Archive for the ‘Media’ Category

Using Search Results to Fight Piracy

Monday, September 15th, 2014

With the growing consensus in the empirical literature that piracy harms sales, and emerging evidence that increased piracy can affect both the quantity and quality of content produced (here and here for example), governments and industry partners are exploring a variety of ways to reduce the harm caused by intellectual property theft. In addition to graduated response efforts and site shutdowns, Internet intermediaries such as Internet Service Providers, hosting companies, and web search engines are increasingly being asked play a role in limiting the availability of pirated content to consumers.

However, for this to be a viable strategy, it must first be the case that these sorts of efforts influence consumers’ decisions to consume legally. Surprisingly, there is very little empirical evidence one way or the other on this question.

In a recent paper, my colleagues Liron Sivan, Rahul Telang and I used a field experiment to address one aspect of this question: Does the prominence of pirate and legal sites in search results impact consumers’ choices for infringing versus legal content? Our results suggest that reducing the prominence of pirate links in search results can reduce copyright infringement.

To conduct our study, we first developed a custom search engine that allows us to experimentally manipulate what results are shown in response to user search queries. We then studied how changing what sites are listed in search results impacted the consumption behavior of a panel of users drawn from a general population, and a separate panel of only college aged participants.

In our experiments, we first randomly assigned users to one of three groups: a control group of users who are shown the same search results they would receive from a major search engine, and two treatment groups where pirate sites are artificially promoted and artificially demoted in the displayed search results. We then asked users to obtain a movie they are interested in watching, and to use our search engine instead of the search engine they would normally use. We observe what queries each set of users issued to search for their chosen movie, and surveyed them regarding what site they used to obtain the movie.

Our results suggest that changing the prominence of pirate and legal links has a strong impact on user choices: Relative to the control condition, users are more likely to consume legally (and less likely to infringe copyright) when legal content is more prominent in search results, and user are more likely to consume pirate content when pirate content is more prominent in search results.

By analyzing users’ initial search terms we find that these results hold even among users with an apparent predisposition to pirate: users whose initial search terms indicate an intention to consume pirated content are more likely to use legal channels when pirated content is harder to find in search results.

Our results suggest that reducing the prominence of pirate links in search results can reduce copyright infringement. We also note that there is both precedent and available data for this sort of response. In terms of precedent, search engines are already required to block a variety of information, including content from non-FDA approved pharmacies in the U.S. and content that violates an individual’s “right to be forgotten” in a variety of EU countries. Likewise, the websites listed in DMCA notices give search engines some of the raw data necessary to determine which sites are most likely to host infringing content.

Thus, while more research and analysis is needed to craft effective policy, we believe that our experimental results provide important initial evidence that users’ choices for legal versus infringing content can be influenced by what information they are shown, and thus that search engines can play a role in the ongoing fight against intellectual property theft.

 

Where Do Vendors To Cable Think The Industry Is Heading? Evidence From Cable Show Data In 2014

Friday, April 25th, 2014

Scott Wallsten and Corwin Rhyan

For the past five years we have collected data about the exhibitors at the annual NCTA Cable Show from its website.  Each year we analyze trends in the industry through the categories used to classify the exhibitors.  Key observations this year include:

       »      The number of exhibitors continues to fall as it has in each of the past 4 years, from 345 in 2010 to 241 in 2014 (Figure 1).

       »      Cable Programming, Video on Demand, IPTV, and Multi-Screen Content are the first, second, third, and fourth most popular in 2014. The top three increased in popularity since last year and Multi-Screen Content decreased slightly (Figure 2).

       »      New popular categories this year included RDK (Reference Design Kit)[1] and Content Search/Navigation Systems, with each having over 10 exhibitors in their first year. Fiber was absent in 2013, but has a few exhibitors in 2014 (Figure 4).

       »      Games, Consultants, and Research & Development show some of the largest year over year increases from 2013-2014 after Video on Demand, and IPTV (Figure 5).

       »      Four previously popular categories are absent from the 2014 show—HDTV, New Networks, tru2way, and VOIP. Other notable decliners include 3D TV and Mobile Apps. These highlight some difficulties in interpreting the results without other information. HDTV likely disappeared because it is so ubiquitous while 3D TV disappeared because it has generally been a market disappointment (Figure 7).

