“Neutrality” is an interesting concept for government.

This article raises interesting issues on the need for investment in Internet infrastructure. I can’t quite decipher whether the AT&T executive is looking for government funding of this needed infrastructure. I think so, although I’m just guessing. Also, while a projected increase in network traffic as video options expand online is inevitable, I’m skeptical of this claim:

[Jim Cicconi, vice president of legislative affairs for AT&T] said: “The surge in online content is at the centre of the most dramatic changes affecting the internet today. In three years’ time, 20 typical households will generate more traffic than the entire internet today.”

In three years? I’d like to see those projections.

But that’s not my point here. Generalize this from the specifics about net neutrality and wonder why we can’t get more of this from the government.

The US Department of Justice said in a statement last year: “However well-intentioned, regulatory restraints can inefficiently skew investment, delay innovation and diminish consumer welfare, and there is reason to believe that the kinds of broad marketplace restrictions proposed in the name of ‘neutrality’ would do just that with respect to the internet.”

Regulatory restraints can inefficiently skew investment, delay innovation and diminish consumer welfare? Even when well-intentioned? Who knew?

Ignore the government mandate that created a duopoly. Scream MONOPOLY!

I haven’t posted on Monday’s long-anticipated decision from the Justice Department on the proposed Sirius-XM merger because I didn’t have much to add to the announcement. (It’s also not the final hurdle, so over-analysis, to say nothing of celebration, would be premature.) But Steven Pearlstein’s column is worth dissecting.

The latest example of a government bailout of a troubled industry has nothing to do with Bear Stearns. It is, instead, the Justice Department’s decision to give the green light to the merger of the satellite radio companies XM and Sirius.

It’s already clear that his position will be staked on rhetoric rather than principles. While it’s good to know that from the beginning, it’s bad economics. The goal of Pearlstein’s idea of competition is not to discover winners and losers other winners, but to pick the correct winners and losers. As he makes clear, that means consumers must win and businesses must lose.

For the past several years, these two companies have been competing so hard for talent, distribution channels and customers that neither has been able to turn a profit, and probably wouldn’t have for years. Consumers have been the big winners, with great programming at affordable prices.

Any cursory look at financial results demonstrates that consumers aren’t winning in a vacuum. At least with respect to Sirius, its cash flow is improving. This matters to a growing company more than bottom-line profitability. But why should we expect such an acknowledgment from a business columnist?

All that is about to change now that the Bush administration has concluded that we’ll all be better off if these heretofore fierce rivals are allowed to stop competing and concentrate instead on reducing costs, paring down their combined offerings and finally delivering profit to their shareholders.

This reveals the problem in Pearlstein’s analysis. In setting up the satellite auction that led to the creation of Sirius and XM, the government decided that exactly two competitors was the best approach. It depended on an assumption that two could compete effectively. It ruled out the possibility for a third (or fourth or fifth or …) to compete, possibly encouraging a different development of the market. It ignored the idea that human involvement might take it in a different direction than the ideal world envisioned by the sages at the FCC. And now that reality has messed with the centralized planning, the only response is to knew what it was doing, facts be damned. That’s not convincing.

More importantly, what new innovations in the business will arrive if the combined companies don’t need to waste resources on two ’80s channels, two popular country channels, or two channels carrying C-Span? I trust competition with other competing forms of entertainment to drive the outcome because I don’t pretend to know what is best.

Pearlstein disagrees, going so far as to analogize a combined Sirius-XM to a combined Coke-Pepsi. Yet, I don’t drink either, so I’m fairly certain humans don’t need them to live. Perhaps the availability of alternatives to non-necessities puts pressure on those evil, profit-maximizing corporations. Instead, Pearlstein deems it reasonable to argue that consumers should have ideal conditions for any and all requests. Anything that helps the corporation must, by definition, harm the consumer. It must be regulated, if not stopped.

He uses interesting logic to get there:

… You would particularly want … vigilance in the case of a government-sanctioned duopoly, which is how the Federal Communications Commission viewed XM and Sirius when it granted only two licenses for satellite radio.

This irrational faith in the wisdom of government planning is matched only by his absurdity in arguing that Sirius and XM might develop substitutes for each other if forced to compete.

It makes no allowance for the possibility that, if you force the two companies to compete, XM might come up with a morning host who is funnier and more outrageous than Howard Stern. Or Sirius, lacking a Major League Baseball offering, might take a chance on World Cup soccer or college lacrosse and tap into a whole new audience that nobody knew existed. The prospects for that kind of innovation will be greatly reduced after XM and Sirius merge and the combined company focuses on protecting its existing hit channels rather than creating new ones to displace them.

