptional freedom of choice, consumers must pay for the model that supplies the video they demand — at a market price.

You get what you pay for. This is how markets work.

Consumers will get less video of poorer quality, if the Government somehow thinks that economics do not matter and guts proven business models that deliver the video that Americans love and consume in bulk.

We know what happens when the Government dictates the business models or content of the video industry. For decades in the mid-1900s, FCC content and distribution regulation limited consumer TV choice to no more than three broadcasters: NBC, CBS, and ABC. That was a la carte TV.

So what’s really going on here?

Strip away the rhetoric and this is just another front in the ongoing fight over property rights, between Internet-based, “information-wants-to-be-free,” models and offline, property-based business models.

Ironically, those that support unregulated Internet models are lobbying government to weaken essential copyright and licensing protections of offline video providers via regulation.

Self-servingly, Internet interests want video programming to be thought of as a global market because only they can distribute video globally. However, for antitrust and competition policy purposes, Internet video distribution is a separate market from offline video distribution.

They are separate markets because they could not be more different models.

First, the Government treats the two models very differently. Online video is unregulated, with no ownership limits or privacy regulation, the exact opposite of offline video.

Second, online video and offline video models have very different economics. Online video enjoys global frictionless scale; offline is limited to regional/national scale. Online video is primarily advertising-based, while offline is primarily based on paid subscriptions.

Third, the models have opposing purposes. Online video uses a public access network with no permission required, where “information wants to be free,” and the general expectation is to get something for nothing.

In stark contrast, offline video uses private access networks where authorizations are required because the general expectation is a profit-based market where one pays for what they want.

Fourth, the models have opposite underlying philosophies towards copyright and intellectual property rights.

Online video is based on the “information wants to be free” ethos, which “openly” opposes proprietary ownership or curation of digital content. It defends video piracy as unlimited “sharing” and “fair use,” while it demonizes copyright as greed and censorship of free speech.

The result of this anti-property philosophy is an Internet model that is an insecure copyright ecosystem with rampant piracy and lousy content creator economics.

In contrast, offline video by design is a secure copyright ecosystem, which strongly opposes piracy, and therefore provides the best model for content-creator economics.

Finally, both the DOJ and FTC have already determined that online and offline advertising markets are separate markets for antitrust purposes in their respective antitrust reviews of Google to date.

In sum, property is not free. And freedom is not taking from others without their permission. Free market competition depends on rule of law, property rights, and contracts to function.

Quality content and distribution infrastructure costs big money. No one will invest in it or produce it long term if there is no lawful expectation that their property and contract rights will be respected and enforced by the government.

The Senators’ proposed a la carte legislation is so wrong-headed because it would undermine offline video competition by denying creators and producers the fruits of their labor, property, and capital.

Simply, protecting copyright is pro-competitive; undermining copyright is anti-competitive.

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.