• by Diane Mermigas , June 15, 2012

By now, you would think the cable industry had learned not to let Washington regulators set the parameters for unchartered tech territories. But what looks to be a Department of Justice antitrust investigation of cable companies’ “anti-competitive data caps,” could do just that for nascent online video competition.

The outcome—which could accelerate cable’s shift to usage-based pricing for broadband while reinforcing cable’s walled garden—would work against innovators and outsiders, such as Apple and Google, seeking their own access to cable video feeds.

Analysts say that would be bad news for Netflix and other online video providers. But it would be a blow to all players at a time when innovation is paramount.

Like so many businesses today, cable remains an insular industry protecting its domain investment and guarding against releasing too much too fast—and usually only when pushed. And that’s the point. In an age when disruptive elements come out of left field, savvy and agile, no company or industry can afford to be tethered to rules of their own making or the government.

When innovative disruption is hampered by fear and protectiveness, companies are unable and unwilling to examine options for exploring and creating more lucrative options for the long haul. With all the momentum its more conventional rivals lack, it is difficult to anticipate the influential role that Facebook will play in video distribution that could challenge everyone from YouTube to Hulu.

By keeping the reigns too tight and the walled garden too tall, cable distributors and content producers run the risk of becoming victims of their own rigidity. It’s conceivable the DOJ investigation alluded to in The Wall Street Journal, but not confirmed by the government agency, was triggered by collective moves by cable providers to give themselves a marketplace advantage.

For instance, Comcast recently eliminated usage caps and embrace variable rate pricing for overages in order to satisfy the FCC, but Comcast also opted to allow Microsoft to take its Xfinity video stream as part of the movement to make its video stream available on IP devices and just extended it to the Xbox.

Netflix has been the most vocal about that representing “discriminatory” competition that creates hardship. That likely will dissuade Comcast from making its video feed available elsewhere, whether it is Google or Apple.

That selective opening of the walled garden and potential innovation is what is most dangerous. It invites regulator action in an otherwise vibrant and freely evolving marketplace. Apple can and will suffer from the same thing. It’s not so much the regulation that ultimately could be created and imposed as it is the response and potentially counterproductive actions free market players make anticipating the worst.

The DOJ, FCC and other government regulators are not eager to tread into these fluid new territories unless the marketplace is running amok. In a well-written report, Bernstein analyst Craig Moffett contends DOJ scrutiny would likely end caps and usher in usage-based pricing that ultimately would be more threatening to online video providers.

Widespread adoption of usage-based pricing would result in higher effective prices for online video and reduced demand—a no-win all around. Others point out that cable companies already are moving away from bulk, universally priced broadband plans and toward usage-based pricing, so either way, consumers face more expensive Web video.

Moffett wisely points out that the competitive dynamics reach well beyond broadband pricing. Consider that content companies continue to resist selling individual channels to cable and satellite distributors locking them and consumers into bundled services. It isn’t likely to be reviewed by regulators and creates yet another competitive hurdle to getting consumers to the anything-anywhere existence mobile-connected devices offer.

No one is an innocent bystander here. Content distributors and producers, device manufacturers and consumers a have a role to play in creating a level, but vibrantly competitive playing field that benefits from unfettered innovation. It is an opportunity for companies to capitalize on the unknown and the unexpected.