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Ernest Miller Ernest Miller pursues research and writing on cyberlaw, intellectual property, and First Amendment issues. Mr. Miller attended the U.S. Naval Academy before attending Yale Law School, where he was president and co-founder of the Law and Technology Society, and founded the technology law and policy news site LawMeme. He is a fellow of the Information Society Project at Yale Law School. Ernest Miller's blog postings can also be found @
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February 11, 2004

The Inefficiencies of Broadcast Television

Posted by Ernest Miller

C|Net News reports that Major League Baseball is having difficulty getting a premium for internet "broadcast" rights (MLB throws high heat at Web portals). I put the term "broadcast" in quotes, because the internet doesn't really support broadcast. As Dana Blankenhorn writes on Corante blog Moore's Lore, MLB wrongly expects the internet to recapitulate television broadcast (Prove It).

The problem for MLB is not simply that broadband adoption rates aren't great and streaming video is pretty weak, but that the internet reduces (though it has not yet eliminated) distribution bottlenecks. Under today's regime, each of the television networks is a government telecomm regulations created portal. Because there is such a limited number of these television portals, they receive more traffic than they would in a more open distribution system. Consequently, the networks are willing to pay MLB more than they would otherwise be willing to pay under an efficient, open system.

On the internet there are portals, of course, but there are many fewer limitations on distribution. Thus, there aren't "networks" and most attempts to create them have pretty much failed. Remember go.com? Sure, MSN and AOL still have network-like elements, but as tools that help people aggregrate their preferred content (such as RSS) develop, the idea of a network of content determined from the top down begins to look a bit silly. MLB will be able to charge for their content (how much I'm not sure), but they won't be able to get subsidies from a top down network. If MLB is smart they will work on ways to ease the aggregation of their content with other content their audience will like.

However, I'm not really all that interested in how the MLB can thrive on the internet. What strikes me in this story is how inefficient broadcast television is. The lesson here is not that MLB doesn't get it. The lesson is that we have massive ineffiencies in our telecommunication regulation policies when it comes to broadcast television. The strange (though not unexpected) thing is, the FCC seems blind to them. In a recent speech, FCC Chairman Michael Powell came out strongly against regulating the internet and protecting the open nature of the network (Preserving Internet Freedom: Guiding Principles for the Industry [PDF]).

There is much to praise in these principles. Too bad there is no mention of applying them to broadcast television.

Here are some of the principles:

  • Freedom to Access Content - Not if you are trying to get that content on broadcast, cable or satellite. I'm not talking about a right to free content, but open access. My local cable company doesn't carry G4TV and I can't get it. I can get G4TV.com, but not the broadcast version. Why does the broadcaster/cable/satellite company get to make this choice? Why not let consumers (i.e., the market) determine more directly what is available than allow the existing gatekeepers to make the choice?
  • Freedom to Use Applications - Two words: Broadcast flag. Rather than allow the development of all sorts of new applications to take advantage of the existing network (such as TiVo), the FCC would rather give the broadcasters effective veto power over developing new technologies. The economic growth, uncertainty of "killer" apps and technological development are arguments for letting creativity run riot on the internet. Why is this not applicable to broadcast?
  • Freedom to Attach Personal Devices - Two words again: Broadcast flag. Creativity must be stifled in order that broadcast will thrive, apparently.

The broadband providers argue that without the ability to control access as well as determine what applications and personal devices may be used, they will be unable to make sufficient profit to continue rolling out broadband. Indeed, they won't roll it out. However, these arguments are bogus, and Powell is right to reject them. Of course, these are the same arguments used by the broadcasting industry with regard to HDTV. There, apparently, these arguments make sense. Of course, it would have been nice to call the bluff of the existing broadcast networks. If they didn't want to use the HDTV frequencies (afeard o' piracy), the FCC should have offered to transfer the frequencies to someone who would use them without forcing additional ineffiencies on the market.

It is great the Powell wants to preserve freedom on the internet. Too bad he is not consistent when it comes to broadcast television.

Comments (3) | Category: Broadcast Flag | Internet | Open Access


COMMENTS

1. Mike on February 11, 2004 07:33 PM writes...

MLB is accustomed to capturing the content value of uneconomic content along with the value of their own content. When Fox bought the World Series rights, they paid in expectation of being able to "drive traffic" to their less valuable shows. As the MLB attempts to distribute its content via other outlets, it will find itself discovering the real value of its content because these new outlets don't cross-subsidize to the same degree.

Permalink to Comment

2. Cypherpunk on February 11, 2004 10:03 PM writes...

I agree with your points about the broadcast flag, but getting back to baseball, I'm not sure your economics makes sense. You observe that there are a limited number of television networks compared to a "more open" system. I don't want to get into the question of whether a completely unregulated TV broadcast regime would have worked and created a more open environment, but obviously it is true that there are many fewer television networks than Internet sites.

However, you claim that this is to MLB's advantage, but that contradicts standard economic theory. Generally, having a monopoly (or in this case, an oligopoly) is beneficial for the monopolist as it lets him extract higher rents and fees from his customers. So the restricted number of TV networks ought to have benefited the networks at the expense of MLB.

The analysis is complicated by the fact that MLB is itself a monopoly, even more so than the networks, so it has considerable bargaining power on its own. But still, it should be better for MLB to go up against a lot of small "Internet broadcasters" to which it could dictate terms, than only four major networks, each of which would have the economic strength to fight back.

In short, reducing distribution bottlenecks ought to work to the advantage of content creators like MLB, while you seem to have it the other way around.

Permalink to Comment

3. Ernest Miller on February 11, 2004 10:53 PM writes...

You are correct that it is because MLB is a monopoly that it has bargaining power with regard to the broadcast network oligopoly.

However, you miss the point entirely by talking about a lot of small "Internet broadcasters." Where are these "broadcasters"? Why would they want to broadcast MLB? They will only "broadcast" MLB to the extent that that content is profitable in and of itself, and not subject to cross-subsidy, because there is very weak cross-subsidy on the internet.

In the future, you will get MLB via MLB.com. It is not going to make a lot of sense to get MLB.com via someIPaddress.com. Some content creators will benefit, others will not. What we will have is a more efficient market.

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