Society and Culture, Media and Technology

The CBS-Time Warner standoff is a sign of market dynamism, not market failure

Image Credit: Shutterstock

Image Credit: Shutterstock

As the CBS-Time Warner Cable standoff continues, many in Washington are itching to get involved. Senator Ed Markey (D-Massachusetts) charged a violation of “net neutrality” and called for the Federal Communications Commission to intercede. Michael Calabrese of the New America Foundation, meanwhile, wants Congressional action. He thinks the dustup, in which TWC turned off CBS broadcasts in eight markets and CBS then blocked TWC customers’ access to CBS.com web content, could reinvigorate the push for a la carte cable programming. As embodied in Senators John McCain (R-Arizona) and Richard Blumenthal’s (D-Connecticut) “Television Consumer Freedom Act,” a la carte is a mandate that cable TV networks offer each channel as a stand-alone product instead of their traditional mix of bundles, tiers, and pay channels.

“The current rash of TV channel blackouts,” Calabrese writes, “result from a broken market that is itself a product of increasingly antiquated laws and regulatory neglect.” It’s true the patchwork of rules enacted over the years is less than ideal and makes for unneeded complexity.

But do we need more intervention in the Internet and media markets, as Calabrese suggests? Or perhaps less?

And is the market “broken”? Or do we have more content from more sources over more channels than ever? And to the extent a real market exists, isn’t the to and fro of businesses negotiating prices perfectly normal?

Calabrese acknowledges the increasing competitiveness of the space. For example, he writes:

  • “The increasing number of delivery platforms for video content has emboldened the major broadcast networks to insist on a much larger share of the pay-TV pie.”
  • “Younger people in particular are demonstrating a willingness to “cut the cord” and rely on online video offerings, such as Netflix, Hulu, and YouTube (so-called “over the top” video).”
  • “TWC is encouraging its customers to watch CBS on Aereo, a disruptive new service bankrolled by billionaire Barry Diller that records and retransmits local TV stations online for $8 a month.”
  • “Online video and more consumer choice is the likely long-term trend.”

All excellent points. Yet these and other Internet phenomena, where bandwidth, connectivity, devices, apps, and content are booming, suggest new top-down rules — such as a la carte and net neutrality — are just what we don’t want. Technology and digital business realities tend to push in this general direction, yes — toward the separation of content and conduit. But it is not a hard-and-fast rule, and it cannot be imposed from above.

Netflix, for example, is a content distributor that is, in some dimensions, disrupting the cable TV model. Yet Netflix itself, with “House of Cards” and “Orange Is The New Black,” is now also a content producer. So even as it cleaves content from cable’s network, it is reintegrating content into its own network. Do we want a la carte for Netflix, too? Probably not. This see-saw innovation is the perennial rule of the digital economy — the ever present but unpredictable integration and modularity of platforms and products. And in the fast-moving Internet, today’s urgent policy can quickly become tomorrow’s “antiquated” law.

CBS and TWC aren’t the first companies to fight over content fees, and they won’t be the last. Especially in a media world where all the technologies and business models are changing. But we need to let the companies find the new competitive balance, without scale-tipping pressure from DC. Let CBS and TWC mobilize consumers, not politicians.

Bret Swanson is president of the technology research firm Entropy Economics LLC.

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