Los Angeles Times - 09.11.2019

C2 LATIMES.COM/BUSINESS

BUSINESS BEAT

A coalition that includes

Netflix Inc., HBO and cable

industry titans is stepping

up efforts to crack down on

password sharing, dis-

cussing new measures to

close a loophole that could

be costing companies bil-

lions of dollars in revenue

each year.

Programmers and cable

TV distributors are consid-

ering an array of tactics to

cut off people who borrow

credentials from friends and

relatives to watch program-

ming without paying for it.

The possible measures in-

clude requiring customers

to change their passwords

periodically or texting codes

to subscribers’ phones that

they would need to enter to

keep watching, according to

people familiar with the

matter.

Some TV executives

want to create rules govern-

ing which devices can be

used to access a cable TV

subscription outside the

home.

While someone logging in

from a phone or tablet would

be fine, someone using a

Roku device at a second lo-

cation could be considered a

likely freeloader, one person

said.

If none of those tactics

works, pay-TV subscribers

could someday be required

to sign in to their accounts

using their thumbprints.

“I feel like I’m beating my

head against the wall,” Tom

Rutledge, chief executive of

Charter Communications

Inc., said during an earnings

call last month. “It’s just too

easy to get the product with-

out paying for it.”

But taking more aggres-

sive measures poses risks.

The people using services

for free — especially younger

ones — may never agree to

sign up for a subscription, no

matter how many hassles

they endure.

That means companies

would mostly just be alienat-

ing paying customers, who

could get frustrated and

stop using an app or cancel

their service. In other words,

there’s plenty of downside

and possibly little upside.

“If you ask any cohort of

young people if they will ever

pay for Netflix or video serv-

ices, the answer is unequivo-

cally no,” said Mike McCor-

mack, an analyst at Guggen-

heim Securities.

The pay-TV industry is

projected to lose $6.6 billion

in revenue from password

sharing and piracy this year,

according to Parks Associ-

ates. By 2024, the number

could grow to $9 billion, the

research firm said.

Two years ago, some of

the biggest names in enter-

tainment and technology

formed a group called the Al-

liance for Creativity and En-

tertainment, which was de-

voted to reducing online pi-

racy. Last month, the group

announced that it’s turning

its attention to password

sharing. Participants in-

clude Netflix, Amazon.com

Inc., Walt Disney Co., Via-

com Inc., AT&T Inc.’s HBO,

Comcast Corp. and Charter.

There’s no consensus on

where to draw the line.

People can access

streaming programming

both from distributors such

as Charter and from

programmers such as Fox

via their mobile apps. There-

fore, the two sides of the in-

dustry need to work to-

gether to thwart password

sharers. Charter, which sells

cable TV service under the

Spectrum brand, has said its

recent distribution deals

with Fox and Disney will

help them address password

sharing, but didn’t specify

what measures they’d take.

Although industry exe-

cutives widely agree that

password sharing is a prob-

lem, there’s no consensus on

where to draw the line.

Programmers and distribu-

tors blame each other for be-

ing too lenient in how many

people can simultaneously

stream from one account.

DirecTV and Comcast allow

five streams. Fox and ESPN

generally allow three.

Online TV services also

vary in how generous they

are about password sharing.

Apple TV+, which launched

Nov. 1, allows up to six people

to stream from one family

plan.

Two upcoming services

— AT&T’s HBO Max and

NBCUniversal’s Peacock —

aren’t ready to announce

how many streams they will

allow, according to company

representatives. A spokes-

woman for Disney+, which

launches Tuesday, didn’t re-

spond to a request for com-

ment.

Netflix allows just one

stream for its basic plan and

four streams for its most ex-

pensive service.

Three years ago, CEO

Reed Hastings said pass-

word sharing was “some-

thing you have to learn to live

with, because there’s so

much legitimate password

sharing — like you sharing

with your spouse, with your

kids.”

