January 2010

FCC Grants Waiver on Encryption Rule for Cablevision

The Federal Communications Commission has granted Cablevision a waiver of its encryption rule prohibiting cable operators from scrambling their basic tiers for the cable operator's New York franchise--Bronx and the majority of Brooklyn--which it is converting to all-digital. The encryption rule was adopted to insure that viewers with cable-ready sets would not have to buy/rent set-tops to get their programming. But the FCC left room for waivers in some circumstances, and said Jan. 8 that Cablevision had made a strong case for the waiver.

Cablevision said the waiver would allow it to connect and disconnect remotely, though that means its subs would have to have either a set-top or a TV set with the CableCARD security hardware. That strong case included that the move would "reduce costs, improve customer service, reduce fuel consumption and CO2 emissions, alleviate traffic [Cablevision says it made a million service calls last year], and have virtually no negative impact on customers." To make that last point, Cablevision pointed out that 99% of the subs in the New York system had either set-tops or CableCARDS, so the disruption would be minimal. The FCC said that Cablevision had "cogent reasons" and cited "concrete benefits." It called "compelling" the 99% figure, saying that meant incompatibility between consumer equipment and the cable service would not be widespread. The FCC said it was convinced Cablevision would take the necessary steps to mitigate harm to customers, and also said it would be a good test bed for the FCC to "assess the utility of the encryption rule."

Public Knowledge Legal Director Harold Feld said, "The unique facts presented in this case by Cablevision justified granting a waiver for encryption of basic cable service. We are also pleased that the Media Bureau will monitor Cablevision's commitment to provide free set-top boxes. At the same time, we are still concerned that the Commission is proceeding on a case-by-case basis on a variety of set top box issues. Cablevision's conversion to all-digital service is part of a broader cable digital transition that has been recognized as part of the Commission's National Broadband Plan. It would be much better for the Commission to take a comprehensive look at all set-top box issues as part of one rulemaking, as we have suggested."

Retrans Gets 2010 Off To A Good Start for Broadcasters

[Commentary] Fox and Sinclair seem to have gotten the best of cable in their retransmission showdowns. Fox fell short of its goal — a buck a sub a month — in its negotiation with Time Warner Cable, but may have gotten more than the 50 cents that CBS has been getting. That sets a new benchmark that all broadcasters can aim for in upcoming negotiations. Of course, I think Fox should have asked for $2 and settled for $1.50. That's the kind of retrans dough that the all broadcasters are eventually going to need if they want to maintain their programming lead over basic cable deep into the new decade.

Will Time Warner/Fox Deal Bring New Network Priorities For Cable Systems?

[Commentary] Do broadcast networks have the advantage over cable networks when it comes to cable system carriage negotiations? If you are a cable network not connected to a big media company that owns a network, you might find this true. Future contract talks between cable networks and cable systems might get testier now that broadcast networks want to cut ahead of the negotiating line. Look at what Tennis Channel is going through with Comcast; Versus with DirecTV; HGTV and Food Network with Cablevision Systems. One wonders if cable systems aren't really looking to prioritize their efforts when it comes to viewers' interests -- especially since they quickly tackled the bigger programmers' issues, such as what Time Warner and Fox resolved.

TV Still Leads A Changing Viewing World

In a world in which TV everywhere is increasingly the goal, linear TV remains king, generating by far the biggest audiences and the greatest wealth for program creators. But as opportunities to organize and interact with TV programming proliferate, both online and on mobile devices, TV executives and content creators must be aware of how their medium is changing, and plan how to maximize future revenue streams. Live, linear TV viewing is up 23% from third-quarter 2008, and at least some of that increase may have been spurred by all the exposure TV shows are getting on the Internet. "People with Internet access watch more TV than they did five years ago," said Scott Brown, SVP of strategy and digital platforms at Nielsen, who noted that the trend is apparent even among viewers under 18. Despite the growth in watching in front of a TV set, time-shifted viewing is up 22.5%, Brown said, while online video consumption is up 35%, with 42% of online video consumption occurring during the day, when most people are at work.

Rep Walden Takes Aim at FCC's Distinguished Scholar

The Federal Communications Commission's first Distinguished Scholar in Residence, Stuart Benjamin, has come under fire from former broadcaster Rep Greg Walden (R- Oregon), who says Benjamin's appointment "jeopardizes the FCC's credibility." In a letter to FCC Chairman Julius Genachowski, Rep Walden, a longtime member of the House Communications Subcommittee, has asked for an explanation of Benjamin's "exact role" at the FCC and wants assurances broadcast regulations will be proposed on their merits rather than on "some ulterior motive to sabotage broadcasters."

Firm Drops Controversial Tactic

Senate Commerce Committee Chairman John (Jay) Rockefeller (D-WV) Friday praised the marketing firm Affinion Group for dropping a controversial tactic known as online datapass marketing. Rockefeller's committee has been investigating Affinion and two other firms, Vertrue and Webloyalty, that partner with trusted online retail sites to get consumers to sign up for discount club memberships as part of a misleading step connected to the online checkout process with the retail sites. As part of the process, consumer credit and debit card information is passed on to the marketing firms usually without consumers' knowledge.