As if college lacrosse will compete with Major League Baseball. Pearlstein looks at the possibilities (allegedly) eliminated from a merger while ignoring the tangible benefits customers already receive. He also dismisses the notion that the possibility that customers will leave if the channel lineup bores them won’t be an incentive to innovate. He ignores that “free” radio is already following the exact path he fears satellite radio will take and ignores the innovations that satellite radio has given and can continue to give as a combined company. (Uncensored Howard Stern counts as an improvement, as does national access to sports broadcasts.) But why worry about details when this story can just be twisted into another screed concluding that the Bush Administration wants to screw the proletariat at every opportunity?

The FCC should immediately match the Department of Justice’s decision and let the merger proceed.

(Disclosure: I’m a Sirius shareholder and customer. I’ve been an XM shareholder and customer in the past. I also desperately want XM’s Major League Baseball with Sirius’ Howard Stern. Economics and free market competition are still the reasons I support the merger.)

Competition is better than government fiat.

Lance Ulanoff, writing in PC Magazine, explains why he was wrong on who would win the Blu-ray/HD-DVD battle.

I finally figured out why I was so dead wrong about the HD DVD versus Blu-ray format war. I should have analyzed the sides—Sony and Toshiba—not as two countries going to war, but as opponents in a close-quarters boxing match. Had I done so, I would have properly assessed each of the technology’s assets and deficits.

Mr. Ulanoff was wrong in prognosticating consumer technology for a magazine. No harm, no foul. We all make judgments, whether we commit them to print or not, that turn out wrong. We’re all human.

Remember that every time a central planner comes along and tells us confidently why we should choose X (with money taken from taxpayers) and outlaw Y.

No right to digital television exists in the Constitution.

While watching television last night, Fox subjected me to a commercial about digital television from the National Association of Broadcasters’ digital television (DTV) transition campaign. Normally I could phase out and not care. But in the middle of the commercial, this:

That’s an interesting claim. Am I to take from this the idea that Congress is smart enough to know what’s good and what isn’t good? It’s marketing, yes, but people showed up to vote in multiple states yesterday where a primary won’t be held for at least a week. Anything that further cements in anyone’s mind that Congress’ central planning is wise and informed can only be considered detrimental. It shouldn’t be too hard to make the correct connection based on the commercial’s mention of the converter box coupon, a giveaway that most people don’t need and no one deserves.

Hooray for Capitalism

Whenever someone starts selling the line of bull that big bad corporations are out only to screw you the customer, remember this:

The HD DVD camp suffered a serious blow on Jan. 4, when Warner Bros. Entertainment said it would stop publishing movies on HD DVD in May, to focus on Blu-ray and regular DVD.

That leaves only two major studios, Paramount and Universal, still supporting HD DVD, while five support Blu-ray.

Toshiba on Monday slashed the suggested retail price of its cheapest player, the HD-A3, from $299.99 to $149.99. The price for the HD-A30 was also halved, from $399.99 to $199.99, while the price on the high-end HD-A35 went from $499.99 to $299.99.

Explain to me how the customer loses there. Nothing has changed since yesterday on the technological front. But the possibility has probably increased that customers will choose a Blu-ray device rather an HD DVD device. Toshiba now offers a better incentive. Yesterday, a customer could buy a player. Today, she can buy a player and five or more movies. Or she can buy two players for two rooms. Or she can get the features of the HD-A35 instead of the HD-A3. Competition is grand.

Also, most customers who purchased those Toshiba HD DVD players in the last thirty days or so are probably eligible to receive a partial refund from the store from which they bought the device, given that most major retailers have price match guarantees in place. Again, just another case of The Man&#153 not looking for ways to screw customers.

Consumer-unfriendly Software

I’ve used Newsgator as my RSS reader for several years. I’ve generally been happy with how it works because I like the ease with which I can set a structured layout to my folders. The “generally” caveat is necessary because Newsgator has a way of messing with my settings to force me to use its product how it wants me to, even though it continues to give me the option to use it my way. I must switch my settings back after Newsgator changes them every few months. This has been tiresome, but I haven’t liked any other readers I’ve tried. I’ve reluctantly stuck with Newsgator.

No longer. A few days ago the company switched me again to the beta of its newest version. It’s done this in the past, but I’ve always had the ability to switch back. Again, tiresome, but only mildly taxing. This time, though, I have no option to go back to the Classic reader. That’s a shame because the beta version is awful. And in addition to being awful, they forced my settings this afternoon from what I’d chosen.

I’m done with Newsgator forever.