Number of Participants

The number of exhibitors in 2014 is down over 30% from 2010. After a large drop in 2011, the last 3 years have decreased at a more moderate 3% annual rate. The number of exhibitors is biased slightly upwards due to the fact that an exhibitor with multiple booth locations gets classified as two separate exhibitors in our data. However, the number of duplicates over the years is relatively small and consistent.

Figure 1: Number of Exhibitors 2010-2014

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Hot Tech This Year

The Cable Show allows its exhibitors to define their companies by categorical labels which signal to potential customers the types of products and services offered.  An exhibitor can select multiple categories for their products.  In 2014, the average number of categories per exhibitor was 3.87, down slightly from 4.33 in 2013.  In general, we expect exhibitors to classify their products as generally and widely as possible, with the hope of attracting interested attendees to their booths.  In order to normalize the data for year over year comparisons, we divide the number of exhibitors in each category by the total number of exhibitors, yielding a percentage of exhibitors that select each category.  The top 20 categories are listed below for the last 3 years, with Cable Programming defining over a third of all exhibitors this year.

Figure 2: Most Popular Categories 2012 – 2014

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In graphical form below, we plot the trends of this year’s top 5 most popular categories over the past 5 years.  While many of these categories have traditionally been near the top, most have grown over the past 5 years. 

Figure 3: Top 5 Most Popular Categories

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While we cannot rule out or in any particular hypothesis based on these data, it is worth noting that the large increase in programming-related exhibitors coincides with unprecedented increases in retransmission fees cable companies pay to programmers. It would be consistent with economic theory to see entry into this market as price increases.

What’s In and Out in 2014

The categories used to classify products and services change regularly.  The new categories used in 2014 are listed in Figure 4. Some are similar to previous categories, such as Content Search/Navigation Services, which likely evolved from the separate category of Content Navigation, while others come with little previous background like RDK (Reference Design Kit).

Figure 4: New 2014 Categories

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Many of the most popular 2013 categories continued to gain ground in 2014, with Video on Demand, IPTV, and Cable Programming showing strong gains.  Games and Consultants showed a strong increase in representation as well.  A complete list of the top gainers in 2014 is shown in Figure 5.  Some gainers declined in 2013 but returned with stronger showings in 2014.  This list includes categories such as Video on Demand, Billing, Internet TV Providers, IPTV, and Telecommunications Providers.  A chart of these categories is shown in Figure 6.

Figure 5: Biggest 2013-2014 Gainers

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Figure 6: Categories that switched to growth in 2014

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At the same time, some categories disappear between years.  In 2014 some notable categories are no longer present.

The categories that declined in 2014 included many that disappeared from the list completely such as HDTV, New Networks, tru2way, and VOIP. Several possible theories could explain these disappearances: perhaps some categories became so ubiquitous as to be meaningless in the context of a trade show (e.g., HDTV or VOIP), show organizers decided to no longer include a category because it overlapped too heavily with other categories (e.g., was “New Network” the same as “Program Networks?”), or because it is no longer relevant?

Other notable decliners include once “up and coming” technologies such as 3D TV, Mobile Apps, and Social TV. A decrease in a category is probably easier to interpret than an outright disappearance. 3D television, for example, has been a notable market disappointment and it is no surprise to see it disappearing from the show.

Figure 7: Biggest 2013-2014 Losers

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Figure 8: Categories that switched to decline in 2014

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Conclusion

Using data from the Cable Show’s exhibitors is advantageous because it is representative of the actors in the industry who have real money on the line.  In a tech world that loves to exaggerate the next “big thing”, using data directly from the industry members might help provide a better understanding of where the industry is headed.  However, this data must be used with caution.  First, the categories are self-reported by exhibitors, and while they have a clear incentive to accurately categorize their products and services, some might also see advantages in identifying with certain hyped industry technologies to attract customers. Secondly, the analysis weighs each exhibitor identically, which clearly isn’t accurate as some booths are massive and staffed by dozens of people while others are little more than a table and the company owner (Figure 9).

Despite these data shortcomings the data show a continued trend towards a cable industry more focused on its traditional roles as a television service provider, with programming, television, video, and networks topping our list in 2014, while the hyped technologies that were set to revolutionize the cable industry in 2012 and 2013 fell in 2014.

Figure 9: 2014 Cable Show Floor Plan

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[1] According to www.rdkcentral.com, RDK is “a pre-integrated software bundle that provides a common framework for powering customer-premises equipment (CPE) from TV service providers, including set-top boxes, gateways, and converged devices.”