Recently, there have been

indications that the com-

pany may be reconsidering

its tolerance.

On an earnings call last

month, Chief Product Offi-

cer Greg Peters said Netflix

was “looking at the situa-

tion” and seeking “con-

sumer-friendly ways to push

on the edges of that.”

Smith writes for Bloomberg.

Drawing the line on password sharing

Netflix, cable giants

and HBO study ways

to cut off people who

borrow access and

watch shows for free.

By Gerry Smith

NETFLIX CEOReed Hastings at CES 2016. Password sharing and piracy may cost the pay-TV industry $6.6 billion in revenue this year.

Robyn BeckAFP via Getty Images

Facing a federal lawsuit

and mounting criticism, Ed-

ucation Secretary Betsy De-

Vos said Friday she would

forgive loans for more than

1,500 borrowers who at-

tended a pair of for-profit

colleges that shut down last

year.

Students who attended

the Art Institute of Colorado

and the Illinois Institute of

Art from Jan. 20, 2018,

through the end of last year

will have their federal stu-

dent loans canceled, DeVos

said, and students who at-

tended 24 other schools

owned by the same company

can get their loans erased if

they enrolled after June 29,

2 018.

The decision involves

schools owned by the Dream

Center company, which col-

lapsed last year and closed

campuses across the nation,

following several other ma-

jor for-profit college op-

erators that have failed in re-

cent years.

DeVos has faced mount-

ing criticism over her han-

dling of federal loan forgiv-

eness programs. The pro-

grams were expanded by the

Obama administration after

the collapse of Corinthian

Colleges, which was accused

of lying to students to get

them to enroll.

Under DeVos, the Educa-

tion Department has

stopped processing claims

from students who say

they’ve been defrauded by

their schools, leaving tens of

thousands of borrowers in

limbo as they seek loan can-

cellations. DeVos has also

moved to tighten eligibility

rules, prompting backlash

from Democrats and a flurry

of lawsuits from students

and advocacy groups.

In the latest case, a fed-

eral lawsuit against the Edu-

cation Department said the

department illegally re-

leased federal student aid to

the Colorado and Illinois

schools even after the

schools lost their accred-

itor’s seal of approval. Los-

ing approval should have

made the schools ineligible

for funding, the suit says, but

instead they were allowed to

keep operating without

telling students that the in-

stitutions were in trouble.

But Friday, the depart-

ment shifted blame to the

accrediting group, the

Higher Learning Commis-

sion, saying it assigned the

schools a “newly developed

and improperly defined ac-

creditation status.” The de-

partment said it believed the

schools should not have lost

their accreditation and that,

by revoking it, the accreditor

left students with tarnished

credits that might not be ac-

cepted by other schools.

“The department is com-

mitted to holding institu-

tions and accreditors ac-

countable to the students

they serve,” DeVos said in a

statement. “In this instance,

students were failed and de-

serve to be made whole.”

The Higher Learning

Commission did not directly

respond to DeVos’ allega-

tions but applauded her de-

cision to provide relief.

“HLC’s policy requires in-

stitutions to promptly in-

form their students and

other stakeholders regard-

ing any change to their ac-

creditation status,” the

group said. “In this instance,

the institutions did not ap-

propriately inform their stu-

dents as was required and

specifically instructed by

HLC.”

Students of former

Dream Center schools sued

DeVos on Oct. 22, demand-

ing loan forgiveness and

other measures that DeVos

largely agreed to. Student

Defense, a Washington ad-

vocacy group that helped file

the suit, celebrated the news

as a victory.

“At long last, the depart-

ment is taking action to can-

cel the illegal debt that it is-

sued for students who were

ripped off by the Dream Cen-

ter,” said Eric Rothschild,

the group’s litigation direc-

tor.

