Broadband and the business of media

Earlier this week, Time Warner Cable announced plans to expand their use of metered broadband: charging customers by the gigabyte rather than providing the all-you-can-slurp service we’ve come to know and love. As a TWC customer, I have mixed feelings about this. I realize that they’re in business to make money. But as a government-protected monopoly (a practice with which I strongly disagree), they should have a moral responsibility—if not a legal responsibility—to upgrade their networks in order to provide the best possible service. It’s not like the explosion of media and online gaming came as any surprise. If they can’t provide adequate service at reasonable prices, then they should lose their monopoly protection.

TWC is also harassing business customers who actually try to use the bandwidth they’ve contracted for. Customers who have been guaranteed 10 Mbps service, for example, get phone calls when their usage approaches 75% of that. As a TWC business customer, my feelings on this practice are not mixed at all. They contracted to provide a certain level of service, and they should honor that commitment.

J:Com, the largest cable company in Japan, offers 160 Mbps service for about $60 per month. They had to invest about $20 per home in order to upgrade their systems to support it. Seems to me that, rather than trying to charge more for less, U.S. companies should learn from J:Com. They’d make more money and have happier customers.

Cable companies, by the way, are in danger of becoming no more than utility providers. With sites like Hulu and programs like Boxee, you can view TV programs and movies from your Internet connection. Why pay a middleman who wants to sell you two good channels and a package of crap when you can get everything for free? 

This conflict of interest could be a major reason why U.S. cable operators are reluctant to provide inexpensive high-bandwidth connections. Doing so would further cannibalize their cable television operations.

Content creators, too, need to start thinking about how they’ll get paid. Without the cable company packaging model, pay channels will have to sign up individual subscribers. Ad-supported channels will likely have to find a format other than the traditional commercial break every 10 minutes.

I think motion picture studios are okay for a while. People are still willing to pay $10.00 or more for the privilege of watching movies in a theatre on opening weekend. However, I think DVD sales will begin to decline as more people move to on-demand video services.

Since its inception, the whole business of media has been based on the scarcity of content. Today, Internet users have almost infinite choice. A large portion of what’s available is dreck, but there’s a lot of really good stuff, too. Big record labels are in their final death throes due in large part to the ubiquity of good music available for free or by direct purchase from the artist. As bandwidth and storage become cheaper, cable companies and video media providers will find it increasingly more difficult to make money in the old way.

Companies like Time Warner Cable, who cling to the old idea of scarcity as the way to make money, will find themselves losing customers to companies who make it their business to provide high quality service at reasonable rates. As far as I’m concerned, it can’t happen soon enough.