Gatekeepers of Cable TV Try to Stop Intel

[TampaYankee]

Gatekeepers of Cable TV Try to Stop Intel

By BRIAN STELTER

Published: June 12, 2013

WASHINGTON — As Intel tries something audacious — the creation of a virtual cable service that would sell a bundle of television channels to subscribers over the Internet — it is running up against a multibillion-dollar barricade.

That barricade is guarded by Time Warner Cable and other cable and satellite distributors, which are trying to make it difficult — if not impossible — for Intel to go through with its plan. The distributors are using a variety of methods to pressure the owners of cable channels, with whom they have lucrative long-term contracts, not to sign contracts with upstarts like Intel, that way preserving the status quo.

Intel, however, is undeterred, and its executives intend to begin its TV service by the end of the year. They are ready and willing to pay more than existing distributors do for channels. But to date the company has not announced any deals with channel owners.

To Intel, and to some analysts, the behavior by the existing distributors — in some cases giving financial incentives to friendly channel owners, in other cases including punitive measures in contracts — has an anticompetitive whiff. The antitrust division of the Justice Department is looking into the issue as part of a broad investigation into cable and satellite company practices, according to people contacted by the department, who spoke on condition of anonymity because they were not authorized to speak publicly. A department spokeswoman declined to comment.

Public attention about the issue, which gained new life this week during the cable industry’s annual conference here, might also spur the Federal Communications Commission to afford would-be Internet distributors like Intel the same legal protections as those that already exist. The commission has been considering such a change for more than a year.

“The government has to step up and protect these companies, or the incumbents are going to kill them in their cradles,” said Gigi B. Sohn, the president of the public interest group Public Knowledge.

Prospective products like Intel TV, delivered through the broadband Internet infrastructure of Comcast, Time Warner Cable or another provider and sometimes called “over the top TV,” have the potential to radically alter the media marketplace in the United States.

Unlike Netflix, which sells a library of TV episodes and mainly supplements cable, a service like Intel’s — with dozens of channels, big and small, streaming through a modern interface — could cause more consumers to cancel their cable subscriptions. (They would have to keep a broadband subscription, however, unless or until wireless capacity improves.)

It could also stir further innovation within the industry. If Intel’s service ever goes on sale, industry executives predict that others will quickly follow — either because they want to, or they feel they have no choice.

Apple, Microsoft and Sony are often mentioned as possibilities, but the more immediate competition might come from Comcast, Time Warner Cable and other major distributors, which could suddenly compete directly in markets all across the country. Comcast has quietly been working on an “over the top” service for well over a year.

“Suddenly there’d be a whole new world of competition,” said one of the executives, who declined to express support for the “over the top” option for fear of angering the existing distributors.

Most of those companies declined to comment on the record, but some representatives said privately that they are taking common-sense steps to protect their businesses. Each confidential contract between a distributor and a channel owner is different, they said.

Some contracts include clauses that expressly prohibit the channels to be sold to an Internet distributor like Intel, while other contracts merely discourage such competition by including financial incentives or penalties. So-called most favored nation clauses, which are common, exist to ensure that if another distributor receives a cheaper rate for a channel later, that rate applies across the board. Some of these provisions have been in place for years.

But critics said that the contractual language makes it much harder for new companies to enter the marketplace. A Justice Department official said in a presentation last year that “contracts that reference rivals” have the potential to harm competition.

Within the cable industry, the practice of discouraging new Internet distributors has been suspected but not widely documented. The issue attracted new attention on Tuesday during the cable industry’s conference when Richard Greenfield, an analyst at BTIG Research, wrote in a blog post that at least one unnamed distributor had prevented a channel owner from selling to a service like Intel. Whether illegal or not, “it most certainly is bad for consumers, as it limits competition and prevents the emergence of distributors who can provide revolutionary new ways of experiencing” TV, he wrote.

Mr. Greenfield did not name any names, but several channel owners and smaller distributors said Time Warner Cable, the nation’s second-largest cable company after Comcast, had been by far the most aggressive in its dealings with channels. When Comcast acquired NBCUniversal in 2011, it signed a consent decree with the government that prohibited it from trying to block budding Internet distributors. Time Warner Cable declined to elaborate on its practices on Wednesday, but said in a statement that “it is absurd to suggest that, in today’s highly competitive video marketplace, obtaining some level of exclusivity is anticompetitive. Exclusivities and windows are extremely common in the entertainment industry; that’s exactly how entertainment companies compete.” It cited the N.F.L. deal with DirecTV and the Netflix distribution of the former cable show “Arrested Development,” among other examples.

Mr. Greenfield rejected that explanation. “They are not paying for exclusivity,” he said. “They are saying you can sell to X, to Y and Z, but you are forbidden from selling to this new class, called A.”

A spokesman for Intel declined to comment. But this week the company had a suite at a hotel, one block from the cable conference site, and held demonstrations of its service for potential partners. What Intel needs, according to people briefed on their plans, is the support of a critical mass of channels — not the entire universe that Comcast or DirecTV has, but enough to have a viable service. Intel will not introduce the service without that.

See original article at: http://www.nytimes.com/2013/06/13/business/media/gatekeepers-of-cable-tv-try-to-stop-intel.html?pagewanted=2&_r=0&partner=yahoofinance

[TampaYankee]

I would be all over this like white on rice. Count me in. I hate my cable company. That industry is corrupt with it's monopolies. I hope the DOJ lets loose its antitrust dogs to reign hell down upon the cable and satellite for anticompetitive practices.