Comcast and Netflix—What’s the Big Deal?

Wednesday, February 26th, 2014

Netflix and Comcast recently announced an agreement whereby Netflix will pay Comcast for direct access to its network.  This agreement addresses congestion that is slowing delivery of Netflix videos to Comcast’s broadband subscribers and resolves a dispute between the two companies concerning how to pay for the needed network upgrades.  Netflix and Verizon are currently working through a similar dispute.  While some commentators think deals such as the one between Netflix and Comcast are problematic, the reality is that the agreement reflects a common market transaction that yields an outcome more efficient and more quickly than any regulatory intervention could have.

The following series of stylized figures illustrate how the growth of Netflix and other streaming video services have affected the volume and flow of internet traffic and corresponding payments in recent years.  Traditionally (Figure 1), Internet backbone providers and ISPs entered into “peering” agreements, which did not call for payments on either side, reflecting a relatively balanced flow of traffic.  Content distributors paid backbone providers for “transit,” reflecting the unbalanced flow of traffic along that route.

Slide1

With the growth of online video and with Netflix accounting for 30 percent of traffic at some times of the day, this system was bound to become strained, as we are now seeing and as shown in Figure 2.  The flow of traffic between the backbone provider and the ISP is unbalanced and has grown enormously, requiring investments in additional capacity.

Slide2

One way to address this problem is for the backbone provider to pay the ISP, reflecting the greater amount of traffic (and greater capacity needed) going in that direction (see Figure 3).  In fact, that is what happened following a dispute between Level 3 and Comcast in late 2010.

Slide3

Another solution is the just-announced Comcast-Netflix deal, reflected in Figure 4.  In this case, Netflix/Comcast is bypassing the intermediate backbone provider (either partially or completely), presumably because it is more efficient to do so.  One or both of them is investing in the needed capacity.  Regulatory interference with such a deal runs the risk of blocking an advance that would lower costs and/or raise quality to consumers.

Slide4

The Wall Street Journal has described the debate as being “over who should bear the cost of upgrading the Internet’s pipes to carry the nation’s growing volume of online video:  broadband providers like cable and phone companies, or content companies like Netflix, which make money by sending news or entertainment through those pipes.”  Ultimately, of course, consumers pay one way or the other.  When Netflix pays Comcast, the cost is passed through to Netflix subscribers.  This is both efficient and fair, because the consumer of Netflix services is paying for the cost of that service.

In the absence of such an agreement, quality would suffer or the ISP would bear the cost.  The ISP might recover these costs by increasing prices to subscribers generally.  This would involve a cross-subsidy of Netflix subscribers by non-subscribers, which would be neither efficient nor fair.  Alternatively, Comcast could increase prices for those subscribers who consume a lot of bandwidth, which might have similar effects to the just-announced deal, but would probably lose some efficiencies.  In any event, it is difficult to see how such an arrangement would be better for consumers than the announced agreement.

 

 

Where do vendors to cable think the industry is heading? Evidence from 2013 Cable Show data

Tuesday, June 11th, 2013

For the past four years (2010 – 2013) I have been collecting data about exhibitors at the Cable Show. Key observations based on the most recent data:

  • The number of exhibitors continues to decline, down to 251 in 2013 from 345 in 2010 (Figure 1).
  • Programming is the most popular exhibitor category, and has been steadily increasing in popularity since 2010. In 2013 nearly one-third of exhibitors classify themselves under programming. Multi-screen content, HDTV, video on demand, and IPTV are the second, third, fourth, and fifth most popular categories (Figure 2).
  • The categories with the biggest increases in representation since 2010 are multi-screen content, programming, HDTV, new technology, and cloud services (Figure 3).
  • The categories with the biggest decreases in representation since 2010 include telecommunications equipment, services, and VOIP (Figure 4).

Exhibitor attendance

This year, the website listed 251 exhibitors, continuing a steady decline from 2010 (Figure 1). The number is biased upwards because an exhibitor can be counted multiple times if it appears in multiple booths.

Figure 1: Number of Cable Show Exhibitors, 2010-2013

Number of Exhibitors

 

Hot or Not?

The website shows the categories of products, services, or technologies each exhibitor selects to describe itself. An exhibitor can select several categories. To evaluate the prevalence of each category I total the number of times each category is selected, and then divide that by the number of exhibitors to make it comparable across years.

