Comcast, AT&T Say They’re Not Big Enough Yet

Two of the biggest players in the telecom industry faced off against a public interest group, a trade group and a satellite company at a Senate hearing Wednesday in a debate that will help set the stage for upcoming battles over the future of broadband, television and streaming video.

The hearing comes just as federal regulators are staffing up to review two mammoth mergers: One between Comcast and Time Warner Cable, and another between AT&T and DirecTV. To some degree, the hearing was only ceremonial: Congress won’t have any direct say over whether federal regulators approve or deny the mergers. But political winds in Washington can affect regulators’ moods, and the back-and-forth gave members of the Senate Committee on Commerce, Science and Transportation a chance to publicly speak their minds on the mergers.

While the discussion at the hearing was unflaggingly respectful, it touched, just below the surface, on what has become a fiercely ideological war with regard to the future of TV, with each side presenting a vision incompatible with the other’s.

Comcast and AT&T argued that massive consolidation in the telecom industry is good for consumers, good for innovation, and good for the free market. They warned that if the government does not allow the mergers to go through, incumbent telecom companies would no longer be able to invest in basic Internet infrastructure, leaving consumers to pay more for fewer Internet and TV options.

Representatives from advocacy group Public Knowledge, a TV writer’s guild, and satellite TV company Dish made the opposite case. They said that recent consolidation in the telecom industry has been terrible for consumers, driven up prices and driven down the quality of customer service. They also said the lack of competition has squashed innovation and investment in broadband infrastructure.

At the center of the discussion was Americans’ shifting TV-viewing habits. When Americans want to watch TV, they’re increasingly bypassing traditional set-top boxes, instead opting for their smartphones, tablets, and laptops. Online video consumption grew by 71% in the U.S. between 2012 and 2013, according to Nielsen.

That trend has been the driving force behind skyrocketing broadband subscriptions—a major cash cow for cable companies and for telecom companies that offer services faster than DSL. AT&T’s revenue from its U-Verse high-speed broadband business was up 29% from last year according to a recent quarterly report, for example. Comcast, which already has more than 21 million broadband subscribers, says the broadband business is one of its fastest-growing offerings.

That so many Americans are streaming more video online has also made online TV and video content companies, like Netflix, YouTube and Vimeo, fundamentally dependent on telecom companies’ pipes to reach customers. Public Knowledge’s Gene Kimmelman argued that no online video streaming company can exist without going through broadband providers like AT&T and Comcast, whose services are necessary to deliver streaming content to consumers. That sets up a potential problem, as Comcast could be incentivized not to carry Netflix or YouTube content as quickly as its own video offerings (Comcast owns NBCUniversal, a major content production company).

“Everyone who wants to make the online video system works needs to make a deal with Comcast,” he said.

Also addressed during the hearing was many Americans’ frustration at having to pay large bills for pay-TV—bills that have risen faster than inflation—to receive hundreds of channels. The non-profit consumers rights group, Consumers Union, has said that at least two-thirds of pay-TV customers [PDF] would prefer to pay less for a handful of programs that they actually watch. The disconnect between these two methods—known as “bundling” versus “a al carte”—is at the heart of the future of online video.

“The younger generation doesn’t want to spend $120 for 500 channels,” said Jeffrey Blum, a senior vice president of Dish, the second-largest satellite company in the country after DirecTV. But fixing the problem, he said, requires going up against incumbent telecom companies, like Comcast, AT&T and Verizon, which rely on bundling to underwrite their pay TV services, and would lose out if most Americans simply cut their pay-TV bill and began streaming shows online. Popular networks like ESPN would also lose out; in the current system, the telecom companies pay them large fees to redistribute their content.

Still, Blum said, there is already “too much power in the hands of too few” in the broadband space. A combined Comcast-Time Warner Cable “will have the incentive and ability to stifle competition,” he said.

Both Cohen and AT&T’s senior executive VP John Stankey dismissed concerns about anticompetitive behavior. In previous testimony before Congress, Comcast’s executive VP David Cohen has said that the merger between Comcast and Time Warner Cable will not affect competition since the companies do not currently compete in any geographic region, and that Comcast has “only to gain” from more people streaming video online. The more demand there is for online video, “the more demand there is for our broadband service,” he said at a previous hearing.

In February, Comcast made a bid to buy Time Warner Cable for $45 billion; in May, AT&T’s bid for DirecTV was worth $48.5 billion. Neither deal has yet to pass regulatory muster.

