Netflix poses a 'significant' threat to cable companies: CEA head Gary Shapiro

Gary Shapiro is an opinionated individual. But then again, as the president and chief executive of the Consumer Electronics Association – a powerful lobby group that represents more than 2,000 technology companies operating in the United States, including Samsung, Microsoft and Apple – he’s supposed to be.

Besides researching industry trends and reporting back on them to its members, the CEA also advocates their views to legislators and regulators. It’s a difficult job given the varying and sometimes conflicting viewpoints of its diverse membership.

Still, members are sometimes united on key policy issues that affect them all, which is something Shapiro speaks about handily. Chief among these concerns right now is the U.S. government’s ongoing abuse of surveillance technology, and its requirements of technology companies to supply information on their customers.

“Ironically, this is all under a Democratic president. If it was under a Republican president he would have been impeached already,” he says. “President Obama clearly has a bye on this because, simply as a Democrat, he was elected by people who would normally be outraged.”

The steady stream of revelations over the past year that the National Security Agency has been hoovering up companies’ data is hurting international sales for U.S.-based companies, he adds. Viviane Redding, the European Commissioner for Justice, Fundamental Rights and Citizenship, was “almost gleeful” about the developments when they met recently.

“She said, ‘We couldn’t have done this better ourselves in terms of sales,’” he says.

“It’s a bit of a wake-up call that [American companies] have to start paying attention to public policy more. And they have to stop electing members of Congress based on their social issues and more on their business savvy and technology issues.”

Shapiro was in Toronto last week to visit several Canadian CEA members, including video chip maker ViXS and brainwave pioneer InteraXon, as well as to give a keynote at the Digital Media Summit.

The speech was based on his 2013 book Ninja Innovation, a memoir of what he has learned from observing some of the most successful CEOs. Among those he admires most is Alan Mulally, who is retiring from the top job at Ford in July.

“He came in and shocked the Detroit culture, a non-auto executive,” Shapiro says. “He redefined the company as a technology company and not a car company, and now every car company is doing the same thing. He didn’t take any government money and he turned Ford around.”

Successful CEOs like Mulally surround themselves with diversity and different thinkers, rather than just yes-men and followers, he adds. To a degree, this also explains why certain countries such as the United States, Canada and Israel do well in innovation, while homogenous cultures do not.

“I’ve been in Japan and it’s group-think – no one will disagree with anyone in Japan. In a corporate setting it’s even worse. If someone has an idea, they’ll all follow each other,” he says. “Asia has been phenomenal at manufacturing. Innovation, not so good. There’s a lot of copying going on.”

That has translated into a tectonic shift over the past generation in terms of influence. While Japanese companies such as Sony and Panasonic used to be veritable superpowers in the world of technology, it’s now American companies such as Google and Apple that are leading the way.

Part of that shift is the result of the growing importance of software and the Internet. Hardware – whether that meant televisions, stereos or even computers – has traditionally been a slowly-but-steadily improving field that didn’t require much outside-the-box thinking. Software, however, is an industry built on constant reinvention, taking risks and making mistakes.

“I don’t think the Japanese are particularly bad at software, it’s just that the Americans are particularly good at it,” Shapiro says. “That has a lot to do with the culture – it’s a culture where they can fail.”

It’s this shift that has led to frequent media stories about the future of the International Consumer Electronics Show, the CEA’s annual mega-trade show that takes place in Las Vegas every January.

While the convention is one of the biggest in the world, usually drawing around 150,000 attendees, its relevance has been questioned in recent years given that some of those thought leaders – especially Google and Apple – don’t exhibit there. That sentiment reached its height in 2012, when Microsoft pulled its customary booth and keynote speech.

Despite that, the doubts seem to have died down. Shapiro said it was difficult to find negative stories on this year’s show, which saw more than 160,000 attendees and a record two-million square feet of exhibition space.

If anything, the annual techno-circus is being constrained from further growth by Las Vegas’ limitations, he says. The city has more hotel rooms than anywhere in the world, but even those aren’t enough to satisfy CES demand. Additional hotels are being built, but attendees may find rates higher than usual in 2015 in the meantime. “We’re a little concerned about that, frankly.”

Aside from the division in software and hardware – and cultures in general – there is also one other major issue that’s causing some disharmony among CEA members: net neutrality. Internet provider members such as Comcast and AT&T are currently locked in a war of words with technology company members such as Netflix and Amazon over the idea of paid prioritization, where ISPs can charge online content companies more for better-quality connections. Here, Shapiro is the proverbial middleman trying to keep peace between two squabbling parties.

“Any content provider is concerned about net neutrality. Any broadband provider believes they’re entitled to charge for what they’re providing. It’s not a black-and-white issue,” he says. “There are certain categories of information that should have priority – medical-related, health-related, things like that – and there are people who clog up the system who should maybe pay more.”

The ideal solution, he adds, is to let the competitive pressures of the market do their work. ISPs such as Comcast should be allowed to do what they want as long as they’re transparent about it, and as long as consumers have real choice between broadband providers.

The problem is that Americans – and Canadians for that matter – don’t have many choices, with many typically having one cable provider and one phone company as the only options. Americans could see even less, or at least a more concentrated situation, with Comcast’s current effort to merge with fellow cable company Time Warner.

In defending its merger plan, Comcast is saying its real competition is no longer other cable companies, but rather so-called over-the-top Internet service providers such as Netflix, which is the same rationale Bell used in Canada with its acquisition of broadcaster Astral last year.

With Netflix and its 40-million-plus subscribers eclipsing Comcast’s 21 million customers some time ago, there might be something to that argument.

“I have an evolving view on this and in the United States it’s a political crime if you change your views on something,” Shapiro says. “Over the top is becoming so significant. It’s giving cable, phone and satellite companies a run for their money. It’s going to be a healthy competition and that’s the direction we’re going.”