The cable providers who have invested in and implemented TV Everywhere trials deny the allegations that the initiative violates antitrust laws, and instead argue that TV Everywhere benefits consumers by making more content available on the Internet.   While advocates call it “innovative”, antagonists call it “incumbents protecting their turf,” – which as of late will ultimately boil down to a question for the Department of Justice.

Antitrust laws are meant to protect competition in the marketplace, recognizing that competition is necessary to ensure fair pricing and better quality for the consumer.  Therefore, the fundamental question from an antitrust perspective is, will TV Everywhere threaten or hinder competition in the online television content space?  The public interest groups calling for an investigation argue that it most certainly will stifle competition in the emerging market for online television programming.  They go so far as to allege collusion among the major video service providers networks, claiming that the TV Everywhere initiative rests on an illegal “horizontal” agreement among competitors.

In its complaint to the DOJ, Free Press asserts that the TV Everywhere alleged agreements amongst the cable providers are collusive horizontal agreements likely to be found illegal under the applicable per se rules governing antitrust law.  The per se rule applies only to practices that are themselves clearly unreasonable restraints of trade regardless of market facts, such as horizontal collusion, including horizontal price-fixing, market allocation, and certain group boycotts.  Additionally certain tying arrangements are also per se violations.  Antitrust case law has established each such activity as “unreasonable restraints of trade”.

Price Fixing

Price collusion among competitors has been determined by the Supreme Court to be a per se violation of Section 1 of the Sherman Act regardless of the actual impact on the market.  Typically, in order for a court to find per se illegal collusion there must be a “horizontal agreement” in place, i.e., an agreement among competitors.

National Cable and Telecommunications Associations Chief Executive Kyle McSlarrow publicly denounced the anti-competitive allegations in a statement issued in response to the filing of the DOJ complaint.  McSlarrow asserted that TV Everywhere is the result of true market player collaboration rather than collusion.  He defends TV Everywhere noting that antitrust authorities have encouraged collaboration in the past, sometimes even among competitors, for the sake of innovation and market stimulation.  “Distributors do not have the ability to unilaterally decide how content is distributed.  Content owners, through individual business arrangements with a growing array of distributors ultimately make those decisions.  All in all, Free Press and other parties are complaining about decisions content owners make about how their content should be distributed.”

McSlarrow also argued that with respect to the various TV Everywhere initiatives being tested the relationships are purely vertical (i.e., based on arrangements between one content company and one or more individual distributors) and not horizontal (i.e. based on agreements between distributors, one the one hand, and agreements between content owners, on the other hand) in nature.   As he said, “The fact that market participants are experimenting with models in addition to fee- or advertiser-supported models is not a sign of anti-competitive conduct.”

Dividing the Market

Deliberate and strategic division or allocation of customers, territories or portions of the market between competitors, i.e., “market allocation”, has also been deemed a violation of Section 1 of the Sherman Act.  Market allocations are subject to per se illegality findings whether or not price setting is involved, and whether or not the parties involved are actual or potential competitors.  Free Press and other public interest groups assert that the TV Everywhere “horizontal” arrangement amongst the cable providers illegally allocates geographic and product markets.

While the reality is that under the TV Everywhere model, competing distributors allocate markets geographically, that allocation is not a “voluntary” one but rather the result of the fact that each major cable provider has a de-facto “monopoly” in the geographic areas in which they have been granted a franchise to operate.  The cable providers plan to continue, through TV Everywhere, to serve only those consumers within the geographic areas to which they currently provide services, rather than branching out to compete with providers in other areas.  While critics may argue that this is an unlawful “market allocation”, cable providers view this as nothing more than a continuation of servicing their current customer base by including a premium content feature in addition to the services already being provided to such customers.

Tying

Free Press and other public interest groups have also accused the cable providers offering TV Everywhere of unlawful “tying”, which the Supreme Court has held occurs when a seller enjoys a monopolistic position in the market for the tying product and a substantial volume of commerce in the “tied” product is restrained.   Free Press stated that, “by tying online television to incumbent MVPD [multichannel video programming distributors] subscriptions, TV Everywhere is designed to undermine new forms of competition and consumer choice currently emerging over the Internet.”  Free Press, among others, believes that true competitive pressure should require existing cable TV providers to meet consumer demand for online TV, rather than allow them to resist the demand by tying online programming to what is being perceived as “inflated” cable TV subscriptions.

On the other hand, some say that TV Everywhere is not only good for consumers, who can choose to legally access high quality video content they are already paying for on the Internet, but is also good for program distributors because it opens up a gateway for new content that wasn’t previously (legally) available online, and ultimately that it represents a promising initiative for bridging old and new media.