The table below shows the top 20 categories for 2010 – 2013. Programming has remained the top category for all four years. However, multi-screen content jumped to second place, followed by HDTV, pushing video on demand and IPTV to numbers four and five.

topcategories

 

Hot

Figure 2 shows how the top 5 exhibitor categories for 2013 have evolved over the past four years. Fully one-third of all exhibitors classify themselves as programming, nearly twice as many as in 2010. Multi-screen content did not exist as a category in 2010 while 16 percent of all exhibitors included themselves in this category in 2013.

Figure 2: Share of Exhibitors with Products in Top 5 2013 Categories Over Time

topcategorychart

 

Consistent with the above figure, from 2010 – 2013 cable programming increased in representation more than any other category. Multi-screen content saw the second-largest increase, followed by mobile apps, new technology, and cloud services.

Figure 3: Categories with Biggest Increase in Representation Since 2010biggestincreases

Not

Telecommunications services and equipment has seen the biggest decrease in representation since 2010, followed by VOIP, program guides, and optical networking. However, because “program guides” was not included as a category in 2013 it is not clear if the category truly became less popular or is now simply called something else.

Figure 4: Categories with Biggest Decreases in Representation Since 2010

biggestlosers

 

What does this mean?

The data themselves have certain problems that make drawing strong conclusions difficult. For example, counting exhibitors and categories implicitly assumes that each exhibitor is identical in size and importance, which clearly is not true (Figure 5). Additionally, the categories are self-reported by the exhibitors and do not appear to have strict definitions. Exhibitors have no incentive to select grossly inaccurate categories, since that would attract people unlikely to purchase their products, but exhibitors probably tend towards being overly-inclusive so as not to miss potential clients. This tendency might bias towards especially popular technologies. For example, perhaps exhibitors take liberties in claiming they offer “cloud services” because those contain popular buzzwords rather than because their products truly offer much in the way of those services.

Despite these shortcomings in the data, they provide one source of information on where economic actors with money at stake think the industry is headed over the next year. And, according to them, this year the industry is trending more towards its traditional role as video provider, focusing on programming and multi-screen content.

Figure 5: Exhibitor Map, 2013 Cable Show

map

 

Where Does the Cable Industry think It’s Going? Empirical Observations from the 2010 and 2011 Cable Shows: More Programming and Consumer Interface Applications

Monday, June 20th, 2011

Many aspects of the 2011 Cable Show were the same as the previous year. Like last year, the show featured:

  • Lots of swag,
  • My inability to understand why some people wait in lines of 30 minutes or more to get a free backpack (do they really value their time that little?),
  • The need to stay far away from the booth with the purple dinosaur crooning about how he loves you and you love him except that clearly nobody loves him, probably because of his pathetic cries for attention,
  • Company slogans that make you hope they put more thought into their products, like Huawei’s “Innovation Through Technology” (which is kind of like “construction through equipment”),innovation through technology
  • Lots of white, grey, and black boxes packed with all kinds of cool stuff, but still just look like white, grey, and black boxes, and
  • Painful feet at the end of the day from too much walking and not enough sitting.

Despite those consistencies, some things were conspicuously (almost) absent this year. Most notably, the 2010 show floor was full of 3D television exhibits. This year a few booths had a 3D TV, but it was typically shoved into a corner, and nobody ever seemed to be watching it. Whether this means that companies that sell to cable have decided consumer demand for 3DTV is less than expected or simply decided nobody wanted to see that display again is hard to know.

Aside from the (thankfully, in my opinion) missing 3D experience, the plethora of inscrutable metal boxes makes it almost impossible to determine just from browsing the show floor what is new this year even if I were able to remember last year’s boxes.

Fortunately, the Cable Show categorizes exhibitors by what they do. These data make it possible to take an empirical look at where current industry participants think the cable industry is headed compared to what they thought last year.

The 2011 show featured 271 exhibitors, compared to 345 in 2010. On average, however, each exhibitor claimed to be promoting products in 4.0 product categories in 2011 compared to 2.7 product categories per exhibitor in 2010.  Because exhibitors chose more categories and the number of categories remained roughly constant, the average share of firms in each category increased by almost one percentage point. Even recognizing that general increase, certain product categories showed large increases. The share of firms offering programming increased by 21 percentage points, consumer interface technologies (e.g., set-top boxes, program guides) increased by 8.4 percentage points, and wireless technologies increased by 8 percentage points. The biggest decrease was among exhibitors offering system management, by about two percentage points.

