DirecTV, Dish are under investigation by the Justice Department

Bloomberg is reporting that DirecTV and Dish have both received civil investigative demands, similar to subpoenas, from the Justice Department requesting information on both companies' pricing contracts with cable networks. What makes this story relevant to eBooks is that two sources have told Bloomberg that the DOJ is seeking information about "Most Favored Nation" (MFN) clauses in their contracts with content providers, the same clauses that the DOJ is seeking to eliminate in its price-fixing case against Apple, Macmillan and Penguin. In the pay-TV case, the DOJ is trying to find out whether cable, satellite and IPTV video services are using MFN clauses to prevent Internet video distributors and smaller startups from getting rights to distribute cable networks.

Comcast out, AT&T's U-Verse in

Yesterday, after years of getting video and high-speed Internet service from Comcast in California and Illinois, I switched to AT&T's U-verse IPTV service. There were two big reasons for making the switch:

• Cost: Even with HD service to only a single television, no premium channels (HBO, Showtime, etc), moderate Internet speeds and domestic phone service, I was paying almost $200/month with my most recent price increase. This is the same service that I paid around $120/month for two years ago with "teaser" rates. The U-verse service is around $150/month, with more channels (including premium channels) and faster Internet speeds. I could have gotten an even better rate had I been willing to commit to 12 months of service.
• Quality: Some channels (for example, the local CBS station) were so compressed and filled with errors that audio would frequently drop out and video would freeze. I initially thought that the problem was with the television station itself, but watching the same station on U-Verse was a revelation: Not a single audio dropout or video freeze in hours.

AT&T gives the same three-hour "window" for installers to arrive as the cable operators, but it also advises customers to allow four hours for the installation. In my case, AT&T sent two installers, who called me 35 minutes before they arrived and showed up 5 minutes into the window. It took them just two hours to complete the installation (I needed a few hours more to get everything working on my network).

A few observations from very early use of U-verse:

• Even though I was supposed to be getting around 12mbps down from my Comcast service, I measured the speed before AT&T started its installation and only got around 8mbps down. The U-verse service measures a true 12mbps down.
• AT&T really, really wants you to use their 2Wire gateway for everything related to the Internet, but even though I got the very latest 2Wire model, it still only had 802.11 b/g wireless, not 802.11n.
• I received what appear to be Cisco's latest set-top boxes. Compared to the elderly behemoth Motorola box that Comcast used, they're much smaller and more modern, with a far more attractive user interface and electronic program guide.
• One thing I miss from the Comcast system is that the AT&T remotes lack a "Favorite" button to take me immediately to my list of favorite channels. Instead, I have to navigate the set-top box's menu tree to reach the favorite list.
• I don't at all miss the never-ending parade of commercials that Comcast runs on its own systems disparaging its competitors. If Comcast could sell that commercial inventory, they'd have enough money to buy NBC Universal twice over.

In hindsight, I should have dropped Comcast at least six months ago.

In Cable TV, one quarter does not a trend make

Today, SNL Kagan reported that in the second quarter of this year, net pay TV subscriptions in the U.S. dropped for the first time in history. Cable systems lost 711,000 subscribers, and six of the eight largest cable operators reported their worst subscriber losses ever. So that means that consumers are dropping pay TV and moving to over-the-top Internet video services, right?

Not necessarily. Satellite (DirecTV and Dish) and IPTV services (Verizon FiOS and AT&T U-Verse) gained a total of 495,000 subscribers in the same quarter (414,000 for IPTV, 81,000 for satellite), and the satellite services don't even offer high-speed Internet. Why the big gain? You've probably seen the aggressive introductory price deals offered by the satellite and IPTV companies on television or in the mail, so people are switching to these services to save money.

Really? According to Steve Hawley, an IPTV industry analyst I used to work with, the monthly ARPU (Average Revenue per User, or subscriber) for the IPTV services is higher than that of any of the major cable operators. Only Cablevision comes close to Verizon and AT&T. That means that on average, the IPTV operators are charging more per month than the cable operators.

But pay television still lost a net of 216,000 subscribers in the quarter, so that still means that those subscribers went to Internet video, right? Perhaps, but Verizon and AT&T lost 515,000 subscribers to their DSL high-speed Internet services in the quarter, and you need high-speed Internet for Internet video.

So what does it all mean? We simply don't know yet. Over the next year or so, we can start sorting out what's really going on and identify the underlying causes. Are we seeing a temporary drop due to economic pressures (people losing or in fear of losing their jobs) that will be reversed when the economy improves? Are people experimenting with Internet video or committing to it as a replacement for pay TV? Is there a long-term shift from cable to IPTV and satellite, or in a saturated market, are people simply switching back and forth to get the best deal, just like they used to do with long distance services?

The key thing to remember is that one quarter does not a trend make.