Net Profits

Capsule:  What will the Obama Administration do to uphold their campaign commitment to the opaque ideal of "net neutrality?"  They should invite real value creation and regeneration in the media.  They should not let big ideas without clear plans carry the day. (http://www.openinternet.gov/.)

The Obama Administration will define its communications legacy on wired and wireless web regulation with a September 21st speech to the Brookings Institution.  Julius Genachowski, Obama's head of the FCC, will outline the core principles of planned regulation designed to attain the best standards of US web content availability, presentation and benign pre-emption. 


Genachowski's remarks will walk the line between promoting net neutrality and avoiding the destruction of economic value inside media distribution.  He will also add a regulatory principle to the FCC's current net neutrality crop--a fifth principle designed to ensure that media distribution doesn't target specific media content (i.e., specific competitive web sites or products) for pre-emption without regulatory scrutiny and legal remedies.


The first four principles of web regulation, upheld by the Bush administration, gave media distribution enough cover to run its business and to shape capacity on its networks according to its business plans without running afoul of the government, generating excessive lawsuits or drawing much fire from free speech activists.  Let's hope the Obama administration follows suit--which means listening to the telecom and cable "suits" who have been persuasive on their economic case over the last eight years.  At least, in Genachowski's attempts to demonstrate this Administration's knowledge of the power of media distribution, let's hope he does no harm.


Big distribution has a lot at stake in this debate.  Telecom giants Verizon and AT&T have bet their second lives on maintaining some of the gatekeeping capacity they've enjoyed in their first.  The FCC under President Bush was a remarkably sympathetic listener to all things telecom, to the point of angering newer distribution giants like cable when it came to calling the coin tosses between these two increasingly co-dependent industries.  On this issue, telecom and cable are thinking mostly with the same brain nourished by a revenue blood supply they compete bitterly with one another to control.  Whichever industry prevails, Genachowski should be the neutral best friend.


Current examples of how cable and telecom distribution think about net neutrality (an evolution in terms from the earlier, more threatening "open access" idea pitched through the Clinton FCC) are mostly liberal and non-threatening, except when a little easily reconsidered muscle-flexing and bat-swinging has blipped (and disappeared) into the atmosphere.  Comcast, Time Warner Cable, Verizon and AT&T run distribution networks that carry the nation's internet traffic with increasing efficiency and gradually improving service quality with few focused attempts at competitive pre-emption.


But big distribution does categorically, geographically and mathematically pre-empt certain types of internet use without clearly aiming at specific brands, according to self-protective standards that keep the US media from being brought to its knees.  Such pre-emption is allowed under the current regulatory structure because it links to the actual traffic capacities of the telecom and cable platforms, built by the distributor, financed by the banks and equity holders and paying their tribute to the government in the form of franchise fees and taxes.


The AOL Time Warner merger, mischievously reverberating through the last 20+ years, was a vivid example of mass value destruction brought about by the commercial sector failing to think through necessary network self-protection and future expansion.  AOL ran a high capacity server platform that served up a major consumer brand with few cares and little progressive sense about where dial-up internet as a distribution form was headed.  An early major crash of AOL's server capacities that was well covered in the media signaled the company's lack of necessary respect for distribution and the need to refuel and rebuild its engines regularly.  By the time AOL overtook Time Warner, little had changed in the brand's preference for sexy content and marketing without a viable distribution or economic plan.   We know the carnage that resulted, particularly for share-holders. 


And we now know even better some of the rotten fruits of creative destruction in the marketplace.  Given the inter-dependencies amongst even the most bitter corporate rivals and international commercial structures, letting big failures occur through free market worship or regulatory mis-steps invites massive consequences that can be worse than unintended.  They can be massively lethal to businesses and individuals with known and unknown correlations.


High-performing distribution companies will continue to shape the use of their platforms according to what they can handle and what their customers require. The government shouldn't want a seat at the network management table that decides which capacities should be built, maintained or reserved for future use.  Private enterprise has moved towards profitable bandwidth growth and increasing broadband speeds on its own.  If the government wants to contract for faster wired and wireless networks, it can show the way.  But it can't force the way in this economy without risking another crash.


At the same time, high-performing and enormously profitable media distributors need to show net neutrality good faith while growing net profits.  The idea of setting premium pricing plans on high utilization web behaviors has creative potential--provided it is creative product expansion that the media pursues.  If premium pricing plans are administered as a forced reshaping of consumer broadband pricing to even out product losses in wired voice or TV, the heavy hand of an activist and web-savvy (without being distribution-competent) government may be felt with unintended destruction in its wake. 


Pre-emptively, it's time once again for vertical integration in the media--virtual and real.  Distribution companies have to care about the development and protection of new media products and content, which means they have to be allowed new ways to profit from them.  Content companies have to understand and pay real tribute to the distribution systems that provide life support.  And the government has to let it all happen in the most commercially and intellectually progressive way possible, using its knowledge of how technology and business work to encourage their growth and independence.