>> ALEX: Hey guys, I’m here watching some South Park, let’s get technical.
The cable provider that allows me to see this episode of South Park on my TV right now is
Comcast.
If, instead of wanting to watch South Park, I wanted to watch, say, BoJack Horseman, on
Netflix or Bo Burnham on YouTube, I’d need to use an internet connection provided to
me by Comcast.
Comcast is my only option for my cable provider or my ISP, and, if you live in America,
you probably don’t many options either.
The Federal Communications Commission reports that 96% of Americans have 2 or fewer options
when it comes to cable broadband ISPs.
A matter of fact, people have even made maps on what your ISP likely is based on the state
you live in.
Not to mention, with all of the Net Neutrality stuff going on right now, it’s got me thinking,
how did we even get here in the first place?
Today, let’s answer How Internet and Cable Companies got Regional Monopolies in the United
States.
To find out, let’s do some time traveling.
>> ALEX ON SET: In 1948, the first cable systems in the US were put into place in parts of
Arkansas, Oregon, and Pennsylvania, but cable didn’t really take off until the 1970s and
80s.
Why’d it take so long for it to get popular?
2 reasons.
First, the FCC put a ton of restrictions on cable in its early years because og broadcast
networks felt threatened by cable companies.
me just sitting there.
AAH!!
Before cable, networks themselves would just send a signal to your TV, but, when cable
came along, networks viewed them as a middleman who stole their shows and then forced people
to pay for content they were already getting.
So, after a lot of complaining, the FCC eventually put in rules to restrict cable.
And a lot of them.
So the FCC won’t let me be, let me be me so let me see.
And cable did see.
*OFF SCREEN* Wait what does that mean?
I don’t know, I’m just trying to make a good transition.
In 1972, after the public voiced disapproval of all the cable regulations, the FCC started
to loosen those regulations.
This was the first reason cable took off in the 70s.
The other?
Well, it was actually HBO... but it wasn’t their programming, it was their technology.
HBO was also founded in 1972, and they took advantage of the loosening of
FCC restrictions, specifically, the 1975 ruling that cable companies could use satellites
for their broadcasting.
This tech would work by sending a signal from a satellite to massive 30-foot dish-shaped
antennas across the country, which would then send the signals through the cables and to
your home.
HBO was the first to take advantage of this new technology when they broadcast the Muhammad
Ali vs Joe Frazier fight. The fight took place in Manila, but it was broadcast to the entire world.
It really was a Thrilla in Manila...
And not just because the title was literally Thrilla in Manila.
The fight was huge success, which meant HBO wanted to do more of that.
So naturally they sued FCC, which resulted in even more loosening of restrictions.
These 2 factors spurred the growth of cable.
In 1960s, cable only had around 850,000 US subscribers, but, at the end of the 1980s,
cable had 53,000,000 US subscribers.
To put that in perspective, that’s a 62x increase, that’s going from only the silver
play button to PewDiePie level.
The huge growth led to Congress passing the Cable Communications Act of 1984.
This is where our story begins.
Cable Communications Act of 19... you know, that way too long of a name.
Let’s just call it the...
CCA.
The CCA did a lot of things, but, most importantly, it gave cities themselves the authority to
create exclusive partnerships between their city and cable companies.
Basically, cities would strike up deals with cable companies like this...
>> COMCAST: Heeeey there, beautiful San Francisco!
>> SAN FRANCISCO: Stop pandering.
>> COMCAST: Ok.
How about we make a little dealsy?
We’re willing to wire your entire town.
That’s right, every corner, every house gets cable.
It’s huge selling point for your town, plus current residents will LOVE it.
>> SF: Ooh, I do like that.
But wait a sec, what’s in it for you?
>> COMCAST: *mumbling* Eeeeh, you know, you’ll give us a complete monopoly over the city
for, like the next 12-15 years.
Don’t worry, this essential though, we need this time to properly build out the cable
lines, and make sure, you know, we’re the ones doing it.
>> SF: Well obviously that plan seems great and not like it will blow up in our
face later.
We accept!
Good doing business with ya.
Cable companies would go around snatching up monopolies over cities, creating the birth
of the oligopoly we have today.
Unfortunately, when Congress realized the damage they did with the CCA, it was too late.
In 1992, Congress passed the Cable Television Consumer Protection and Competition Act, making
those sorta monopoly deals illegal, but, at that point, it was too late to fix the damage
or even change anything.
Why?
Let me tell ya about it!
The cable industry now had something called a natural monopoly.
What is that?
*OFF CAMERA* It’s when you make a monopoly board out of only compostable parts.
Yea-- Wait, what?
No.
There are two types of costs that are relevant to our discussion: fixed costs and marginal
costs.
Fixed costs are costs that stays consistent, they don’t change depending on how many
customers you have, and it’s essential to have whatever you’re spending your fixed
costs on, even if you only have 1 customer.
Among many other things, the biggest fixed cost in the cable industry is, well, the cables.
You gotta lay them down, no matter how many customers you get.
Then, on the other hand, we have marginal costs.
This is how much it costs hook up another person with your product.
This cost is not necessarily consistent, it can change depending on the scale of your
company.
For the cable industry, that cost is pretty small.
I mean, they have to send out a cable box and whatnot, but that’s not crazy expensive.
A natural monopoly is when an industry has an extremely high fixed cost, but a much lower,
fairly consistent marginal cost.
