What to do about the NFL?

Last Saturday, I wrote about the ever-widening Ray Rice scandal and how the NFL's handling of that and other domestic violence cases is very similar to how the League covered up for years the long-term damage done by traumatic brain injuries. Today, both Baltimore Ravens owner Steve Bisciotti and head coach John Harbaugh issued statements denying some of the allegations of ESPN's "Outside the Lines" report. One of the two reporters on the story, Don Van Natta, Jr., a multiple Pulitzer Prize winner, said that he and ESPN stand by the story. Van Natta is expected to file a written response to the Ravens' denials soon.

In his public comments, Bisciotti claimed that the source for the ESPN story was Ray Rice and his associates. However, Van Natta claims that he and reporter Kevin Van Valkenburg interviewed more than 20 sources over 11 days. Given the level of detail in the ESPN report, it's inconceivable that the network would have run the story without independent confirmation. Rice and his associates had to be considered biased sources, so running their claims without independent confirmation would have been foolhardy (except for those situations where Rice was the only one in a meeting who was willing to comment on it, such as the closed-door meeting between Ray and Janay Rice and NFL Commissioner Roger Goodell.)

If the ESPN report is all, or even just substantially true, serious reform needs to happen within the NFL, the Baltimore Ravens, and possibly, even in the Baltimore City and County State Attorneys' offices. Here are some practical steps that can be taken:

• Commissioner Roger Goodell and the entire senior staff of the NFL should be fired, and replaced with a new Commissioner with a) An impeccable reputation, and b) No current personal or professional connection with any NFL team owner. That Commissioner will then appoint the remaining members of the League's top management.
• In an article published today, "New Yorker" staff writer Ben McGrath noted that the NFL is classified as a "nonprofit trade organization" by the IRS--A nonprofit that pays its Commissioner $44 million a year, and that pays its top leadership a significant fraction of the total annual payroll for all the players in the NFL. The IRS should strip the NFL of its nonprofit status, and if the IRS is unwilling or unable to do so, the U.S. Congress should step in and do it.
• The Baltimore State's Attorneys who gave Ray Rice permission to enter a no-jail diversion program usually used for non-violent drug cases, Ravens owner Steve Biscotti and other team executives should be investigated for obstruction of justice, bribery and influence peddling. If Maryland Attorney General Doug Gansler is unwilling to take the case or unable to do so because of a conflict of interest, Maryland Governor Martin O'Malley should appoint an independent prosecutor.

These are practical steps that the League, the IRS and Maryland's top law enforcers should take to reform the NFL and find out, to the satisfaction of a judge and jury, who actually participated in the decision to give Ray Rice a slap on the wrist for beating his (soon to be) wife. The NFL and its team owners may hope that by spreading enough cash around and letting things stretch out, the entire affair will eventually blow over. Everything eventually blows over--the question is, "What will be left standing when the wind dies down?"

Football: Boxing with more clothes

I've been following the Ray Rice domestic abuse scandal, and ESPN's "Outside the Lines" unit released a damning story on Friday that details a cover-up by top executives and the team owner of the Baltimore Ravens, and NFL Commissioner Roger Goodell's efforts to avoid seeing the video of Rice hitting his girlfriend (now wife) in the elevator. By the time Goodell met with Rice and now-wife Janay, Baltimore executives believed (or in their words, "assumed") that Goodell had seen the video. Based on that belief or assumption, Rice truthfully told Goodell that he hit and knocked out Janay. My belief is that whether or not Goodell saw the tape, he had enough evidence from Rice's own confession to give him a lifetime suspension.

The abysmal way that the NFL handled the Rice case and other cases of domestic violence is of a piece with how the league handled the impact of brain concussions. For years, the NFL minimized the effect of brain injuries on its players, even as evidence of long-term personality and cognitive changes was piling up, and players with traumatic brain injuries were committing suicide. The doctor who found evidence of chronic traumatic encephalopathy (CTE) in the brain of deceased former Steelers center Mike Webster was libeled and slandered by the NFL, with the intention of destroying his credibility. The doctor that the NFL appointed to head its own research into traumatic brain injuries was a rhematologist and a physician for the New York Jets with no training in or experience with brain injuries. The researchers under that doctor then proceeded to release 16 studies that claimed that there were no chronic brain injuries that were caused by playing football, and that it was even fine to allow a player who had received a concussion to continue playing in that same game once he'd recovered.