Data

Presumably to make it easier for attendees to find the products that interest them, the Cable Show website groups exhibitors into business categories: 130 categories in 2010 and 128 in 2011. Most categories appear in both years, but 2010 had 11 categories not represented in 2011, while 2011 had 9 categories not represented in 2010. Table 1 lists the categories in alphabetical order and the number of firms in each.

It is not possible to compare the numbers directly, however, due to changes in the number of exhibitors. As Table 1 shows, the number of exhibitors fell from 2010 to 2011 while each exhibitor identified itself, on average, as offering products in more categories.

Table 1: Cable Show Number of Exhibitors and Categories

Number exhibitors Average categories per exhibitor
2010 345 2.7
2011 271 4.0

Who’s at the show and how did that change from 2010 to 2011?

Figure 1 shows how well represented each category is at the show. In particular, it shows the share of exhibitors in each category, ordered from least to most in 2010. This approach only partially normalizes the data—it controls for the smaller show size but does not control for possible reasons why firms chose to include themselves in so many more categories in 2011 than they did in 2010. Nevertheless, the figure provides a good view of which categories are the most popular.

Figure 1

Share of exhibitors in each category

Figure 2 shows the percentage point change in the share of firms in each category. Because firms chose so many more categories in 2011, the average change is about 0.9 percentage points. Thus, we can assume that any change bigger than 0.9 means that the category is better represented while any change less than 0.9 means the category is less prevalent at the 2011 show.

The Figure shows that the share of exhibitors categorizing themselves as “programming” increased substantially, as did exhibitors focusing on end-user interfaces including set-top boxes, personal video recording, and interactive services. Mobile also increased from 2010. Systems management appeared to have the biggest decrease from the previous year.

Figure 2

Conclusions

The 2011 show had about 20 percent fewer exhibitors than did the 2010 show. Those exhibitors placed themselves into far more categories, on average, than they did the previous year.

Controlling for the smaller show size, programming was substantially better represented in 2011 than in 2010, as were all manner of devices and software targeted at end-user interfaces, and wireless. Systems management showed the biggest decrease.

These changes are broadly consistent with what we observe in the broader communications landscape: the power of content companies relative to distributors and the growing importance of wireless. Firms that sell to cable apparently see growing expected profits in those areas, as well. Whether they turn out to be correct remains to be seen.