Elaborating on what I previously said, it’s crazy expensive to lay cables down and give
a city your internet and TV access, but it’s pretty consistently cheap to send out cable
boxes and for the occasional technician to come to your home.
To really bring this explanation home, let’s take a look at an example.
You live in the city totallylegitcityopolous, where, because of the laws previously mentioned,
you only 1 ISP: Time Warner Cable.
You want to change that, so you start a new cable company.
What do you have to do to actually sell internet?
Well, you first you have get a ton of permits.
It’s tricky and long, but assuming you can do that, then comes the hard part: you have
to lay down cable.
You can’t use the cable that’s already there, those are Charter's Cables.
They laid 'em down, and they own 'em.
Unfortunately, as you might expect, laying down cable is very expensive.
You have a massive fixed cost.
I couldn’t find one exact magical number on how much it does cost to lay down cable,
but I did find this chart from the US Department of Transportation, makes me think it’s somewhere
between 21,000 and 52,000 dollars per mile, which is, oooh, lemme just say, you could
get a lot of comically large coffee cups for the money.
At this point, you have one of two options.
You could either realize you don’t have enough money and call it quits, or somehow
get enough money together to lay down cables, and then, well, try to make a profit.
Most of the city already on Charter, which means you’d have to offer lower prices
then them just to get only around 10-20 percent of the population of the city on your plan,
according to Gizmodo.
Moreover, Charter would see that some customers are leaving, so they drop their
prices even lower than yours to get people to come back, and yes, that does provide a
temporary relief to consumers, you know, competition brings pricing that benefits buyers, but,
sooner or later, you’re gonna run out of business because you have too few customers
paying too low a price. Charter's gonna going to go back to being a monopoly, prices
rise, and we’re back to where we started.
In this scenario, your cable startup took a massive loss, and it’s the reason why
no one or, at least, very few people, attempt to compete with existing cable companies.
No one wants to suffer to that outcome, and, thus, a natural monopoly is formed.
Heck, cable companies themselves aren’t even willing to compete with each other.
John Oliver pointed this out in his segment on Net Neutrality a couple years ago when
he showed this clip of Comcast CEO Brian Roberts talking about the issue at the re/code code conference.
>> BRIAN ROBERTS: Both in video and in broadband, we don't compete with Time Warner.
You have to start with that very fundamental point.
They're in New York, we're in Philadelphia.
They're in LA, we're in San Francisco.
You can't buy a Comcast in New York, you can't buy a Time Warner in Philadelphia.
>> ALEX: Anyways, now that we’ve covered what a natural monopoly is, let’s jump back to where we
left off: the Cable Television Consumer Protection and Competition Act of 1992.
So now, if you’re the cable industry, and you’re just hit with tighter regulation,
what do you do?
MERGE!
Merge like crazy.
Merge to your heart’s content.
This Quartz article does a really good job of illustrating the mergers, but, long story
short, in 24 years, between 1993 and 2017, cable companies merged so much that what was
previously 40 cable companies merged into just THREE!
Charter, Comcast, and Cox.
So, where do we go from here?
Let’s talk about Net Neutrality.
This is Ajit Pai.
He’s the chairman of the Federal Communications Commission, and recently, he voted to repeal
Net Neutrality.
>> AJIT PAI: The chair votes aye. The item is adopted with editorial privileges given as granted as requested.
For those unaware, Net Neutrality is the concept that ISPs must provide access to everything
on the internet regardless of where it comes from.
Essentially, ISPs can’t play favourites when deciding what content to deliver to you.
In the same way the local water company can’t say “Hey, using our water for toilets will
be an extra $9.99 a month,” net neutrality blocks ISPs from saying “Hey, using our
internet for YouTube will be an extra $9.99 a month.”
That’s the brief explanation, click the i to see a longer Vi Hart video explaining
it more.
Ajit Pai believes that eliminating Net Neutrality, among other things, will encourage competition
and more choices for consumer.
But, we know that’s not true, because we just saw how ISPs got and maintained these
monopolies.
Eliminating net neutrality isn’t going to magically change that.
A matter of fact, the only reason net neutrality laws exist at all is because there is no competition.
If ISPs didn’t have regional monopolies in the US, then competition and capitalism
would encourage ISPs to not throttle or block internet, because, if they did, you could
just switch to a competitor who didn’t.
Luckily, just because the FCC rolled back net neutrality, it doesn’t mean the fight
is over.
As the famous battleforthenet.com says, “Congress [can] stop this—by passing a "Resolution
of Disapproval" to overturn the FCC vote.”
So if you’re interested in telling Congress your thoughts, click the i to check out battleforthenet.com.
And maybe... one day... we can get Jack to legally change his name to LitFam.
*short pause* And save the free and open internet, that’s important too.
I also wanna quickly note before I end that I recognize that this is kinda a United States-specific
problem, so, if you’re international, let me know what cable companies and ISPs are
like in country in the comments down below.
I talked with some of my YouTube friends from other countries, and it’s really interesting
to see how it all compares.
Thanks for watching, if you want to help save Net Neutrality, click the i and be sure to
hit that like button and share this video to make sure people are informed.
DFTBA, and explore on.
>> ETHAN: Mr. Pie in the Face has basically ascended to anime super villain at this point.
You’re a partisan hack, dude!
>> AJIT PAI: That’s just, like, your opinion man.
We good?
Thanks guys!
Anyone have my coffee?
Hey check out this sponsor transition!
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