Both Cohen and Stankey also reiterated their companies’ commitment to the Federal Communication Commission’s now-defunct rules on “net neutrality,” the notion that broadband providers treat all content that passes over their pipes equally. While both expressed their opposition to some public interest groups’ hopes that the telecom industry would be recategorized as a “Title II” industry, giving the FCC much more regulatory control over broadband, they said they supported the FCC’s newly proposed net neutrality rules.

Those rules have come under fire because they allow broadband companies to redirect some content to a “fast lane,” while relegating most content to a slower, regular lane. Cohen said that while he “didn’t understand” what “fast lanes and slow lanes” even were, he said it was a non-issue. “We don’t have any,” he said. “We don’t have any plans to develop any.”

Netflix Opens New Front in Battle on TV by Netting Aziz Ansari Stand-Up Special

Netflix’s rapid transformation from an on-demand repository of old movies and TV shows into an original content powerhouse will get another boost this November thanks to Parks and Recreation star Aziz Ansari. The comedian plans to debut his next stand-up special exclusively on the streaming service, he told The New York Times. The show, titled Buried Alive, will further cement Netflix’s place as a direct competitor to HBO, which has for decades aired comedy specials from big names like Chris Rock and Louis C.K. Ansari says the show will be available later as a $5 download, much like his 2012 special Dangerously Delicious. Netflix’s foray into original content, which seemed like a gamble at the start of the year, is gaining momentum quickly. The high-budget political drama “House of Cards” earned nine Emmy nominations earlier this summer, while the resurrection of “Arrested Development” in May generated buzz for weeks. More recently, the dramedy “Orange Is the New Black,” about life in a women’s prison, has become a surprise critical darling. Critical praise and endless press haven’t translated into huge subscriber growth, though, the true measure of Netflix’s success. The company added 630,000 U.S. subscribers between April and June, a number below some analysts’ sky-high expectations and Netflix’s own high-end projections. Further diversifying the service’s original content may help attract a wider audience. In addition to stand-up, Netflix announced last month that it will also be developing feature documentaries soon. Children’s programming is also on the way, as Netflix has inked a deal with DreamWorks to get 300 hours of brand-new cartoons from the animation studio. With second seasons of “House of Cards” and “Orange” already in development too, original content on Netflix is rapidly transitioning from being an occasional event to an everyday occurrence.

College Football Encounters Its Biggest Rival: The Couch

The new reality is that some of the biggest, most popular college football programs in the country can’t jack up ticket prices annually, put a decent team on the field, and expect fans to happily pack the stadium week in, week out. Orlando Sentinel columnist Beth Kassab, a University of Florida grad, recently published excerpts of a message sent by the university’s athletic director to former Gator season ticketholders. The note pointed out there are “more affordable tickets” lately, and pleaded with them to come out for at least a home game or two—ideally for matchups against lesser opponents like Toledo and Georgia Southern, which have been selling particularly poorly. But Florida is not the only popular college football program facing the previously unheard-of problem of having to woo fans into the stadium. The Chattanooga Times Free Press earlier reported that 9 of the 14 teams in the Southeastern Conference—the richest and most successful conference in college football in recent years—saw home attendance decline last year. The University of Florida’s streak of 137 home game sellouts ended in 2011, and its even more successful sister in the SEC, the University of Alabama, winner of two recent national championships, didn’t sell out all of its home games last season. (MORE: How the SEC Became the Richest Conference in College Sports) Season ticket sales are also on the decline at institutions such as the West Virginia University and Virginia Tech, which has seen sales among upper classmen fall by 20% compared to last year. During the mid-00s, when college football stadium expansions, multi-million-dollar contracts for coaches, and soaring demand for tickets all became routine, it became commonplace for universities to demand “donations” from fans who wanted the right to purchase season tickets. A 2006 ESPN article noted that a fan purchasing season tickets for the 50-yard line at the University of Tennessee had to pay $5,000 per seat above the face value. Late last year, after experiencing its third consecutive losing season, Tennessee announced it would start selling certain season tickets without