The Nexus One and Google's Mobile Strategy

Google's strategy for the Nexus One has reportedly infuriated Motorola and Verizon Wireless, both of which have invested heavily in promoting the Droid devices that came to market two months ago. For Verizon, which had earned a reputation as the nation's most closed network operator, Android is a double-edged sword. The carrier is enjoying brisk Droid sales and will surely see proportionate data consumption, but much of that traffic will come from subscribers using Android apps — not Verizon's offerings. Aware that it must broaden its lackluster lineup of consumer-facing smartphones or lose customers to competing carriers, Verizon has agreed to support a CDMA version of the handset. But Google, not Verizon, will sell the phone. Which means that not only is Google unafraid of angering the nation's largest carrier by competing with it, it is wresting at least a little control from the operator's retail business. The Droid deal may have let Google's fox into Verizon's henhouse. The Nexus One may be a small wedge designed to open a gap between the operators, whose grip on the industry is slowly loosening, and their customers. Google hopes to widen that gap and approach users directly, marginalizing carriers by commoditizing connectivity as it boosts traffic. As Hendrix writes, "By definition, disruptive innovations are usually at odds with incumbents' interests. As a result, the legacy mobile business as it exists today is likely to be transformed significantly."

Mobile Search: Google's Loss Leader or Savvy Investment?

Google's reasons for wanting AdMob are strategic. Google apparently believes that the market for mobile advertising is important enough to acquire rather than deploy its talented engineers to build a platform similar to AdMob's. These reasons include:

1) Growth in mobile display: Clearly, brand advertisers interested in following certain consumer segments to where they spend their time must consider buying at least some mobile advertising (if for no other reason than to not look stupid when the CEO asks if the company is "tapping the mobile opportunity"). Direct response advertisers will be less likely to be drawn to mobile display (with the exception of certain segments like ringtones and other mobile-centric purchases). Most consumers transact less frequently on their mobile devices, even when researching products and services.

2) AdSense for mobile: Contextual links could work on a mobile device. They are low bandwidth and formats could be arrived at that make them consumer-friendly. Consumers may click through on content placements.

3) Loss leader: Maintaining leadership in mobile display could be a sound strategic investment, even if the ROI (define) doesn't show up as direct advertising profits. Google must ensure its ad sales teams are always welcome at agencies and by marketers. The curiosity about mobile advertising will persist for many years, guaranteeing Google many sales visits where up-sell and cross-sell opportunities exist (even if the meeting doesn't end with an IO for mobile display ads). On the consumer side, the acquisition ensures that Google can position itself as "cool and cutting edge." Consumers spending a lot of time online (the important consumers for any search or display publisher) already see "Ads by Google" messages all over the place. These messages provide free advertising for Google in the form of reminders. AdMob has already served 143 billion ad impressions, and the next 200 billion impressions may include "Ads by Google."

Google Smartphone Components Cost About $174, ISuppli Estimates

Google's Nexus One phone has component costs of about $174, according to an estimate from ISuppli Corp. Qualcomm's Snapdragon chip, which runs the phone's software, probably costs $30.50, making it the most expensive part in the device and accounting for 18 percent of the total. The Nexus One, which uses Google's Android operating system, retails for $179 with a two-year T-Mobile USA contract and $529 without it. Google designed the device with HTC Corp. of Taiwan. It also has a compass, satellite navigation and a one-piece enclosure, known as unibody construction. Components including a unibody and Snapdragon chip have been used in other smartphones "but never before combined into a single design," said Kevin Keller, senior analyst at ISuppli. "This gives the Nexus One the most advanced features of any smartphone" broken down and analyzed by the firm, he said. The phone's 3.7-inch display screen is supplied by Samsung Mobile Display Co. and has an estimated cost of $23.70, ISuppli said. Samsung Semiconductor Inc. provided all the memory in the phone, contributing $20.40, or 11.7 percent, of the total component cost, ISuppli said.

Lawmakers Aim to Stop Verizon Sale to Frontier

Verizon Communication's proposed sell-off of 4.8 million rural phone lines in 14 states to Frontier Communications will saddle the smaller telecom firm with a huge amount of debt and should be rejected by the government, two U.S. lawmakers said Thursday. The US$8.6 billion deal, announced last May, would leave Frontier with $3.3 billion in debt while allowing Verizon to avoid paying about $600 million in taxes, U.S. Representative Paul Hodes, a New Hampshire Democrat, said during a press conference. Hodes plans to introduce legislation to close the tax "loophole" under a so-called Reverse Morris Trust transaction, in which a larger company sells off assets to a smaller company. The deal is a "tax scam, at its base," added Ben Scott, policy director of Free Press, a media reform group. In a Reverse Morris Trust deal, the selling company can avoid paying taxes on its sold assets as long as its shareholders end up with more than 50 percent of stock of the buying company.

Benton

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