I need to fill the void, of course. I like having a web-based RSS reader. Bloglines is okay, but I don’t like the way it organizes folders, or at least the limited way I’ve been able to figure out how to organize folders. I do not want everything in a big list without sub-folders. Every time I attempt to use Bloglines, I abandon it within a few days.

I’m now trying Google Reader, but Google is trying very hard to lose me. I can log in with no problem, as evidenced by my joint login to my Gmail account. But when I log in to Reader, the page refreshes to the login page every time. I will not use the product if I can’t use the product.

The help section suggests that my cookies are not set correctly. I figured this was the explanation, but when I verified my settings, I am within the range of what Google requires. I will apparently have to open my firewall settings below my comfort zone if I am to use Google Reader.

This is a terrible implementation by Google. Google wants to market stuff to me. I will consent to being marketed because I retain the option of overlooking that marketing. I will not consent to having my computer invaded so that Google (or others, inadvertently) may market me stuff in a more intrusive manner than having a computer scan the contents of my e-mail or blog entries for keywords¹. My computer hardware is mine.

There really isn’t much of a point here, other than to rant against stupid software design. I don’t know what RSS reader I’m going to use going forward. But I’m not going to accept a poor interface or cumbersome requirements just because the software is free.

¹ Google regularly serves up ads to me recommending circumcision services. It’s technology is stupid.

Wii have a disagreement, but only one side is correct.

In this Boing Boing story on successful efforts to hack the Nintendo Wii – allowing independent, non-sanctioned games to work on the Wii – Cory Doctorow writes:

Incredible as it may seem, there are still companies that think that they should have the right to tell you what you can and can’t do with your hardware after you pay for it.

They have such a right. It’s called a contract. The customer agrees to it, admittedly without negotiation, when he buys the hardware.

I agree that companies who insist on this are stupid. I wouldn’t run the business that way. But Nintendo’s executives run the company, not outsiders seeking to impose a different set of decisions. If the consumer doesn’t like the terms attached to the hardware, he should refrain from buying the product until the terms change. Anything else is insolent whining.

“I think I’m a little concussed.”

I’m a fan of Jackass. There’s still a 12-year-old boy inside me who laughs with such stupidity. And it’s quite libertarian to believe that no one should stand in the way of people doing stupid things to and with their own bodies. So I was quite excited to read that Jackass 2.5 would debut for free on The Internets today. When I checked the website, a curious sight met me:

There is no such thing as a “silly little registration process”. From the FAQ:

Can I watch jackass 2.5 without registering?
No. You must register and confirm your email address in order to watch jackass 2.5.

Microsoft is free to set whatever rules it wants in its license for Silverlight™. I’m free to refuse to give over my e-mail address, even though I have an account I use specifically to soak up the inevitable abuse such nonsense creates. I don’t care how likely or unlikely it is that Silverlight™ delivers “the next generation of media experiences and rich interactive applications for the Web”. Interpreting that as Microsoft-speak for “locking users into a restricted, ‘preferred’ experience” makes so much more sense.

And then, there’s this:

How long is the movie available?
jackass 2.5 will be available for FREE exclusively on this site until 12/25/07. Starting 12/26/07, you can rent or purchase Jackass 2.5 at BLOCKBUSTER® stores and blockbuster.com, and download it at movielink.com.

Content-providers are free to offer their material as widely or as narrowly as they please. But I refuse to participate in such silliness. That kind of closed-minded thinking is the mark of a dinosaur. I prefer Netflix to Blockbuster, and I’d never deal with the DRM madness of a site like movielink, in which the viewing experience is tied exclusively to the crap that is Windows Media Player. There is a business-model here that (unintentionally) excludes someone like me. I can live with that. How long can they live with that?

Title reference here.

Simple Arithmetic Without the Economics

Writing on the implications of the proposed Sirius-XM merger, Marc Fisher engages in a discussion of competition based on dubious assumptions. Consider:

Think about it: Can you name one example of a new consumer technology that was guaranteed to a single provider and still served customers well? (Don’t everyone say “cable TV” at once.)

Fair enough on the surface, but how is it economically any more sane to guarantee two and only two competitors in a new consumer technology, as the FCC did? How might the market have shaped up had the federal government not impeded the natural development of satellite radio? We’ll never know, of course, but that isn’t sufficient to say we’ve achieved the optimal market condition. Only the central planner is so presumptuous as to assume such nonsense.

