Big tech's massive expansion in video is a vote of confidence in the free internet

Advocates of regulation of broadband internet service providers (ISPs) under Title II of the Communications Act claim that this regime is necessary for edge providers such as Google, Facebook and Apple to survive. However, the enormous investments made by edge providers in online video since the 2016 election — which made it almost certain that such ISP regulation would be reversed — prove the emptiness of that claim. During the last few months, those three companies have all made new commitments to major spending on online video programming while already-existing players are also growing their budgets.

Google of course is not new to online video, given that its short-form YouTube service has the largest audience in the U.S., at 186 million per eMarketer’s estimate, and over a billion users worldwide. However, it has now also entered the subscription online video market with YouTube Live, its provider of a “skinny bundle” of online TV programming. The bundle includes original programming that the New York Times estimated could cost Google $2 million to $3 million per episode.

The company made its commitment in February 2017, after the new Federal Communications Commission made it clear that it was headed toward reversing Title II classification of ISPs. YouTube Live has since rolled out steadily in major markets, now covers roughly half the U.S. population, and has announced plans to continue to add coverage. With a balance sheet that is 53 percent cash plus equivalents and with its enormous existing audience, Google is in a position to ultimately dominate the subscription online video market as it dominates so many other aspects of the Internet ecosystem.

Facebook is another powerhouse that already has a major video-viewing audience and is spending to grow its online-video presence. On August 9th, it rolled out Watch. Facebook’s blog describes Watch as “a new platform for shows on Facebook…available on mobile, on desktop and laptop…a platform for all creators and publishers to find an audience.” This reflects the view chairman Mark Zuckerberg expressed in Facebook’s second quarter analyst call that video will be “the primary driver or one of the big drivers over the next few years.” It also reflects confidence that Facebook, its users and content providers will be able to reach each other freely over both fixed and mobile broadband.

 

According to a Barclays June Equity Research report, Facebook is investing in rights to sports programming as well as developing original content. Facebook hired Mina Lefevre away from MTV to lead its efforts in original programming. Like Google, Facebook has the resources to succeed in this effort, with a balance sheet that is 48 percent cash plus equivalents and, per eMarketer, 171 million U.S. users of its social media.

Apple, according to Barclays, just committed to a $1 billion budget for programming for its online video efforts, with plans to produce or acquire ten TV shows. Apple’s determination is shown by its decision to hire Sony’s studio heads, Jamie Erlicht and Zach Van Amburg, to head up programming efforts. 

Existing players in the subscription video market are also increasing their commitments. Netflix increased its programming budget to $6 billion in 2017 from $4.9 billion in 2016. Netflix recently hired the extraordinarily successful writer and producer Shonda Rhimes away from ABC, indicating that its investment will only grow over time.

Disney has also just committed to a direct-to-consumer online platform of its own, in addition to the programming it provides to various other online platforms. Numerous other platforms, including DTV Now, CBS All Access, HBO Now, and even a new British entry called BritBox, are committed to competing in the U.S. online video market.

When so many edge providers commit billions of dollars in new or increased spending to the U.S. online-video market despite the near certainty that Title II regulation of ISPs will be reversed in the next few months, it is obvious that such regulation is not necessary to the health of the broadband Internet ecosystem. The tech giants have provided a resounding vote of confidence in a Title-II-free internet.

Anna-Maria Kovacs is a visiting senior policy scholar at the Georgetown Center for Business and Public Policy. She has covered the communications industry for more than three decades as a financial analyst and consultant.


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