Cable Industry Claims Collusion is Pro-Consumer: Response of NCTA on TV Everywhere

Yesterday, consumer groups called for government agencies to investigate TV Everywhere – a new scheme that would require Internet users to pay for a cable TV subscription if they want to watch popular shows online. As detailed in a new report issued on Monday, from the public record, TV Everywhere appears to be the product of collusion between major programmers and the big cable, satellite and phone companies to keep content off the Internet.

Spearheaded by Comcast and Time Warner Cable, the TV Everywhere initiative appears to be built on cable operators (and other distributors) agreeing to work together to pressure content providers to make their content available on the Internet only to viewers that have paid for a cable TV subscription in addition to an Internet connection.  Thus, TV Everywhere ties online TV distribution to the existing cable, phone, and satellite distributors’ TV subscriptions. (I refer to all these as “cable,” for brevity.)  Citing news reports, statements by industry executives and other evidence, the consumer groups argue there is enough evidence of collusion and other harms to warrant a full-scale investigation by the Justice Department or the Federal Trade Commission into the scheme. (Docs here; Huffpo post here.)

Unsurprisingly, the cable industry didn’t welcome this critique of their plans. The head of the cable industry lobbying association (known as NCTA), Kyle McSlarrow, responded with a statement. McSlarrow is an effective lobbyist, but his response misses the mark.

His key argument is that TV Everywhere consists of collaboration, not collusion.  He notes that the antitrust authorities encourage collaboration sometimes even among competitors, for the sake of innovation and other benefits.  McSlarrow has a point that some collaboration is not presumed to be anti-competitive; indeed, the  FTC and DOJ have issued guidelines on collaboration among competitors.

But the types of “collaboration” generally found not to harm competition and to further innovation are very different from TV Everywhere.  Collaborations of some types are considered “per se,” or automatically, illegal because they replace the competitive marketplace driving low prices, choice, and innovation with an agreement among incumbents effectively not to engage in competition with one another in certain ways.

Simply put, some forms of collaboration are clearly illegal and anti-competitive.  These agreements include price-fixing and market allocation.  TV Everywhere should be investigated because evidence suggests it includes both price-fixing and allocation.

First, TV Everywhere sets the price for consumers to access much television content online. The price is the cost of a traditional cable TV subscription and an Internet connection plus access to “free” content if you watch advertising. In other words, consumers will pay three different ways.  TV Everywhere also appears to set a term in the negotiations between distributors and programmers — requiring, for one thing, that programmers keep content off the Internet unless a viewer subscribes also to cable TV.  Setting such terms among competitors for suppliers through horizontal agreement appears problematic, and the government should review such agreements and interview participants to the negotiations.

Second, in a world without TV Everywhere, we could expect programmers to compete directly with distributors on the Internet — for example, Hulu (owned by programmers like Disney and Fox) versus Comcast (a traditional distributor).  TV Everywhere unwinds that competition, as people cannot cancel their cable service to watch popular programming exclusively online without also paying for cable TV.  And without TV Everywhere, we could also expect cable companies in different regions to compete with one another online — with a company like Comcast competing against Cox, Time Warner Cable, AT&T, Verizon, Qwest, etc. But TV Everywhere reportedly ties content to a local cable subscription, allocating markets to the current geographical areas served by each distributor. In other words, no new competition.

When they came up with TV Everywhere, cable executives must have understood they were flirting with collusion  — not pro-competitive collaboration. According to the New York Times, “so as to avoid being accused of collusion, much of the discussions” by executives about TV Everywhere “have been on the telephone and in private, one-on-one chats during industry events.”  That is, to avoid being accused of collusion, the executives didn’t stop having the talks–they just tried to eliminate the paper trail.

Comcast’s president likened online competition to a “classic prisoner’s dilemma,” because if each competitor went in a different direction, without agreements, the cable industry’s economics could crumble.  His quote highlights not only that industry participants were discussing competition as a problem undermining their industry’s economics (of high prices and limited choice for consumers), but also that the point of TV Everywhere wasn’t to innovate.  It was to protect the cable business model.

TV Everywhere is designed to be a major development in the TV industry, preserving their existing, limited competition, model for years to come.  Our competitive system rests on companies competing with one another to win in the marketplace, and that competition should yield low prices and increased innovation for Americans.  Our system does not rest on incumbents protecting their turf.  As consumer groups called for yesterday, the antitrust authorities should investigate such an important, potentially illegal and anti-competitive development.

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