[Sirius CEO Mel] Karmazin, who would be chief executive of the combined satellite provider and is leading the charge for a merger, counters that listeners would benefit by getting the best of both services without having to pay for two subscriptions. To bolster that claim, the companies propose a menu of pricing options: Subscribers could keep their current service at the same price they pay now; add the “best of” the other service for an extra $4 a month; or choose to get fewer channels at a lower price. But while the companies tout these choices as the a la carte offering that cable TV has never consented to, the fact remains that if you want more channels under a combined XM-Sirius operation, you will have to pay more.

I think that last argument is supposed to be a zinger. If you want more, you must pay more. Holy Batman, the injustice! It’s good to clear that up, since under the current dictate from the FCC, if I want more channels, I have to pay… more? Oh, wait.

The danger in offering packages with fewer channels is the same risk cable TV companies have warned against for years: If consumers can pick and choose channels, that undermines the whole business, because inevitably, the bulk of the audience will spend most of their time listening to a relative handful of channels. Less popular channels, now subsidized by a flat subscription fee, would wither away.

We must have competition, except when it interferes with anyone’s preference for what should be offered.

How long would more obscure, low-rated satellite programming such as Sirius’s Underground Garage rock or NPR Talk channels or XM’s Cinemagic movie music or choral classical outlets survive in a monopoly, a la carte system? And if the range of programming narrows, what is satellite offering that AM and FM do not?

And if a merged Sirius-XM stopped offering content compelling enough to “force” people to pay, wouldn’t the departure of subscribers to free radio be a fairly important incentive to offer more content? How does this competition thing work again?

Virtually anyone can start an Internet radio station these days [ed. note: if you can afford the exorbitant royalty fees for a format that generates little revenue.] and play an intriguing mix of music. But only XM and Sirius — and National Public Radio, perhaps — have the resources to produce a great range of creative, professionally produced programming: Bob Dylan’s explorations in music and storytelling on XM; original radio dramas; XM’s Artist Confidential series of sessions with big-name performers; and specialized programs for truckers, gays, Latinos, NASCAR fans, Broadway lovers, opera buffs, movie-music mavens, presidential campaign addicts and on and on.

That programming diversity is what justifies giving XM and Sirius a chunk of the government-licensed radio spectrum. …

No, the central planner’s belief that such programming diversity is the correct mix for customers, whether customers want it in sufficient quantity to justify its cost, is the excuse offered to perpetuate a two – and only two – competitor market. This, despite the evidence cited earlier in the essay that most subscribers to either service listen to a small subset of the offered channels.

… Reducing the two services to a satellite monopoly will inevitably bring about a diminution of choices, along with higher prices. …

This is a blanket statement unsupported by the case made in the essay. Prices only rise if the subscriber wants more content. I know I’m supposed to be outraged by that, but I’m not. And if the merged company dumps the niche programming he likes, he cancels his subscription. That’s a useful signal to the company. If it happens enough, imagine how the company might respond with some combination of more content and lower prices. But that only occurs if there are two – and only two – competitors. Because that’s the free market.

… At XM’s Washington headquarters, the number of producers and DJs would decline, meaning more formulaic programming — if XM even remained here. How long would Karmazin keep production facilities in both the District and New York, where Sirius is based?

An individual how lives in Butte and wants to hear both Howard Stern and her beloved Pittsburgh Pirates should care about the employment prospects of producers and DJs in the Washington, DC area, why? Based on what Sirius and XM have said, she could get both for less money than she would have to pay now, but only if the companies merge. How is she harmed?

Aside from the gain I’d likely receive as a Sirius investor and the definitive gain I’d receive if my Sirius subscription included Major League Baseball, this merger should occur because the government has no legitimate basis to be involved, much less deny a free market outcome based on some subjective criteria of consumer benefit.

It’s not someone else’s fault if you’re a bad businessman.

Right, Apple is the problem:

NBC Universal topper Jeff Zucker warned Monday that new digital business models are turning media revenues “from dollars into pennies” and revealed that NBC U booked just $15 million in revenue during the last year of its deal with Apple’s iTunes.

“Apple sold millions of dollars worth of hardware off the back of our content, and made a lot of money,” Zucker said. “They did not want to share in what they were making off the hardware or allow us to adjust pricing.”

So many points. Without Apple’s hardware, NBC likely would’ve made significantly less than the small revenue stream it saw.

Spare the story of oppresion, too. I doubt seriously anyone from Apple held a gun to Zucker’s head and demanded its content. NBC had to mutually agree with Apple for Apple to offer the video.

NBC seems to have expected an ability to adjust prices upward after customers became comfortable with downloading legal video. But in its woe-is-me tale of how Apple isn’t being fair, NBC also tries to discredit Apple by saying that the product that customers will pay 50% more than they’re now willing to pay didn’t sell well. Which is it?

Link via Wired.