Earlier this year, the NFL settled a lawsuit filed by more than 4,500 former players who claimed that they had suffered long-term damages from concussions they'd received while playing. The NFL set up a $675 million or more fund to pay compensation to injured players, $75 million for baseline testing and $10 million for research and education. However, the NFL was able to avoid having to pay anything to players with neurobehavioral problems unless they can also prove that they have cognitive impairments.

All of this brings me to an inescapable conclusion: The NFL isn't interested in the welfare of its players, nor is it interested in the welfare of its players' families or significant others. Its sole concern is the maintenance and improvement of the financial interests of team owners. My headline made a comparison with boxing. Boxers, like football players, often suffer severe physical injuries, the most visible of which involve the head and brain. Boxers, like football players, have a reputation for violence, both inside and outside their sport. Top boxers, like football players, are paid a lot of money. The fight promoters who stage boxing matches are seen as largely venal people who care only about money and who care about the boxers' welfare only because their fights have to be licensed by a state boxing commission. Boxing has a terrible reputation, but the damage caused by boxing has never been a secret; the term "punch-drunk," defined by Merriam-Webster as "Suffering cerebral injury typically marked by mental confusion, incoordination, and slurred speech and usually resulting from minute brain hemorrhages caused by repeated head blows in boxing," was first used in 1918. Some of the best books and movies about boxing have used the symptoms of CTE in descriptions of boxers' behavior and personalities.

It's become clear to me that under the NFL, football is boxing with more clothes, and team owners are fight promoters with more money. Would you trust that an investigation of a group of boxing promoters being led by two boxing promoters who are part of the group, and being overseen by a former government employee who's being paid by the group of boxing promoters, would be impartial and comprehensive? I doubt it. That's why I have so little trust in the self-examination of the NFL's handling of Ray Rice by two team owners and Robert Mueller.

Update, September 21: The two team owners who are running the investigation of the NFL's handling of the Ray Rice case are John Mara of the New York Giants and Art Rooney II of the Pittsburgh Steelers. Ben Roethlisberger, the Steelers' quarterback, has been accused of sexual assaults twice: In 2008, a former casino host at the Lake Tahoe Harrahs claimed that she had been raped by Roethlisberger. That case was settled out of court with a gag order on both the plaintiff and defendant. Another charge of sexual assault was lodged in March 2010, this time by a student in Georgia. No charges were filed, but the NFL suspended Roethlisberger for six games. However, the suspension was lifted after four games.

Roethlisberger works for Rooney. So far as we know, the Steelers took no action against Roethlisberger as a result of either charge. Mara and Rooney are related by marriage (that's where the actress Rooney Mara gets her name.) Given the Steelers' acceptance of Ben Roethlisberger's behavior, the relationship between Rooney and Mara, and both of their complicity with years of NFL behavior, can we really put any trust into their investigation?

Why the status quo in the U.S. cable business can't hold

The more that I look at the U.S. cable, satellite and IPTV business, the more I realize that "business as usual" is eventually doomed. Cable companies' core business for more than 50 years has been to sell access to bundles of broadcast and cable-only channels, which are accessed through the use of proprietary set-top boxes, to consumers. Starting in the late 1990s, cable operators started adding access to high-speed Internet services, which ride in and out of consumers' homes on available bandwidth not used for video. A few years later, cable operators added Voice over IP telephony services, which use the same bandwidth as high-speed Internet. IPTV companies offer the same service, but in the reverse order: First came analog voice telephony, more than 100 years ago. Then, DSL came in the 1990s for high-speed Internet service, and finally, AT&T, Verizon and others added broadcast and cable-only television channels, accessible through proprietary set-top boxes.

Today's cable and IPTV operators look very similar so far as consumers are concerned, and they both face the same business challenges: Retransmission and carriage fees. Retransmission fees are intended to compensate broadcasters for the use of their programming by video operators. Carriage fees provide compensation to cable network operators. It used to be that some cable networks would pay video operators to carry their programming, in order to sell advertising that would reach the widest possible audiences. Today, however, almost all cable networks charge video operators to supply their programming to consumers.

Until 2008's Great Recession, broadcasters and cable networks got most of their revenues from advertising. Broadcasters kept their retransmission fees low, or waived them altogether if video operators agreed to carry cable channels provided by the broadcasters' parent companies. Cable networks generally also kept their carriage fees relatively low, in order to get into the widest possible number of households. After 2008, however, all that changed. Broadcasters' advertising revenues dropped (in some cases, dramatically,) so they needed to make up for lost income. In addition, broadcast networks, which had been paying television stations to carry their programming, began charging stations for programming or demanded a portion of the stations' retransmission fees. Similarly, cable networks started increasing their carriage fees to replace lost advertising revenues.

