CaPUC Commissioner Susan Kennedy finds herself at the heart of a hot political story this morning. Will she be the next Chief of Staff to the Governator? Rumors circulated more than a month ago but the first credible report with on-the-record quotes popped this morning. L.A. Times has the story. The S.F. Chronicle reports the story as if it is a done deal.

Rich Karlgaard makes his nomination for the world's worst disease: thinking about wealth as a zero sum game.

The idea takes its name from the concept that in a two player situation, if A loses out then B must win in equal proportion. Zero sum systems are closed and Newtonian in their logic. Every action has a reaction. Loss and waste do not exist. Likewise, and this is the key to the fallacy of zero sum thinking in economic matters, there is no potential to introduce new ideas, new products, or new resources. With zero sum thinking, it is never possible to make everyone better off. Every gain must have a corresponding loss.

A new policy bulletin published by the Phoenix Center tackles some of the issues around franchise regulation. The study addresses revenue problems faced by local government that may result from proposed changes to the current franchise fee system. George S. Ford and Thomas M. Koutsky authored the paper. (Several years ago Ford collaborated with Tom Hazlett on an excellent paper that showed empirically why "level playing field laws" had anti-consumer effects.)

Ford and Koutsky assume that franchise fees will continue to apply to gross revenues. They assume that franchise regulation will be maintained. And they conclude that new franchise revenues will result from wireline telecom firms entering the video marketplace. Time will bear out their first assumption. The second assumption may be well founded: Franchise regulation is likely here to stay but is by no means necessary. Their conclusions are worth noting. First, they find that successful wireline entry into the video market will increase revenue collections by as much as 30 percent. There is a little math involved but basically new entry drives prices down and with lower prices, more consumers are willing to buy video services. As a result, total gross revenues increase. To maintain the same level of revenues, the cap on franchise fees could be dropped from 5 percent of gross revenues to 3.7 percent, according to Ford and Koutsky.

I'm not convinced that the political attractions of a revenue neutral policy should outweigh the virtues of reduced regulation and taxation for all market participants - elimination of the franchising regime - but I can certainly agree with the final conclusion of Ford and Koutsky, namely, for consumers to see any "competition dividend" the current franchising process must be reformed.

My assessment of the idea of having cable companies offer a la carte programming is here. In a nutshell, it would be a good way to make sure that there are no more experimental or niche content channels.

The report this morning in Tech Daily [subscription required] and elsewhere that FCC may reverse course and endorse a la carte pricing for cable operators is disappointing. Just last year the FCC released a report that said such pricing is not likely to benefit consumers.

Regardless whether the FCC now flip-flops, the real--and fundamental--point is that in today's marketplace it is clear that if there is a real demand for a la carte pricing for cable channels, or different channel packaging than now exists, the marketplace will move in that direction. The technology will enable the delivery of programming in a way that ultimately satisfies consumer demand so that overall consumer welfare is enhanced.

It's a bit rainy here in DC today, but if you start humming that old 60s Temptations hit with me ("I got Sunshine....."), everything looks brighter.

Oh, that's all just a segue to say that tommorrow I am moderating a Federal Communications Bar Association panel on the Sunshine Act and the FCC. Ten years ago I chaired a committee of the Administrative Conference of the United States which recommended that Congress authorize agencies to conduct a 5-7 year pilot program that would allow members of multi-member agencies to meet in private, provided they put a detailed summary of the meeting in the public record shortly after the meeting. There were other safeguards as well. The recommendations for a change (at least on a experimental basis)in the Sunshine Act were based on findings that, as a practical matter, the act produces a real-world effect contrary to one of the supposed principal congressional objectives for creating multi-member agencies in the first place: To obtain the benefit of a collegial decisionmaking process that brings to bear on the ultimate decisions the diverse viewpoints of agency members who have differing philosophies, experiences, and expertise.

As readers of this space know, for various reasons, I am not necessarily a big fan of multi-member "independent" regulatory agencies like the FCC as opposed to single-headed Executive Branch agencies. But if we have them, we want them to work as well as possible. We want them to operate efficiently and collegially, and we want them to engage in a decisionmaking process that leads to high-quality decisions that withstand judicial review.

