Broadband Cable Association of Pennsylvania


November 13, 2013

As consumers increasingly turn to the Internet for their television, members of Congress are looking for ways to support the trend and encourage industry competition.

Sen. John D. Rockefeller IV (D-W.Va.) introduced a bill Tuesday that could greatly expand the video libraries of online services such as Netflix, Hulu and Aereo, giving them the same access to programs that cable and satellite firms are guaranteed today. That means an Internet service such as YouTube would be able to negotiate deals to distribute live sports and network prime-time shows such as "Scandal" by paying the same sorts of licensing fees that cable and satellite operators give to local broadcasters.

Analysts say the proposal will face steep challenges from the power lobbying arms of cable firms, which hope to maintain the industry's bundling model. No vote has been scheduled, and industry observers doubt the bill will advance during a time of congressional gridlock. Some lawmakers will point to the surge in online video viewing as evidence of markets working well without new government rules. "We don't need another layer of regulation when we already have mountains of red tape covering the marketplace," said Adam Thierer, a senior research fellow at the free-market think tank Mercatus Center.

The growing importance of these Web-based entertainment providers was highlighted this week in a new report showing that half of all broadband Internet traffic in North America comes from YouTube and Netflix. YouTube also dominates mobile Internet video traffic, according to the report from Sandvine, a broadband research firm. Netflix alone has 30 million subscribers in the United States - almost 10 million more than the biggest cable television operator, Comcast. But there are still many programs a consumer can get only through cable or satellite firms. Rockefeller said too many powerful cable and media firms are trying to edge out new online rivals through anticompetitive means.

His bill is the latest legislative effort by to wade into the complex marketplace for entertainment, which is pitting giant corporations from a variety of industries - cable, phone, Internet, media, retail - against one another to win viewers' eyeballs. Sens. John McCain (R-Ariz.) and Richard Blumenthal (D-Conn.) co-sponsored a bill in July that would force cable and telecom television providers to offer subscribers the ability to pick and choose which channels they want. The lawmakers criticize the tight partnerships between cable firms and media companies designed to force fat cable bundles on viewers. They say consumers should be able to just pay for the videos they want to watch. "We have all heard the familiar complaint that we have five hundred channels, but there is nothing to watch," Rockefeller said in a statement. "My legislation 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 only for what they actually watch."

He said online video services need the same kind of help that satellite providers received from Congress in the 1990s. With laws that guaranteed satellite providers certain programs and access to markets, that industry was able to compete with cable firms. The proposal sets ground rules for how media firms and online video services reach "carriage agreements," which determine when and how online video companies can offer certain shows and movies in their catalogs. It would make the Federal Communications Commission a stronger watchdog over the practices of broadband and cable firms. Broadband providers wouldn't be able to restrict Internet access to online videos from competitors and couldn't manipulate data traffic in a way that the quality of streaming videos is degraded, according to the bill. Washington Post

Online video outlet Hulu LLC is in early discussions with several pay-TV providers about potential partnerships, said people familiar with the situation, the latest sign that the media company-owned service is trying to become integrated with pay television. Among ideas being discussed is for pay-TV operators to sell Hulu's subscription service, Hulu Plus, as part of pay-TV operators' TV bundles, the people said. Hulu also hopes that as part of a deal, consumers would be able to access the service through their cable set-top boxes, the people said. Subscribers could then use Hulu to catch up on full current seasons of broadcast TV shows, which is Hulu's primary offering. Most cable providers now offer only a few recent episodes of shows on their on-demand services.

Among the pay-TV companies that are discussing potential partnerships with Hulu are Comcast Corp., Time Warner Cable Inc., Cox Communications Inc., AT&T Inc. and Verizon Communications Inc. Hulu has also discussed arrangements with AT&T to bundle its Hulu Plus subscription service with their wireless broadband offerings, the people familiar with the matter said. The companies are months away from any deal, some of the people stressed. Hulu is controlled by Walt Disney Co. and 21st Century Fox. Comcast also owns a stake but for regulatory reasons is barred from making decisions about Hulu's management. 21st Century Fox until June was part of the same company as The Wall Street Journal's owner, News Corp.

The talks are the latest twist in the long-running saga over Hulu, launched in 2008 as an alternative to YouTube, offering free video. But in the past couple of years, the TV industry has grown increasingly concerned that cheap online video alternatives could undermine pay TV. As a result Hulu's owners have focused on ways Hulu could support the pay-TV system, which generates the lion's share of media-company profits, rather than competing with it. To that end, Hulu is proposing that it become the primary vehicle through which cable and satellite operators make cable programming available online to their subscribers. The company's pitch is that this would dramatically simplify the current system, in which consumers must wade through a sea of mobile app options from various TV networks and pay-TV operators. Cable executives including industry pioneer John Malone have called on the industry to overhaul its balkanized approach.

Hulu also hopes that bundling the service with pay-TV providers will accelerate user growth and help it compete with bigger streaming services like Netflix Inc. and Inc. Unlike Hulu, both those outlets carry past seasons of shows. Hulu hopes to better compete with them by buying more prior seasons of cable and broadcast shows, so it can offer "the pilot all the way to last night" on-demand for as many shows as possible, one of the people said.

The talks come months after Hulu's owners, divided about the future strategy for the service, tried to sell the company for the second time in two years. In the auction Hulu attracted interest from several pay TV providers including DirecTV, AT&T and Time Warner Cable. Eventually Hulu's owners called off the auction, as it did after a similar effort in 2011. The uncertainty came at a cost: Several top Hulu executives have departed this year, including chief executive Jason Kilar, chief technology officer Richard Tom, and advertising business head Jean-Paul Colaco. To run the firm, Hulu's owners recently installed as CEO Mike Hopkins, a longtime executive at 21st Century Fox who has been a Hulu director since 2011. Mr. Hopkins's background fits with the strategy Hulu is pursuing: as Fox's top distribution executive since 2008, he oversaw carriage negotiations with pay-TV providers for popular channels like the Fox network and FX. He also decided how to license content to streaming outlets like Netflix. Mr. Hopkins succeeded acting CEO Andy Forssell, who has since left the company.

Hulu will face an uphill battle trying to become the industry's conduit for streaming TV offerings. Big pay-TV providers and TV channels have invested in their own apps and websites-including Hulu's owners. Disney, for example, has a suite of "Watch" branded apps for ABC, ESPN, and other Disney cable channels that allow pay TV customers to log in and stream the channels live and watch recent episodes of shows like ABC's "Scandal." Fox also has an app and FX Networks plans to release its own app by the end of the year.

Comcast's attitude is also uncertain. The No. 1 cable operator has invested heavily in marketing and beefing up its own on-demand library and its online streaming portal "Xfinity." Still, people familiar with Hulu's strategy say smaller pay-TV operators that haven't yet invested significantly in on-demand video technology or streaming apps are the most open to the idea. Some bigger operators are also interested because they see Hulu as a powerful brand and product offering that many customers already use in a complementary way to their pay-TV subscriptions, cable executives said.

Even if it strikes deals with pay-TV operators, Hulu remains committed to its free service and to offering subscriptions directly to consumers, the people familiar with the matter say. That is in part because the service doesn't want to leave some consumers without access to Hulu Plus if some pay-TV providers don't agree to bundling the service, one of the people said. But non-cable subscribers signing up for Hulu Plus could over time have much less access to content than cable subscribers, the person said. Already Hulu Plus subscribers who aren't cable subscribers can't watch the most recent episodes of USA channel shows like "White Collar," unlike cable subscribers. Hulu's plan is to expand such arrangements to include as many broadcast and cable channels as possible. Wall Street Journal