The online video industry shouldn't ignore D.C.

Josh Wein

Next week in Washington, D.C., the cable industry will gather for NCTA's annual trade show. Beyond providing a platform for companies to meet and promote new products, the event gives cable executives an excuse to drop in on Washington and talk policy with legislators and regulators.

What does this have to do with online video? A lot, depending on whom you ask.

This week, leading cable stock analyst Craig Moffett, now producing investment research at his own firm, Moffett Research, spelled out his theses on the cable and satellite sector for the next decade. For cable stocks to remain great investments, he argued, cable operators must maintain profit margins on video programming--even when that video is delivered over the Internet. HD video is a notorious bandwidth hog, and recent surveys indicate that traffic from companies like Netflix (Nasdaq: NFLX) is dominant on wireline broadband networks during peak usage.

In the best-case scenario for cable investors, cable operators would charge broadband subscribers an extra fee based on the amount of traffic they consume.

But what's good for the cable investor likely will be bad for the online video industry. If usage-based pricing is broadly adopted by Internet service providers, online video distributors would see their customers charged twice. In this hypothetical situation, the retail price of a TV show rental from a provider such as iTunes or Amazon (Nasdaq: AMZN) would only represent a fraction of the actual cost to the customer. Renting a show online would generate a corresponding charge on a customer's broadband bill--kind of like using an ATM from another bank.

Online video providers should not want this to happen, and some cable operators seem to be backing away from the practice. You can read in FierceCable that Cable One said it would eliminate the data limits on its broadband service and Cablevision said it has no plans to institute usage-based pricing "at this time."

Usage-based pricing is legal, but the government could take a closer look at it in the context of some upcoming media legislation. If that happens, the online video industry shouldn't ignore what plays out in Washington. The beltway can seem remote from Silicon Valley--where much of the online video industry is concentrated--but it's worth a visit.

I'll be there next week covering the Cable Show for Fierce. Let me know if you're attending and check here for show coverage -- Josh

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