Pay to play

Net Neutrality The Wall Street Journal generated some buzz this morning with its story about the rude awakening greeting owners of the new 4G-enabled iPad when they discover that all the streaming video they’re consuming on their speedy new tablets is crushing their monthly data allotments. A weekend’s worth of March Madness can easily chew up 3GB of data from AT&T or Verizon, leaving iPad owners with nothing for the rest of the month unless they’re willing to pay an additional $10 per gigabyte.

The Journal may have buried the lede a bit, though, at least as far as content owners are concerned. Three grafs from the bottom of a long piece the paper mentions that AT&T is “studying a plan to give app developers and content providers the option to pay for the mobile data their products use, thereby keeping those apps and videos from counting against a user’s allotment of data, kind of like an 800-number for apps.”

As the website MacRumors put it, the plan “would presumably allow bandwidth usage for certain apps to be free. For example, watching shows from a TV network app such as ABC Player might not count against your monthly bandwidth allotment. Instead, ABC would pay AT&T (or Verizon) for the mobile bandwidth consumed. In return, ABC would likely see increased usage of their app to watch shows and more revenue from in-show advertising.”

Whoa. That would certainly change the economics of mobile video in a major way. At a minimum, content owners would need to bake the added cost of bandwidth into whatever monetization scheme they are using for mobile video, whether by increasing what they charge advertisers — if that were even possible — or increasing what they charge consumers, which would certainly depress viewership. Either that, or the content owners could decide to eat the bandwidth costs themselves, which would certainly be unappetizing.

The pay-to-play plan could also lead to a major clash between providers of wireless and wired broadband. Under the FCC’s current net neutrality regulations, wired broadband providers generally are not permitted to favor some bits over others, or accept payment for priority treatment.

Per the agency:

A commercial arrangement between a broadband provider and a third party to directly or indirectly favor some traffic over other traffic in the connection to a subscriber of the broadband provider (i.e., “pay for priority”) would raise significant cause for concern.

The agency imposed no such restriction on wireless broadband providers, however. Thus, wireless providers could charge content owners to deliver their bits while wired providers cannot. And as even wireline providers run up against the capacity limits of their networks in the face of increased video streaming, leading some to impose their own data caps on users, the difference in regulatory treatment could become a very sore point among broadband providers.

The danger for content providers is that wireline network operators may start to look for their pound of flesh where they can get it. That could lead to more clashes such as the ongoing dispute involving Comcast, Netflix and Netflix’s CDN, Level 3.

Certainly worth keeping an eye on for anyone contemplating the scalability of the streaming video business.

 

 

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