For a critique of the current Act and the ACUS recommendation for change, see here. And, for the letter earlier this year from the two Michaels (Powell and Copps) to Ted Stevens urging that Sunshine Act reform, at least for the FCC, be considered as part of overall telecom reform, see here.

"I got Sunshine...on a rainy day...." Can't you hear the Temptations in the background? Maybe I'll see you tommorrow at the FCBA program.

On Thanksgiving Eve, we have a lot to be thankkful for. I always make a point of reading the Wall Street Journal's two lead editorials, "The Desolate Wilderness" and "And the Fair Land", reprinted each year. [Subscription required, of course.] In the midst of war abroad and discord at home, good reading.

In addition, in today's WSJ, there is a story about a war we can appreciate, even be thankful for. Like so many others these days, the story is entitled,"Cable vs. Phone: Giants Escalate Fierce Turf War". It's all about the raging battle in NY between Cablevision and Verizon for customers for video, Internet, and voice services. As Verizon rolls out its new fiber-based video services, some of the tactics in this "fierce war" for customers are not pretty.

But here is the main takeaway from the story. No surprise, amidst the war, that the WSJ reports: "Meantime, consumers already have begun to benefit. Verizon dropped prices for phone services after Cablevision announced it was boosting its broadband speeds at no extra charge to subscribers." And so forth.

Obviously, there is a need to reform substantially the local franchising process in order to speed the competition that benefits consumers. Neither the telcos or cable companies need any longer to be subject to the existing process. But for today it is enough to be thankful for the telecom wars on the home front.

PS--Amidst all the cable-telco fighting for customers these days, I couldn't help but recall some of the wild "the-sky-is-falling"-type predictions made over the years by Consumers Union and the Consumer Federation of America. In 2000, in connection with the impending Bell Atlantic/GTE merger, Consumers Union issued a press release warning that if the merger were approved:

"Cable companies are more likely to focus on television and high-speed Internet, and local phone companies are more likely to highlight telephone and data-Internet services. The result is likely to be comfortable duopolies, which don't challenge each other's core business, rather than aggressive competitors that offer consumers a broad array of new service choices at ever-falling prices." CU Press Release, June 16, 2000.

In 1998, in opposing the Ameritech/SBC merger, Consumers Union and the Consumer Federation of America derided the notion that "breaking down legal barriers to market entry would unleash a barrage of facilities-based competition in which cable companies used their plant to attack the local phone market and local phone companies used their networks to attack cable...The threat of entry by alternative technologies has failed to materialize." Comments of CFA and CU on Ameritech/SBC Merger, October, 15, 1998.

I doubt if any "consumer groups" will eat any humble pie for Thanksgiving regarding their constant, never-ending predictions that regulatory relief will ensure that the communications future holds only monopolies, not more choice, better service and lower prices. But I am thankful that after sounding the same false alarms for so many years, no one pays much attention any more.

The news just keeps getting worse for old media sectors and providers. Almost every Wall Street report or consultant survey that comes out these days predicts a dire situation for old media operators in coming years. New technologies, distribution outlets, the digitization of all information, complete media portability, and rapidly changing consumer expectations are combining to undermine the hegemony of the old media guard.

The latest report echoing this theme comes from a Kagan newsletter entitled, "Media Giants Cling To 'Growth' Label Even As Their Core Businesses Plateau." This sobering report, which is based on a much longer study due out shortly, notes that the media industry's "self proclaimed 'growth stocks' no longer show impressive growth." "Over the past five years, [the share prices for] Disney, Comcast, News Corp., Time Warner, Viacom and other big names have underperformed the broad stock market, and their organic revenue gains are nothing special.

As a result, the Kagan report predicts anemic growth for old media operators in coming years. From 2005-2015, they project the following compound annual growth rates for various media outlets / services:

1% for daily newspapers;
2% for premium pay TV channels;
2.3% for TV stations;
2.3% for networks;
3.9% for movies;
4.4% for basic cable;

This echoes what Daniel English and I revealed in our recent analysis of the financial performance 5 leading media company stocks. In "Testing 'Media Monopoly' Claims: A Look at What Markets Say," Daniel and I found evaluate the market performance of Time Warner, News Corp., Clear Channel, Comcast, and Viacom over the past five years and show that they have lost a whopping 52 percent of their market value (in terms of market capitalization). Moreover, we charted the performance of the entire Dow Jones U.S. Broadcasting & Entertainment Index and showed that it is down almost 45 percent below where it stood in 2000.