Fox’s Sports Network To Debut Saturday, With or Without the Sound

Four days before launching the first serious challenge to ESPN’s decades-long domination of televised sports, the executives of Fox Sports 1 — the 24/7 national sports network set to launch this weekend — were telling jokes. Slightly dark jokes, in fact. “The goal is to get through Saturday without strangling anybody,” said Fox Sports co-president Eric Shanks. “We’ll just step over the bodies,” responded Bill Wanger, the executive vice president for programming. Fox Sports execs appear to be having fun these days, and that attitude is something they hope filters down to the on-air personalities they’ve hired and the slate of sports shows set to debut tomorrow. After several years of planning and strategic acquisitions, at 6 a.m. EST on Saturday, Fox Sports 1 will take over from the Fox-owned Speed motorsports channel in roughly 90 million homes, blanketing the nation with 24/7 sports coverage in a bold attempt to chip away at ESPN’s hegemony. (MORE: Europe’s False Recovery) But the Fox executives say their strategy for taking on ESPN is not merely to imitate it — and a strong dose of irreverence is one of the characteristics they hope will differentiate their new offering. Perhaps most notably, its line-up will include Fox Sports Live, a nightly highlight show that will compete directly with ESPN’s SportsCenter, but be hosted by Jay Onrait and Dan O’Toole, a Canadian duo better known for their comedy behind the Canadian SportsCentre anchor desk than for their sharp sports insight. Still, Fox Sports 1 will have plenty of what you’d expect from a full-blown 24/7 sports network by the company that brought us Fox News. The channel is launching with instantly recognizable on-air talent, including Regis Philbin, former NFL quarterback Donovan McNabb, and former tennis star Andy Roddick. And it has bought up the rights to broadcast big-time sporting events like Pac-12 and Big 12 college football, U.S. Open golf, Major League Baseball, World Cup soccer, and the increasingly popular Ultimate Fighting Championship. As it turns out, the channel’s execs says that Fox News itself provided ideas and inspiration for ways the new channel could distinguish itself from

Tech Newcomers Face Big Challenges Disrupting Cable

Tech companies like Google and Apple have built their fortunes by disrupting industries. There’s a seemingly endless list of music retailers, cell phone manufacturers, bookstores and people in a dozen other sectors that rue the day one of the world’s largest tech companies set out to enter their market. But there’s one media enterprise that has so far been immune to substantial shakeups: television. Sure, Netflix and Amazon offer streaming services akin to premium channels like HBO, startup Aereo offers a limited version of live TV, and both Apple and Google produce a variety of devices that make it easy to stream Internet video on a television screen. But no tech company has made a substantial play to launch a comprehensive TV subscription service similar to what customers can currently get from Comcast or Dish Network. It’s not for lack of trying: Google is in talks with television networks to launch a national pay-TV service, according to The Wall Street Journal, and already offers a pay-TV subscription in Kansas City through its Google Fiber Internet service. Apple meanwhile has reportedly developed an ad-skipping technology that would pay cable networks when viewers skip commercials, presumably to entice network owners to allow their content to be streamed live via Apple TV. Even chip-maker Intel wants a piece of the TV pie, and has plans to launch a pay-TV service by the end of the year. The race to disrupt the market is heating up, but huge obstacles remain to infiltrate a $100 billion industry where both content creators and distributors are happily making money hand over fist. Cable operators, historically some of the least liked companies in America, don’t want added competition from more popular newcomers, so they’re implementing various tactics to keep the tech titans out. They’ve sweetened their deals with television networks by paying higher carriage fees for the right to broadcast their content. “Operators are allowing carriage fees per [subscription] per month to be driven up at a somewhat faster pace than they would have put up with ten

Netflix Is Hot. The Competition Is Not. Yet.

Netflix is often touted as the future of the television business — but the future isn’t here just yet. After watching its stock price climb by a whopping 184% so far this year, the online video service reported Monday that new subscriber growth failed to increase by as much as Wall Street analysts had expected, prompting investors to sell the stock in after-hours trading. Still, Netflix’s profit quadrupled on solid revenue in the most recent quarter, suggesting the company is growing at a healthy clip, even as competition in the online video space is intensifying. In addition to Netflix rivals like Hulu and Amazon Prime, both Apple and Google are said to be weighing new online video services. And of course, there’s Aereo, the upstart online video company that’s been giving broadcasters fits as it eludes their efforts to shut it down. For now at least, Netflix has a leg up on the competition, but it needs to keep growing its subscriber base to maintain its advantage. “The world is moving from linear TV to Internet TV and Netflix is leading that evolution,” Netflix CEO Reed Hastings and CFO David Wells wrote in a letter to shareholders. The company reported a 26% increase in streaming revenue. (MORE: Aereo Spat Could Prompt Fox Supreme Court Challenge) Despite the heavily hyped return of “Arrested Development” and the introduction of popular original series like ”House of Cards” — which was nominated for several Emmy awards, in a first for an online-only program — Netflix added a disappointing 630,000 new subscribers last quarter, short of the 700,000 subscribers Wall Street analysts predicted, and below the high-end of the company’s own forecast of 880,000. Netflix now has 29.8 million streaming customers. “The stock was priced for perfection going into the quarter, hence the sell-off,” Evercore Partners analyst Alan Gould told Reuters. “They didn’t beat on the subscriber numbers.” In comments to the Associated Press, Pacific Crest analyst Andy Hargeaves added: ”It was a very good quarter, by most standards, but that doesn’t cut it when your stock has risen by 200 percent.” Netflix reported