Competition

Public interest groups also claim that TV Everywhere could be a threat to competition for video start-ups such as Vuze, Roku and Hulu.  However, this may not necessarily be a true apples-to-apples comparison since these video start-ups are not traditionally considered direct competitors of major cable operators, nor would it be possible to determine that the success or failure of non-TV Everywhere online television content providers is directly attributable to the business models of the major cable providers.  Ultimately, content providers, without whom both cable providers and on-line video providers wouldn’t have much of a business, still remain free to make their content available wherever they want.  Even before TV Everywhere initiatives were rolled out, those providers sought to distribute their content on competing cable, satellite, telephone and online platforms.  TV Everywhere appears to be an extension and evolution of those existing platform distribution models.

It is unclear at this stage whether or not the assertions made by the public interest groups will gain traction with DOJ or lead to further scrutiny or regulation.  It is clear, however, that the TV Everywhere initiative reflects a “dynamic and rapidly-changing market in which  no one knows the ultimate outcome”.   As the model evolves, it is likely that we will see its impact throughout the legal and regulatory landscape, including antitrust law, policies for an open Internet (i.e., net neutrality), content providers’ and distributors’ rights and interests and demand/consumption of online and traditional television content by consumers.

On March 11, 2010, the Digital HHR team is presenting “TV Everywhere–Is It Everywhere You Want to Be?”, a live, CLE-accredited Webinar exploring the legal and business issues surrounding TV Everywhere, including the antitrust issues we’ve discussed here.  We will also continue to stay abreast of these developments as an on-going effort to provide our clients with guidance to enable them to take advantage of the rapidly-changing environment in which they operate.

The initiative is, in many ways, the product of a “perfect storm” of the realities, opportunities and challenges facing not just the cable/satellite tv industry and content owners, but the advertising industry and advertisers themselves. Here’s what is at play:

• Cable, satellite and telco TV is one of the few sources of subscription content that people are willing to pay for.

• That fact keeps most video content and programming off the Web as cable networks fight to preserve the 50% of revenue that comes from subscribers. Their fear is that, with content freely available on the Web, many viewers may decide to simply terminate their pay TV service.

• The content owners are often reluctant to put content directly online for fear that the value of their respective offerings to the cable/satellite companies will be diminished, thereby undermining the traditional cable/satellite subscription model.

• Yet the content owners and Web publishers recognize that there are ad dollars to be made by placing more and more content and programming on the Web.

TV Everywhere is based on a fairly simple premise:  since consumers are already paying for the content they are watching at home on their TVs, why not let them watch the same content wherever they have a screen that is web-enabled? 

But even as TV Everywhere seeks to gain traction, and by doing so strengthen the hand of pay TV providers, “Over The Top” (OTT) distributors continue to pull an end around these providers by enabling consumers to watch Internet video content (a sizable portion of which is free or provided at no additional charge) on their TVs.  OTT refers to video being delivered to homes over a broadband network that isn’t owned by the distributor itself.  For example, if you watch Hulu video in your home via a Verizon FiOS broadband connection, Hulu is going “over the top” of Verizon.  Hulu doesn’t own the broadband network, it simply rides on top of the one that’s there, essentially competing with the broadband provider’s own video service. 

Unlike TVE, OTT video services come in several different models from providers as diverse as Apple (Apple TV), Microsoft (Xbox Live), Sony (PlayStation Network), and Netflix.  OTT providers are looking to extend the Web beyond the computer screen and onto TV sets in living rooms using a mix of subscription, pay-per-view and ad-supported models.  

While enabling viewers to watch YouTube videos of cats jumping on trampolines on a giant plasma screen may not be of concern to pay TV providers, giving them the ability to watch movies on-demand and free and premium cable content (the bread and butter content for pay TV providers) through an OTT service surely is cause for alarm.  In what might be a pay TV providers worst nightmare, some OTT services could lead consumers to contemplate ditching their pay TV subscriptions altogether. 

For content owners, both TVE and OTT provide both opportunity and concern.  In the case of TVE, the implementation of authentication technologies–to ensure that only paid-up subscribers have access to video content–is a significant advance in preventing piracy, one of the highest priorities of content owners. In addition, content owners receive payments from pay TV providers, based on revenue those providers receive from their subscribers.  By making pay TV providers’ revenue pie larger, content owners may ultimately receive a larger slice of that revenue. 