Table 2: Total Number Exhibitors in Each Category

Category 2010 2011
Accounting 3 5
Advertising 20 23
Amplifiers 3 6
Antennas 1 2
Architectural/Drafting 1 0
Billing Systems 14 14
Broadband Service Provider 5 4
Brokerage 0 1
Business Services 13 11
Cable Drop Installation 5 1
Cable Information 3 1
Cable Modem Manufacturer 0 3
Cable Modem Reseller 0 1
Cable Modems 3 4
Cable Programming 57 77
Cable Residential Gateways 7 14
Cable Supplies 1 0
Cablecasting Equipment 1 2
Calibrators 1 0
Children’s Programming 6 4
CMTS 4 6
Coaxial Cable Connectors 4 1
Coaxial Drop Cable 4 2
Commercial Insertion Equipment 2 2
Competitive Intelligence 2 4
Computer Aided Dispatch 1 1
Computer Services 3 5
Computer Software 22 24
Conditional Access 3 12
Construction Materials & Equipment 1 1
Consultants 10 6
Customer Retention 4 10
Datacommunications Equipment 2 8
Datacommunications Services 1 5
Digital Cable Receiver 4 4
Digital Compression 4 2
Digital Headend Equipment 14 18
Digital Video 14 23
Distribution Equipment 8 4
DVB Product 2 7
EAS Systems 1 0
Educational Programming 7 19
Electronic Entertainment 3 3
Electronic Recycling 1 1
Emergency Warning Systems 1 1
Engineering & Construction Services 0 1
Enhanced Systems 2 2
Equipment Recovery 2 0
Equipment Repair 3 1
Fiber Optic Cable 6 4
Fiber Optic Distribution Systems 5 6
Fiber Optic Equipment 6 7
Field Services 4 5
Filters 2 0
Financial Services 0 2
Fleet Management Services 3 4
Games 6 3
HDTV 36 36
Headend Equipment 17 14
HFC Cable Demodulators 3 1
HFC Cable Modulators 3 1
High-Speed Internet Access 4 3
Home Information Services 0 2
Home Shopping Program/Services 3 4
Installation Services 4 1
Intelligent Networking 6 5
Interactive Databases 4 4
Interactive Programming 14 21
Interactive Services 24 34
International Supplier 3 4
Internet Service Provider 4 6
Internet TV Provider 7 14
IPTV 42 46
Market Research 1 2
Marketing 7 7
Microwave Equipment 3 3
MMDS Equipment 1 0
Mobile 17 26
Multi-Media Systems 5 7
Music Library 1 0
Music Programming/Services 5 3
Network Management Systems 16 20
New Networks 3 6
News Services 3 6
Non-Profit Organization 6 2
Operational Support Systems Solutions 10 13
Optical Networking 8 6
Outside Plant, Fiber & Cable Enclosures 1 1
Pay Cable Programming 8 27
Pay-Per-View Equipment 1 1
Pay-Per-View Service 2 9
Personal Video Recording (PVR) 6 17
Primary Interactive Programming 0 2
Program Guides 7 10
Program Navigation Systems 1 4
Program Networks 29 19
Promotional Programs 3 0
Publications 3 2
Religious Programming 5 3
Remote Controls 5 6
Research & Development 5 2
Return Path Products 4 3
Routing Systems 1 3
Satellite 10 11
Security Dealer Programs 0 1
Security Systems 3 4
Set Top Boxes 18 25
Signal Security 2 1
Sound Services/Audio Equipment 2 0
Splitters 4 2
Sports Programming 9 7
Status Monitoring 6 3
Studios 0 6
Subscriber Authorization Systems 7 8
Subscriber Collection Services 2 5
Subscriber Pre-Screening 1 1
Subscriber Promotion 3 5
System Auditing 1 1
System Management 16 7
Systems Integrator 11 12
Telecommunications Equipment 20 14
Telecommunications Services 24 23
Telemarketing Services 1 0
Telephony Services 4 5
Test Equipment 6 6
Tools 2 2
Training Services 1 2
tru2way 19 20
Trunk & Distribution Cable 3 2
Video on Demand 52 52
VOIP 17 16
Voting/Polling 4 4
Weather Forecast Services 2 3
Weather Programming 2 3
WiFi Products/Services 6 9
Wire and Cable 3 1
Wireless Networking 9 9
Wireless Telephony Systems 1 4
Workforce Management System 7 14

[1] For an overview of the focus of the 2010 show, see http://www.cablefax.com/cfp/just_in/Cable-Show-Takeaways_41407.html

Peering or End of the Internet as we know It?

Tuesday, December 7th, 2010

One of the top tech stories in the headlines of late is the dispute between Comcast and Level 3.  For those of you who were ignoring mass media last week: the dispute is over traffic handling agreements, apparently spurred by the announcement of a deal between Level 3 and Netflix to carry the latter’s streaming video.

Depending on who you listen to, the Comcast / Level 3 dispute is either a simple peering disagreement blown out of proportion or a gross violation of network neutrality principles and the beginning of the “tiered internet.”  So, where does the truth lie?  According to TPI’s Scott Wallsten, probably somewhere in the middle.   

Scott shared his views on the Comcast / Level 3 dispute on the EEEI Spectrum podcast, “This Week in Technology,” hosted by Steven Cherry.  In short, he identified the conflict as a dispute over who will pay for the increased cost resulting from the video traffic.  He also explained that there is a possibility of incentives to erect barriers to competition in such a deal but that the DOJ can adequately deal with such concerns through antitrust enforcement.  Scott also discusses his predictions on the outcome of the dispute and the future of the video delivery business.  The podcast can be found here.

Antitrust and Vertical Integration in ‘New Economy’ Industries

Monday, November 8th, 2010

Where does a firm end and a market begin? 

This existential query is discussed by Bruce Owen in “Antitrust and Vertical Integration in ‘New Economy’ Industries” released today by TPI.

Referring to Adam Smith’s analogy of division of labor in 18th century pin-making, Bruce illustrates how vertical integration is inherent in all firms, and therefore cannot be viewed on its own as a predictor of market problems.

So what is the take-away for regulators regarding tech and media policy?