Early on, video operators absorbed the price increases from content providers as best they could, knowing that they couldn't pass the increases on to customers in the form of higher rates during a recession. Now, however, not a week goes by where a video operator isn't threatening to drop a broadcast station or cable network because it's too expensive, or a broadcaster or cable network isn't threatening to cut off a video operator. Video operators are trying to disguise consumer rate increases as things like "concierge" services, where they charge for services that consumers used to get for free. And today, Cablevision filed an antitrust lawsuit against Viacom, charging the company with forcing cable operators to license a bundle of 14 unpopular cable networks in order to get access to popular ones such as Comedy Central and Nickelodeon.

This situation can't persist for much longer. In many markets, subscription prices have reached the maximum that consumers are willing to pay, and consumers have gotten wise to video operators' pricing tactics: Offer low "teaser" rates to get consumers to switch, and then start raising rates frequently, and often silently, once their introductory deals expire. Consumers respond by cancelling services, switching video operators, and in the worst case, dropping video services altogether and switching to over-the-air broadcasts and over-the-top Internet video.

Within a decade, I believe that most cable and IPTV companies will be well on the way to dropping their video services. Consumers will purchase their own set-top boxes, and similar functionality will be built directly into new televisions. Some set-top box vendors will also aggregate content. Rather than the plethora of formats for publishing video that work on set-top boxes from Apple, Google, Intel, Roku, etc., a single standard protocol will enable content providers to publish channels and on-demand video that will work with most set-top boxes, and will show up in the devices' program guides. Cable and IPTV companies are likely to partner with set-top box vendors and receive a portion of their revenue from consumer subscriptions.

Consumers would get the "a la carte" cable channel choices that they've been asking for--but at a price. For example, Disney's ESPN might make its primary ESPN channel available by itself to subscribers for $6.95/month--but price the entire ESPN channel lineup at $12.95/month, thus making it more attractive to pay more but get everything. This strategy would work for the rest of Disney, as well as Viacom, CBS, Discovery, Fox, NBC Universal and others.

The cable and IPTV operators would compete on other services and benefits--who offers the fastest and most reliable high-speed Internet service, the simplest and most useful home networking, the best home automation and security packages, etc. All of these would be services that the cable and IPTV operators would provide themselves--thus, they wouldn't be subject to ever-increasing financial demands from cable networks and broadcasters. By literally wiring their services deep into households, it would be much harder for consumers to switch from one service provider to another, which should decrease churn levels.

The war among video operators, broadcasters and cable networks, with consumers in the middle and paying the bills, can't go on for much longer. At some point, a critical mass of consumers will stop paying the bills, and video operators will have no choice but to spin off their video services.

Will 2011 be the "tipping point" for over-the-top video?

Ty Braswell wrote a thought-provoking post for VentureBeat, calling on his past experience as a music industry executive to suggest that the same dynamics that overturned the conventional order in the music business are happening in video:

• Viewers now have easy access over the Internet to much the same content that was previously only available from cable, satellite and IPTV service providers
• Convenience (for example, the ability to start watching a movie on your iPad, leave your house and pick up where you left off on your iPhone, and then come home and finish watching the movie on your HDTV) is driving consumer decisions
• Service providers are raising prices, even while they're facing unprecedented competition from over-the-top video services

There is one big difference between the music industry's situation and that of the video industry: The music industry was decimated by completely free services such as Napster and P2P networks before Apple launched iTunes, while video content producers are still (relatively) healthy. The same formula that Apple came up with for iTunes in the music business is being applied to video successfully by Netflix, Amazon, and, to a lesser extent, Apple itself. There's money to be made, but who makes the money is shifting from the service providers to the over-the-top distributors and content providers.

Braswell gives the example of ESPN, which typically charges $4 per month per cable subscriber. What if millions of consumers were willing to pay $12/month to ESPN if they could get it wherever they want, without a cable subscription? ESPN would be way ahead, even if 30% or 40% of the gross revenues went to Netflix, Amazon or Apple, and those companies handled distribution and billing.

I'm not a big sports fan, but I'd gladly spend $10/month for the Discovery and National Geographic networks, and go back to basic cable for everything else. Could Time Warner sell a bundle of its cable channels directly? I think that it could. Would Fox News viewers pay for anywhere, anytime access to the Fox cable networks? I believe they would. Even better, unlike the music business where there's Apple and everybody else, no one company dominates over-the-top video distribution. Netflix is the biggest player, but by no means is it the only player. That gives the movie studios and cable networks more negotiating power and pricing leverage.