Facing a lawsuit,

DeVos will erase

student loans

associated press

Google’s moves to cram
the top of its search results
with more and more adver-
tising are hammering the
online travel industry, one of
the internet giant’s biggest
customers.
Expedia Group Inc. and
TripAdvisor Inc. reported
dismal third-quarter results
this week and laid the blame
on Google. Their stocks
dropped, as did shares of
Booking Holdings Inc.,
whose brands include Kay-
ak, Priceline and Booking-
.com. That wiped out a com-
bined market value of more
than $13 billion from the
three online travel agents
Thursday. The stocks re-
gained only a little bit of that
ground Friday.
Google dominates the
online search market, hold-
ing at least three-quarters of
it. People use the search en-
gine to research trips, so for
at least a decade online trav-
el agents have refined their
websites with trustworthy
content and easy booking
tools to show up high in
Google results.
This search engine opti-
mization, or SEO, worked
well until about five years
ago. Around that time,
Google began placing more
ads at the top of search re-
sults, pushing down the free
listings. Google also built
new travel search tools,
which were mostly paid list-
ings too. This means online
travel agents now must pay
billions of dollars each year
to Google to ensure they
show up high in search re-
sults and get clicks from
travel planners.
The online travel indus-
try has been concerned
about Google’s changes
since at least 2016. But the
full effect was felt this week.
“Google has got more ag-
gressive,” TripAdvisor Chief
Executive Stephen Kaufer
said during a conference call

with analysts late Wednes-

day. “We’re not predicting

that it’s going to turn

around.”

Free traffic is “shrinking

all the time,” Expedia CEO

Mark Okerstrom said the

same day. “Google does con-

tinue to push for more reve-

nue per visitor. And I think

it’s just the reality of where

the world is.”

The industry has been

trying other marketing

channels, such as social me-

dia and more TV advertis-

ing. But Google’s search en-

gine is so pervasive that on-

line travel agents have to

keep buying ads from the

company to keep traffic

coming to their sites.

D.A. Davidson analysts

wrote that Expedia is ex-

ploring alternatives to miti-

gate its “reliance on search/

Google,” but they see “no al-

ternatives that will be able to

efficiently ‘move the needle’

from a volume perspective

anytime soon.”

Declines in the online

travel industry come as an-

titrust scrutiny of Google is

ramping up in the United

States. State, federal and

congressional investiga-

tions are underway to deter-

mine whether the company

violates competition law.

One area of concern is

vertical search, which en-

tails Google using its main

search engine to promote

its own industry-specific

products over those of other

companies. Travel is one ex-

ample where this is happen-

ing, along with local search,

contractor marketplaces

such as Angie’s List and

shopping-comparison serv-

ices.

Google has been a rising

risk for the travel industry

for a while, but executives

generally have hesitated to

blame it for poor results. The

search giant is one of the

most important sources of

traffic and business for on-

line travel agencies, so they

have tried to maintain a

good relationship.

But this quarter,

Google’s effect was so

painful, industry executives

and Wall Street analysts

couldn’t avoid it.

“We see these Google

changes as a potential head-

wind to [online travel agen-

cies’] profitability,” Morgan

Stanley analyst Brian

Nowak said in a note to cli-

ents. People who want to in-

vest in the online travel sec-

tor should do it through

Google stock, he added.

Booking Holdings, the

largest online travel agent,

was peppered with ques-

tions about Google during a

conference call with analysts

Thursday.

CEO Glenn Fogel said

Booking Holdings’ future

success will rely on reaching

people without Google get-

ting in the way.

“What we know is most

important is for us to get

customers to come to us di-

rectly,” he said, adding that

building brand strength and

retaining customers better

means the company “will

not be as dependent on

other sources of traffic.”

Travel sites squeezed by Google

Expedia and other

online agents say

search engine changes

are to blame for a

dismal third quarter.

bloomberg

TRAVELsites pay billions a year to Google to ensure their place in search results.

“Google has got more aggressive,” TripAdvisor CEO Stephen Kaufer told analysts.

Horacio VillalobosCorbis