As Owen so eloquently explains: “Toadying to uninformed populist fears of vertical integration between network providers and content creators by imposing investment-dampening ex ante regulatory constraints is likely to be far less useful to the public than steps to ensure effective competition among network providers.”

My release is here and the entire paper can be found here.

ADD and the FCC

Friday, June 25th, 2010

The deadline for comments regarding the Comcast/NBCU merger has come and gone, resulting in over 10,000 filings from a wide variety of groups.  From fears over loss of diversity to concerns over media localism, many commenters seem to see the process as a vehicle for their favorite causes rather than as a review of the effects of the merger itself.

In light of this, it seems like a good time to highlight the recent TPI paper by James Speta, “Screening and Simplifying the Competition Arguments in the NBC/Comcast Transaction.”  In the paper, he states that antitrust analysis of the proposed merger between Comcast and NBC Universal should focus only on its effect on competition in relevant markets and resulting harm to consumers.  Specifically, the analysis should ask:

  • Does the transaction actually make matters worse in a relevant way, in a relevant market?  For example, claims that cable companies behave badly by charging high prices to consumers are irrelevant unless the merger increases market power in a way that allows the cable companies to increase prices even more.  Similarly, claims that the broadcast market is not performing well are irrelevant because the transaction does not relevantly change the broadcasting market – it simply changes control of the stations.
  • Does the transaction injure competition in a manner that harms consumers?  Antitrust laws are designed to protect “competition not competitors.”  Thus, claims that the merger will harm certain competitors because a merged NBC-Comcast will be able to offer uniquely attractive products or services do not mean that the transaction injures competition in the manner that the antitrust law recognizes.

Hopefully, regulators will focus on the task at hand and not be distracted by irrelevant—even if well-meaning—comments filed in the proceeding.

The Case of Newspapers

Friday, June 4th, 2010

The Office of Policy Planning at the FTC has just issued the “Federal Trade Commission Staff Discussion Draft: Potential Policy Recommendations to Support the Reinvention of Journalism.”

This is a very strange document. It is written by “FTC staff in the Office of Policy Planning” but we cannot tell who actually wrote the draft. Moreover, no reason is given for writing the document. It is not a research paper (of the sort written in the Bureau of Economics) and there is no indication that it has been written in response to a Congressional inquiry. The missions of the FTC are antitrust and consumer protection, and this draft has little to do with either of these areas of responsibility.

Basically, this report is an exercise in industrial policy.

Is There a Problem?

The report tells us (as is obvious) that traditional print media are suffering. It also claims, with little rationale, that this is a public policy problem. The problem arises because “studies have shown that newspapers typically provide the largest quantity of original news to consumers…” But in a document with 180 footnotes, there is no source for the “studies” and so we cannot tell, for example, when these studies were completed. Moreover, just because newspapers have traditionally performed an important function does not mean that they are the only way this function could be done. A similar report in 1600 would have lamented the downfall of town criers.

Although the Draft on page 1 claims to be interested in policies which are “platform neutral,” on page 2 we learn that “most of the discussion in this document will use the perspective of newspapers…”  On page 5 we are told that because “newspapers have not found a new, sustainable business model…it is not too soon to start considering policies that might encourage innovations to help support journalism into the future.” In other words, the problem that this report is addressing is the problem of newspapers, not of news.

In a world where everyone with an internet connection has access to huge amounts of raw news and where anyone with a telephone camera who observes a newsworthy event can instantly post the video on numerous sources such as YouTube, it is difficult to understand why the FTC staff thinks we are in a situation where there is not enough news.

Moreover, the Tea Party movement has shown that people can learn about actionable news in time to actually take action. Newspapers were not the major source people used to learn about this movement, but the information spread quickly.

The True Purpose of the Report

In fact, this document is a defense of a traditional liberal ally, the American newspaper. Newspapers are in trouble but that does not mean that news is in trouble. One way to see the FTC perspective is to note that neither opinion blogs nor talk radio are mentioned in the report. These are two of the types of media that are replacing traditional news, but not supporting the liberal causes that the current FTC favors.

Economists are aware of the danger of industrial policy – of trying to pick winners and losers (or, in this case, of trying to turn a loser into a winner). Such policy is always wasteful because markets are better than governments at figuring out what investments are worthwhile. But when the industry involved is responsible for informing people about important issues of the day, and especially political issues, then the dangers of government involvement are especially large. This report tries to appear neutral, but it illustrates the dangers that we should be protected from by the First Amendment.