Meanwhile, Google's over $400 a share and the Internet continues to steal away countless consumers of old media services. An yet, there are some people in this country who still lose sleep at night about the supposed big, bad "media monopolies" that supposedly rule the universe and control our thoughts! Give me a break.

Seriously, is there a week that goes by these days that we don't hear about another stunning innovation on the media front? In his recent essay on "Migrating Video Content," Daniel English points out that "Media is shifting to a digital architecture where media is a continuous, ubiquitous experience and content is decoupled from any one particular distribution channel or device." He goes on to cite numerous examples of this from just the past few weeks.

Continuing this theme, today's big news was TiVo's announcement that they plan to let users download onto an iPod ANY television show that they've recorded at home. What we have here is the marriage of two of the most disruptive media technologies the world has ever seen. What makes a "disruptive technology" truly disruptive, in my opinion, is the way it completely changes consumer expectations such that the old ways of doing business suddenly become increasingly difficult and then quickly impossible. That's what TiVo and iPod are doing to the world of entertainment media delivery and use. The old mass media playbooks are being torn up and throw out the windows.

TiVo revolutionized the video experience by changing consumer expectations regarding when and how we viewed video programming. We no longer have to be sitting in front of the TV at a specific time just to catch a certain show we like; that show will now wait till we're ready to watch it. Similarly, Apple's iPod has revolutionized our listening experience by doing the same for audible media. We now expect our entire music collection (and all new music we buy) to be (a) digitized & intangible, (b) perfectly portable, and (c) playable on multiple devices. And iPod is in the video deliver business now too helping to change expectations in a similar way.

In sum: TiVo and iPod's appearance on the scene have shattered the old "you'll get it when we send it, however we want to send it to you" model and replaced it with an "anytime you want it, any way you want it" mentality. Media operators who buck this trend are probably doomed in the long run.

Oh, by the way, TiVo said today that they were going to offer all these new video space-shifting services for PlayStation Portables (PSPs) too. In my new book on the futility of trying to regulate content in a world of media abundance and convergence, I kick off the introduction to the book by asking the reader to imagine a future where every possible piece of content--videos, music, news, games, websites, photos, etc., etc.--is available for instantaneous use on their mobile media devices. And then I tell the reader to open up their eyes and take a look at what their kids at doing at this very moment. Chances are, they are already using their iPods and PSPs to do all that and more. The future is now, and I am enjoying the ride.

The "mashup" has become a popular and even mainstream term over the past year. It refers to taking two seemingly different things and mashing them into each other for a new, value-added result. While this is by no means a new idea or practice, it has taken on new fervor with all things digital. Originally, the term gained notoriety as hip-hop artists like DJ Danger Mouse meshed songs by different artists together (raising a host of copyright issues along the way), but mashups have now extended across media forms and most notably into software and technology. What is important is that the digital environment is making it increasingly easier to effectively mash and stitch together products and services in new and valuable ways. For example, Google Maps has been mashed with Craig's list to create HousingMaps (for more details, see this article), PlayStation Portables are mashed with TV services, and Skype (VoIP) software with eBay's platform.

What is interesting is that these technology, content and industry mashups cause the emergence of brand new types of media experiences - media that is no longer simply packaged into well-defined segments and pushed through a pipe, but is instead remixed, wrapped with service offerings, etc. For instance, Yahoo! Music Unlimited is a type of new media service where music is not only delivered via a non-traditional channel, but also has personal, community and market services layered on top. Telecom, software and media firms will find themselves in new partnerships and battles as they launch mashups across traditional market boundaries (i.e. the recent Yahoo! and TiVo deal). This trend is particularly important for policy makers to be aware of because the markets and pipes for media are becoming increasingly entangled. Clear delineations for media markets and competition are no longer available. Mashups and the corresponding relationships must not be ignored in policy analysis. This trend goes far beyond DJ music and cool websites.