Wednesday, January 11, 2006

The Distribution War to Come -- A Tale of Two Pipes

The battle between the TV distributors and TV sourcing from the Internet is largely a battle over two pipes. One pipe is the TV distribution pipe controlled by the cable companies (or, similarly, by the Telcos). The distributors act as gatekeepers to prime content from TV program networks -- they limit our choices to the TV program networks they choose to carry and charge us a nice premium to see the content they choose to let us receive.

That is in contrast to the open Internet, which generally allows any consumer to connect to any content source (on whatever terms those two parties agree on). The Telco TV offerings could take the route of the open Internet, but, for now, they prefer the traditional TV model of closed access. These distributors thus have monopoly (or duopoly) control, for which they can charge a premium.

But they carry a second, parallel pipe. Both pipes are just logical or "virtual" pipes that share the same physical pipe of fiber, coax, and/or twisted pairs of wire to your home. One pipe is the TV "private virtual network" pipe. The other pipe is the "DOCSIS" Data Over Cable pipe that carries open Internet traffic to your cable modem (or for Telcos, the DSL pipe).

The war to come is over how these pipes are used-- whether the distributors can throttle the Internet pipe to protect their control of the separate TV pipe. There are technical issues of bandwidth and quality of service, and regulatory issues of common carriage, open access, network neutrality, and pricing. The distributors are old hands at playing discrimanatory and regulatory games to maintain control of "their" networks -- which limit "our" services.

But now the big Internet players are getting serious (see my previous post, TV Meets the Internet as Manifest Destiny -- Soon?), and they are finding the premium content owners eager to experiment with this alternate pipe. It is telling that some network executives have referred to this as "cable bypass." The content providers hate the cable distributors for their monopolistic stranglehold even more than we consumers do. They also learned the lesson of the music industry and are getting serious about learning new ways to survive in this new age.

The real value-add of a mediator between content provider and consumer is not in distribution, but in media concierge services. That is not what the incumbent distributors offer, and because of that, the game is changing. They will still bring us the content on their pipes, but it will increasingly shift to the open pipe, not the closed one. There may be walled gardens in the future, but they will be opt-in (like AOL's Web service), not the only game in your town (like Comcast or Time Warner Cable). We will spend some time in a transitional world of two pipes, as the old school players hold on as long as they can. But over time, the open pipe will dominate, and the owners of the pipes will largely revert to their natural role as common carriers.

The content producers and the consumers have common cause to agree: we don't need your stinking walled gardens. They are an artifact of an age of a limited number of channels and limited connectivity, and that age has passed.



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