By Tom Wheeler, Managing Director, Core Capital Partners
“What we have here is a failure to communicate,” the prison warden tells Paul Newman’s character in the 1967 film classic Cool Hand Luke. The tension in the film is the classic philosophical paradox of an irresistible force and an immovable object. It appears as though a similar conflict will soon be coming to a broadcast station near you.
Cast in the role of the irresistible force is actually a troika of forces. First is the Federal deficit and the time honored government revenue raiser of selling spectrum. Then there is the need for public safety to have a spectrum solution to point to next year on the10th anniversary of 9-11. Finally, is the innovation and jobs agenda that will drive political discourse between now and November 2012.
Playing the role of the immovable object are broadcast licensees whose chunks of 6MHz of beach front spectrum are covetously eyed by the irresistible forces.
Is there possibly a way for the parties to “communicate” before this situation becomes a three act drama?
The setting for these theatrics is the digital conversion for which broadcasters lobbied so hard for. Yes, they won new spectrum – which they got for free while all other were paying billions – but getting what they asked for also brought something no one ever imagined. Broadcasting ceased to be broadcasting. Going digital meant that what used to be about moving atoms is now about moving bits.
Digital television is “datacasting” rather than “broadcasting.” The now retired concept of “broadcasting” was an analog construction – one special use channel that put out one program on a point-to-multipoint basis. Digital television licenses are not a “channel,” they are 19.2 Mbps of digital throughput which, like its wired brethren, can carry anything expressed in the digital language of zeroes and ones. This means, for instance, that the single television channel a licensee has traditionally provided can be delivered in 2 or 3 Mbps of that capacity. The remaining 16-17 Mbps faces the conundrum that, by itself, it is insufficient to make a difference in a broadband world.
Recognizing this reality a group of companies that used to be called broadcasters – including NBC, Fox, Ion and a consortium of independents called the Pearl group – have banded together to act like Netflix rather than the programmer of a single channel. The group, christened Mobile Content Ventures (MCV), has taken the lessons of Hulu (which is reportedly preparing for a $2 billion IPO) and made them mobile. By aggregating spectrum they have a broadband pathway for the delivery of off-air, and streaming video, and cloud-based content. Such an activity, while it uses licensees’ spectrum, definitely is not “broadcasting.” The Web showed how it was possible to open new markets for content by embracing a new pathway. The MCV venture takes that one step further to use the content providers’ own capacity to enhance the product’s delivery by making it mobile.
The MCV group seems to have made the evolutionary jump from a one channel broadcaster to a multi-service datacaster. What about every other licensee of spectrum?
Recently a group of broadcasters organized as the Mobile 500 Alliance. Perhaps they, too, will make the jump from the analog-like world of putting out a single channel to become a digital pathway for multitudinous types of content.
But there are other options as well. For those licensees who want to remain in the single channel business the new digital reality allows for the aggregation of multiple such services in a single 6MHz license. This sets up a two-fer: continued delivery of an ad-supported channel and a bonus payment to sell the old channel capacity to someone who wants to use the throughput as a digital pathway rather than a “channel.” It could be the best of all worlds: maintaining the business that has been so successful heretofore while getting cash out for shareholders.
Such a strategy to maintain the content business while getting out of spectrum ownership might be called the “Facebook Strategy,” or the “Google Strategy.” After all, neither of these multi-billion dollar companies owns the pathway on which they are delivered. Historically broadcasters couldn’t operate without owning the specific-use pathway. Once everything became digital zeroes and ones, however, content moved over any digital network. The need to maintain the old single-purpose delivery vehicle was eliminated.
The “failure to communicate” got Paul Newman pretty badly beaten up. Soon his bloody face was at the bottom of a ditch staring up at the warden. Could there be a message here?
Tom Wheeler, a Managing Director at Core Capital Partners, is the former president of the National Cable Television Association and Cellular Telecommunications & Internet Association. He writes the Mobile Musings column for TMCnet. To read more of Tom’s articles, please visit his columnist page at http://www.tmcnet.com/tmcnet/columnists/columnist.aspx?id=100106