Bill Gurley has a must-read post up on how the $32B of affiliate fees will slow down the Internet disruption of the TV industry.  I have one addition and one amplification for Bill’s excellent post. 

First, the addition.  More than just supporting an existing flow of dollars, bundling is in fact not only a logical but even a socially efficient model for costly to produce content, such as TV shows.  HBO has proven this point for years, but there is a great academic paper by Erik Brynjolfsson and Yannis Bakos that sets out the logic behind this.  In a nutshell, as long as viewers get enough value out of one or more of the shows that are bundled, they will subscribe to the entire bundle.  The producer of the bundle (e.g. HBO) does not need to know which consumer values which content how much.  Incidentally this is also why I believe that the WSJ’s subscription model has a good chance of being a longterm success.  Provided that the delivery quality and ease of use are there, and pricing is correct relative to “average” value, piracy will not kill this model.

Second, the amplification.  Bill writes:

This is perhaps an entirely separate post, but one should be confident that the rate charged the consumer by the owner of the transport for one hour of Internet video would be quite a bit higher than that for one hour of the same video over their own “optimized” TV infrastructure (backed up with an ample helping of technical analysis and white papers).  The fox isn’t just guarding the henhouse, he designed it.

I would love to read that post and hope Bill finds the time to do it.  Until then, the big danger here is that in their desire to protect the $32B in affiliate fees, the lobbying will succeed with restrictions that will damage the fundamental fabric of the Internet, hurting not just innovators in the TV space such as Boxee and Blip.tv but slowing down overall innovation dramatically.  This is why everyone working on startups or funding them needs to become more vigilant.