Content providers can see the new over-the-top landscape as "the sky falling", or they can see it as an opportunity to gain more control over their pricing and distribution.

A crack in the wall: Xbox Live gets ESPN3.com

Earlier today, Microsoft made a number of Xbox-related announcements, including that ESPN will be making ESPN3.com available as part of annual Xbox Live Gold subscriptions, which cost $50/year. When I first heard the announcement, I thought that it referred to on-demand sports events that had already taken place, but ESPN3.com provides more than 3,500 live sporting events each year in the U.S.

There's a fairly large community of cable subscribers who subscribe mainly to get ESPN. If they can get ESPN3.com, plus Netflix and other services, through their Xbox 360s, they may drop their cable subscriptions (they'll still need cable or DSL for high-speed internet) and use a combination of Xbox Gold and over-the-air broadcasts. Though small, this is a crack in the cable operators' ability to keep control of programming.

3D Comes to Cable

There were two announcements of new 3D cable networks at CES today. ESPN announced plans for a new 3D network, as did a joint venture among Discovery Communications, Sony and IMAX. ESPN's channel will launch this June and broadcast a minimum of 85 3D sporting events in its first year, the first one being a World Cup soccer match between South Africa and Mexico. The 24-hour Discovery/Sony/IMAX channel will launch next year and will feature programming from a variety of Discovery's channels.

It's far too early to tell whether these channels will turn out to be short-lived gimmicks or pioneers of a new generation of broadcasting. However, it's likely that other networks will follow suit, launching their own 3D services and putting additional demands for channels onto already crowded cable, satellite and IPTV systems. In turn, this will spur cable operators in particular to move even faster to Switched Digital Video and IP Video architectures.

As a practical matter, if you're in the market for a new HDTV display, you should probably go for one with at least a 120Hz refresh rate. There are no guarantees that it will work with 3D content, of course, unless the manufacturer says that it does.

Who's helped by "a la carte" pricing?

The Fox/Time Warner debacle (which was settled last night) has reopened discussion of a la carte pricing for cable. A la carte means that cable operators would be obligated to allow subscribers to choose and pay for only the channels that they watch. Never watch ESPN? You wouldn't have it in your channel list, and you wouldn't pay for it.

Consumers love the concept of a la carte, because it promises to dramatically lower cable costs. Most people have 20 or fewer channels that they watch regularly, and that's all that they'd have to pay for. However, a la carte is Kryptonite to both the cable operators and networks. The cable operators would have to price their services much closer to their actual costs, which would mean significantly lower revenues. They would no longer be able to offset the costs of cable networks that they have to pay for with cable networks that pay the operators for carriage. (For example, cable operators pay Fox to carry the Fox News Channel, but Fox pays the cable operators to carry the Fox Business Channel.)

Under a la carte, the cable networks could no longer get revenue from every cable subscriber, no matter whether or not they ever watch their channel. Disney's ESPN is legendary for refusing to allow its primary network to be moved to a sports tier; Disney insists on getting paid for every subscriber that a cable system has. If subscribers could pick and choose, Disney would only get revenue from those subscribers who actually want to watch ESPN enough to pay for it. ESPN's viewership numbers, and its advertising revenue, would likely drop significantly.

ESPN and Fox News are very popular, so they'd probably survive in an a la carte environment. The survival of marginal cable networks would be much more problematic. Most cable networks claim all of the subscribers to their cable systems as potential viewers, and set advertising rates (at least in part) based on those numbers. Marginal networks would see their potential viewer numbers drop dramatically under a la carte, and their revenues from cable operators would drop as well.

A few years ago, I interviewed a European IPTV operator that launched its service with a la carte pricing. The service was very popular, but it consistently missed its programming revenue goals, so it quietly replaced a la carte with the tiered pricing model used by US cable operators. The European operator found that it lost few subscribers and significantly increased revenues. (The operator's market was so competitive that even with tiers, its service was only 1/3rd the price of comparable cable or IPTV service in the US.)

A la carte pricing would be the fairest approach for consumers, and it would introduce true supply-and-demand pricing to the cable business, but it would probably also result in the failure of many existing cable channels. The forces favoring a la carte simply don't have the political or financial clout to make it happen in the U.S. at this time.