With telecom networks in Dallas and New York squaring off against cable companies in Philadelphia and the Big Apple for control of the pipes that deliver Web video and music, the pricing power in digital entertainment is shifting decidedly east.
That unfortunately may introduce a broader swath of online subscribers to the concept of service bundling, which has been no friend to consumers in the past.
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The ranks of network operators – and consumer choices – will be winnowed again, now that AT&T has loaded up with satellite services for its battle against Comcast, Verizon and other large network owners.
The same consolidation forces helped turn seven Baby Bells into two within two decades.
The survivors of the ongoing merger wave among operators of copper and wireless networks will have more pricing power versus Web entertainment providers such as Netflix, Amazon, Apple or Google, which owns YouTube.
All of these services built in Silicon Valley now hog up what are essentially the prime-time pipes of the American Internet.
While Netflix subscribers have felt only a little pain so far, less competition usually supports higher prices, and the price of digital capacity has already headed higher at the wholesale level.
Netflix shares are down 20 percent in three months since news it had signed new network-sharing agreements with Comcast and Verizon.
Less regulation – not more – is here for U.S. phone and cable companies, and the FCC is powerless to stop it without the aid of Congress, which works in the same town plied by seve! ral thousand telecom lobbyists.
Federally-regulated service providers favor the concept of service bundling because the lack of true competition in many of their geographic markets allows them to.
So much so that cable providers have been able to starve Americans of the Weather Channel and NBA games at various times until the producers of that content agreed to pay up.
Fans of Web content may soon be in for the same treatment.
The bundling of digital services – whether for music, movies, TV sports or news on cable channels or wireless services – was something many in Silicon Valley long worked against.
Netflix was founded 17 years ago, and in 2007 former Apple CEO Steve Jobs publicly browbeat the music industry for its pricing schemes, saying they were holding back market growth.
Then came the iTunes store and YouTube, the Google Play store, the Facebook App Center and new original content from Amazon and Netflix.
Those have unleashed a flood of small payments to creative types savvy enough to get their work on the Web, the likes of which independent musicians and filmmakers had never seen.
But that kind of market tide – one which lifts even the quirkiest boats – is usually associated with the high-growth phase of an industry.
The companies in control of the delivery of digital music, shows, movies, sports and news delivery are now in a consolidation phase.
Those tend to lead to more pricing power for industry survivors.
As consumers face fewer choices, Google, Facebook and Amazon have been variously buying or building their own Internet server farms, attempting to get around the problem. Their need to do so looks likely to increase.
Sooner or later, though, they have to plug all of their wires into those of network operators who own bigger ones.
Tech growth investors – and Web consumers – should take note and root for someone else in Silicon Valley to take another shot at the problem.
John Shinal has covere! d tech an! d financial markets for more than 15 years at Bloomberg, BusinessWeek,The San Francisco Chronicle, Dow Jones MarketWatch, Wall Street Journal Digital Network and others. Follow him on Twitter: @johnshinal.
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