How Kids Will Help Decide the Future of Television

Will someone please think of the children? In the ongoing battle for the future of the living room, that’s exactly what Netflix and Amazon are doing. While shows like political drama House of Cards, resurrected sitcom Arrested Development, and Amazon’s slate of comedy pilots have hogged all the media attention, the online streaming services have been spending bundles of cash on programming that skews toward a younger demographic. It’s these kids’ shows that will play a large role in determining who comes out on top in the streaming wars — and just how quickly families with little ones are willing to cut the cable cord. Children’s programming has been a quietly dominant force in the cable landscape for years. In the first half of 2013, Disney and Nickelodeon had more overall viewers than any other cable channels, with each averaging about 1.7 million viewers on a given day, according to Nielsen. Individual episodes of SpongeBob Squarepants often pulled in more than 5 million viewers during the peak of that show’s popularity in the mid-2000s. Even in prime time, when parents are home from work, kids’ shows hold their own—Disney ranked second among cable channels during the evening hours in the first half of the year. All of that explains why Amazon and Netflix are now spending hundreds of millions of dollars to scoop up the best kids’ content from cable and to fund production of original shows that they hope will become the next Dora the Explorer or SpongeBob. (MORE: YouTube Throws a Curveball by Becoming a Sports Broadcaster) In fact, Netflix’s biggest original content push so far isn’t the very expensive House of Cards—it’s actually a deal with DreamWorks Animation for 300 hours of brand new cartoons based on the company’s film franchises like Shrek and The Croods. The first DreamWorks cartoon on Netflix, based on the studio’s upcoming movie Turbo, will launch in December. The deal builds on earlier moves by Netflix to build a strong kids catalog. The company launched a “For Kids” section of its website

YouTube Throws a Curveball by Becoming a Sports Broadcaster

Though it’s now easy to consume music, movies and television on the Internet, watching live sports online is still a fantasy for many fans. Even as other forms of entertainment have digitized rapidly in recent years, sports for the most part have remained carefully locked in the walled garden of cable subscriptions and expensive all-access digital passes. But a surprising new player in sports broadcasting may soon change that: YouTube. The video-sharing website originally famous for funny home videos is quietly brokering deals with leagues as varied as the NBA and the Badminton World Federation. It’s acquired a mixture of highlight reels edited by the sports leagues themselves, archival footage of historic games, and live streaming rights to a variety of events. Such deals could eventually place YouTube in direct competition with ESPN, Fox, and the other sports broadcasting heavyweights. That would spell trouble not only for them but for the entire model of cable television, which has become reliant on a still-thriving sports market to make up for overall declining interest in traditional television. For now, the major American sports are taking small, experimental steps on YouTube. Major League Baseball is live streaming two games per day this season on the video site outside of major markets like the United States, where the league has television deals. This past season the NBA live streamed 350 games of its minor-level “D-League,” and regularly posts SportsCenter-like highlight reels of nationally broadcast NBA games. The London Olympics were broadcast in several Asian and African markets, and the International Olympic Committee‘s YouTube channel now hosts 12,000 hours of archival Olympics footage from past years. (MORE: Game On! Why Rupert Murdoch Wants to Tackle ESPN) Smaller sports are being more aggressive and establishing themselves on YouTube with programming similar to sport-specific cable channels, just delivered via the Internet. The Ultimate Fighting Championship was one of more than a dozen brands to launch a pay-subscription channel when YouTube introduced the concept last month. UFC also charges for live streaming individual fights, similar to pay-per-view on