However, by merely extending access, TVE may not provide enough of an economic benefit to content owners, even if TVE deals are non-exclusive.  For years those owners have been entering into agreements for the online distribution and syndication of their content, including deals for OTT services.  These agreements provide for a variety of revenue streams, including up-front advances and substantial participation in advertising revenue.  And although one of the future promises of TVE is the ability to serve targeted advertising to viewers–which could conceivably provide higher revenues–it is still too early to determine if that promise can or will be fulfilled. 

The situation is obviously very fluid, with the stakeholders (including pay TV providers, content owners, broadcast and cable networks, hardware and software providers, and yes, consumers) having multiple intersecting and conflicting interests.  Our upcoming webinar will take a closer look at TVE and some of these questions.  We will also keep abreast of developments and undoubtedly provide additional insight here in the future.

*  Kari Hirsch, who recently joined the Digitalhhr team, assisted in the preparation of this post.

“TV Everywhere”, the brainchild of Jeff Bewkes, CEO of Time Warner, the largest owner of cable networks, including TNT, Cartoon Network, CNN and HBO, would put all cable programming on the Web in places such as Hulu, MySpace and Yahoo TV.  The catch—viewers will have to prove that they already pay for the content through a TV subscription with a cable, satellite or telephone company.  And like the dry cleaner, no ticket, no shirt (or, in this case, show).

The initiative is, in many ways, the product of a “perfect storm” of the realities, opportunities and challenges facing not just the cable/satellite/telco industry and content owners, but the advertising industry and advertisers themselves.  Here’s what is at play:

• Cable, satellite and telco TV is one of the few sources of subscription content that people are willing to pay for.
• That fact keeps most video content and programming off the Web as cable networks fight to preserve the 50% of revenue that comes from subscribers.  Their fear is that, with content freely available on the Web, many viewers may decide to simply terminate their pay TV service.
• The content owners and networks are often reluctant to put content directly online for fear that the cable companies will not want to pay top dollar to the media companies who are, in effect, undermining the cable subscription model.
• Yet the content owners and Web publishers recognize that there are ad dollars to be made by placing more and more content and programming on the Web.

TV Everywhere is intended to address all of these points.  In theory, pay TV subscribers would have online (and perhaps mobile) access to all of the TV programming included in their pay TV package.  You would log in, provide information regarding your pay TV subscription (perhaps via an “unlock” key you get from your pay TV company) and can have access to a robust library of programming.

Viacom and ESPN, two of the largest programmers, appear to be open to such an initiative.  According to the report in MediaDailyNews, Viacom is working with cable operators to develop an authentication process.  ESPN is also evaluating certain technology that might be deployed.  And Time Warner Cable has been testing a system in Wisconsin which enables HBO subscribers to watch shows online.

New research seems to support claims of the cable industry that making cable programming available to subscribers regardless of which of the “three screens” viewed—TV, PC and mobile—would lead to increased market demand.  The Diffusion Group found that 16% if cable subscribers who spend more than $100 per month for TV service would spend an additional $20 per month to deliver that same content to their PCs.  (No word from Diffusion about how the other 84% of subscribers feel.)  The research revealed that the percentage of cable subscribers willing to pay more for additional access on other screens increased as the added cost for the access decreased.

With broad participation by pay TV providers and Web sites offering the video content (presumably any site with an agreement with the media content providers), this initiative could be entirely system and provider agnostic.  The clear advantage to subscribers is added access to video content that they already pay for.  For the Web sites, perhaps an opportunity to provide targeted advertising—after all, the log-in process could provide information about the subscriber.

However, the hurdles are substantial.  Put aside for a minute the enormous endeavor needed to develop and implement a system that could process and authenticate information from millions of pay TV subscribers with hundreds of plans offered from dozens of providers that would need to be integrated onto perhaps thousands of platforms across the Web.  (Now that I’ve written that sentence, it seems absurd to “put it aside.”)  But the cooperation needed by all of the stakeholders—pay TV providers, broadband service providers, Web site operators—is substantial, to say the least.  Reconciling issues such as sharing consumer information will be tremendously difficult, both from the consumer facing (privacy policies, anyone?) and business intelligence standpoints.  Certain legal restrictions on the use and/or disclosure of such information may also apply.

Moreover, what type of information would be provided to the Web site operators?  They would likely want access to subscriber information in order to sell targeted advertising, an interest shared by the programming providers.  However, will pay TV providers want to share such information—giving the Web sites a revenue advantage—without participating?

Lastly, are consumers willing to go along here, undertaking yet another login and authentication process, exposing themselves to yet more advertising and eroding privacy a bit further, all to watch more TV outside of the comfort of their own living rooms?

We will watch developments here closely as these are some BIG questions.