Tuesday, March 3, 2009

Video Insider: Walled Gardens: Good Or Bad For Consumers?

Walled Gardens: Good Or Bad For Consumers?

The month of February witnessed news, discussions, and potential relationships between cable operators, cable programmers and network broadcasters regarding online distribution of video content.  First hulu.com shut down video content distribution to Boxee and TV.com. On the tails of this announcement, the Wall Street Journal reported "top cable-television providers and TV networks are exploring a sweeping solution to the threat of online video: putting large numbers of cable shows online, but accessible only to cable subscribers."

A lot of rhetoric followed these newsworthy items.  But there was very little discussion on whether controlling content distribution and walled gardens is good or bad for consumers.  First, let me say I am pro-net neutrality, as I don't believe that broadband providers should be able to restrict Web navigation.  But after giving thought to programmers controlling content distribution and cable operators providing selected content available only through walled gardens, I'm taking the position that, YES!, these businesses have the fundamental right to do so and it's good for me as a consumer, as long as we have the right regulation for net neutrality.

Why do I say this?  

1)    As a consumer, I want the most entertaining content, consumed any way I choose, at lowest possible cost, preferably free.  

2)    I recognize that the value chain -- broadband providers, video programmers, content creators and owners, actors, script writers, grips, etc. -- must earn a positive return on their expenditures and time, otherwise their businesses will cease to exist.  

3)    Content owners, like book authors and software developers, have the fundamental right to do with their intellectual property as they choose; whether that means giving away their efforts free of charge or maximizing an economic return through subscription fees or advertising.
Before you write me a scathing response that cable operators and cable programmers are just trying to protect their turf, take a time out and look at what has occurred and is occurring in cable television offerings for the consumer. 

With television today we can choose different packaged offerings: 100 channels, 1,000 channels, premium movie channels, etc.  And we can choose among cable, satellite or telco operators.  Every week there seems to be a better, richer and less expensive television offer showing up at my home.  Each time I review one of these solicitations, I question the dollar value of all television delivery offerings as there is a finite number of hours available for television video consumption, and more choices for alternative delivery methods due to innovation.  Fifteen years ago, would 500 television channels and every movie channel offered be worth $100/month?  Absolutely.  Is it worth it today?  Maybe.  Will such an offering be worth $100/month in five years?  No way!  Technical advancement has lowered the barrier (cost) to create, produce and distribute video content.  In economic terms this means more supply, more choice, and a lower median value for video delivery and video content. 

With net neutrality, we're free to navigate to any site we choose.  We have choices among broadband providers, and we have entertainment alternatives.  If broadband providers want to strike deals with content owners for exclusivity on video content, I say go for it!  Allowing broadband providers to charge a premium for their offerings and attract new or keep existing customers is the way they and the rest of the value chain will and should be rewarded.  If the economic toll (subscription fees) or interruptive activity (commercial breaks) is too significant then I will vote with my wallet and find other video or alternative means of entertainment.

This economic reality rewards the value chain while keeping it in check.  In fact,  Adam Smith's "invisible hand" metaphor has never been more evident than when applied to the Internet and innovation.  Our market system works best when combining choice, competition, innovation, a reasonable framework of regulation, and the ability to get an economic return. 


Steve Robinson is CEO of Panache, which offers an ad-insertion platform that provides major media and entertainment companies with the infrastructure to generate and increase revenues in their movement of video to the Internet.

Video Insider for Tuesday, March 3, 2009:

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