Broadband Cable Association of Pennsylvania


July 22, 2013

Apple and Google were back making waves in the television world last week, with reports suggesting they were renewing efforts to use technology to transform the box in your living room. But Netflix already has. Netflix knows a little about transformation. It's worth remembering that it managed to go from the largest user of the Postal Service to the largest source of download traffic on the Web in the span of months, not years. After a big stumble on pricing in 2011, Netflix recovered and then some, using its expertise in technology and algorithms to accrue over 36 million users worldwide, a number that will probably grow when it announces its earnings on Monday. Its stock has already risen more than 200 percent in the last year.

But few would have guessed that Netflix's software expertise would extend to entertainment produced by top-flight actors, directors and writers. Beginning this year, Netflix streamed four original series - "House of Cards," "Hemlock Grove," "Arrested Development" and "Orange Is the New Black." The shows earned generally good notices, kicked up a great deal of chatter, and, drum roll here, were nominated for 14 Emmys. It was the first time an Internet-only service earned a seat at the big-boy table in television. The Emmys were the most prominent marker of change, but hardly the only one, in a week full of headlines about what TV is becoming. It's not their first foray, but if Apple and Google move further into the television space, they are sure to collide with not only traditional players, but Netflix, Amazon, Sony and Intel. And Aereo, which so far is a small but persistent player backed by Barry Diller, won another court victory for its plan to totally upend broadcast networks, by streaming their content without compensating them.

Meanwhile, what were the traditional television players up to? Squabbling yet again over retransmission fees, with a standoff between CBS and Time Warner Cable that could set off a blackout, driving audiences to other ways of viewing. The only constant was steady price hikes on cable bills. The future of television - a place where cable is not the only answer for average viewers - just drew a little closer. Netflix has earned its place in that future. It won some victories on the programming side by financing creators and staying out of their hair, an approach invented and perfected by HBO. Given that HBO pulled in 108 Emmy nominations last week, Netflix has a long way to go. But David Bianculli, a professor at Rowan University in New Jersey who blogs at TV Worth Watching, suggests another view. "It took HBO 25 years to get its first Emmy nomination; it took Netflix six months," he said. In that sense, Netflix is more like Pixar than Hulu, showing that a Silicon Valley company could produce creative, successful programming.

Ted Sarandos, Netflix's chief content officer, told The New York Times last week that the Emmy nominations solidified the idea that "television is television, no matter what pipe brings it to the screen." He's right. Television used to come over the air or through the coaxial cable. Now it seems to come from everywhere on all kinds of devices. Both Google and Apple continue to hover around the honey pot of television. Apple's rumored effort at making a TV set has been like Godot - much anticipated, never arriving - but in the meantime it is in talks with distributors like Time Warner Cable and programmers like Walt Disney to explore collaboration on apps.

Google has been in talks with program providers, including cable channels, about distribution over the Internet, a more complicated approach - the cable systems that distribute programming would be left out of the mix - with a higher risk in execution. In both instances, the companies are taking the same wine and putting it in a new bottle, creating a new interface to replace clunky remotes while hoping to gain a lot of valuable data in the process. Figuring out how to put a new skin on the same database can be lucrative -, a huge business, is built on existing government data - but it's one thing to present better navigation, and another to produce better television.

Apple reinvented the music industry on its terms and in doing so cut the legacy music business in half. The TV business, which is still sitting on healthy earnings, if not ratings, saw that movie already and wants no part of it. But Apple is nothing if not relentless. One of its reported approaches is to enable ad-skipping while making a payment to ad-supported networks. "In essence they were saying that they would cut them a check while destroying their business model," said Craig Moffett, a telecommunications analyst. "How long do you think that conversation lasted?" Meanwhile Google is selling its ability to make content more visible and searchable; that sounds like the favor Google did for the newspaper business, which, like music, is half the size it once was. Netflix realized early on that it was a frenemy to traditional media providers and distributors and has been careful not to threaten them. Instead, it has positioned itself as a feature to help cable companies sell broadband products while opening up new paydays for content providers. As its fortunes rose, Netflix also realized that legacy companies would start cutting off access to quality programming, so it turned from being a movie provider with so-so television, to a television company with so-so movies. The ultimate play was baking and selling its own goods.

Original content is hard. As silly as the network process is - let's finance 20 pilots, pick three and cancel two of them after three weeks - no one had come up with anything better until HBO came along. Its model of finding good people, paying them for full seasons and running their work until it builds an audience - or not - has been emulated to very good effect by Showtime, AMC, FX and now Netflix. The difference at Netflix comes in execution and distribution. The release of all the episodes simultaneously around the world is a hugely disruptive strategy, one that has already altered consumer expectations. And the splash at the Emmys let talent, audiences and rivals know that it is playing for keeps in the ambitious, long-form genre that has become a signature TV product.

Oddly, Netflix, the media distribution company with the best handle on viewing numbers, refuses to share them because it doesn't sell advertising. The lack of audience numbers in a business historically reliant on ratings for establishing value gives it a huge advantage in negotiating with the people who sell it the programming. And streaming rights, which were once a toss-in freebie from studios and production houses, are now hotly contested by all kinds of players. (Netflix's willingness to pony up for AMC's "The Killing" is part of why it was revived.) Consumer cord-cutting is a looming threat, not a current reality, but without prospects for growth, cable companies and programmers will continue to robotically raise rates, blaming one another as they go and deepening consumer antipathy that will eventually come home to roost. Netflix would do well in that new world. It already is doing so. It now seems obvious that an industry ripe for disruption would eventually be transformed from the outside. I just didn't think it would be by the company that used to mail red envelopes to my house. New York Times

Supporters of Pennsylvania's controversial new voter ID law - which is at this minute the subject of a court battle - say it's about curbing in-person voter fraud. So why is it that GOP leaders keep suggesting there's a political motive behind it? Who can forget GOP House leader Mike Turzai's infamous comments at a party dinner last summer when he boasted that the new voter ID would "allow Mitt Romney to win Pennsylvania." That created a national firestorm, as Democrats and liberal talk show hosts pounced on the notion that Turzai had revealed the dark truth about voter ID; that it would prevent Democrats from voting.

Now PA GOP party chairman Rob Gleason has set off a new round of criticism by crediting voter ID with helping narrow Obama's margin of victory last fall. In an interview broadcast on PCN-TV, Gleason was asked whether he thought the attention drawn to Voter ID affected last year's elections. He replied."Yeah, I think a little bit. We probably had a better election. Think about this, we cut Obama by 5%, which was big. A lot of people lost sight of that. He won, he beat McCain by 10%, he only beat Romney by 5%. I think that probably Voter ID had helped a bit in that." That didn't escape the notice of MSNBC host Rachel Maddow who took Gleason and fellow Republicans to task on her show earlier this week.

GOP party spokeswoman Valerie Caras in an email today said there remains a legitimate concern about voter fraud and blamed the Democrats for creating "hysteria" that may have kept their voters at home. "We heard from many Republican, Democrat and Independent voters who were upset that their votes could have been cancelled out by voter fraud for years - fraud that we know is real," she said. "Contrary to the distortions Democrats have been and are continuing to push, the simple fact is that Photo ID laws were not in effect in the 2012 election, but the debate in the state legislature, the news coverage and public information campaign could have an impact on the voter in the same way as other issues do."