Friday, May 10, 2013

Content Provider Wireless Subsidies

            Wireless subscribers face the cross-currents of access to an ever increasing inventory of full motion video content at the same time as wireless carriers have forced them to subscribe to a metered service with a monthly cap on downloads, including streaming video.  Content providers, such as ESPN, are exploring the prospect of subsidizing wireless carrier transmission charges to abate the prospect of overages, or throttled service. 

            Smart move on ESPN’s part to enhance the value proposition of its increasingly expensive product.  ESPN may have read the tea leaves and become convinced that it better do something to stem the tide of cord cutters disinclined to pay for dozens of channels, including its expanding bundle of channels, combined by cable companies into a content tier nearing or exceeding $100 a month.  Additionally ESPN understands that if it expects cable subscribers to pay at least $5.00 a month for its content, then it better respond to their expectation of having access anytime, anywhere, via any device and in multiple formats.  Today’s video consumer has no tolerance for the old school “appointment television” model where the content provider and its distributor established the terms and conditions for one time access on a particular channel at a particular time.

            ESPN also understands that the small bandwidth delivery payments it may opt to make will pale in comparison to the additional revenue stream generated by mobile advertising.  Multiple access platforms to ESPN content means that subscribers will have more opportunities to see ESPN content—including repeat or repurposed content—and also ESPN-carried advertising.  Also the bulk capacity ESPN may buy will not cost anything near what individual subscribers pay on a megabyte or gigabyte basis.

            So far so good, but might there be a network neutrality/open Internet regulatory problem?  An article in the Wall Street Journal  today correctly reported that the FCC has created different and less burdensome rules for wireless broadband carriers than their wireline counterparts.  One might not object to pricing experimentation with wireless carriers increasingly deviating from the same price points and service classifications.  However, the ESPN subsidy scenario does raise questions.

            Will wireless and wireline broadband carriers use the ESPN subsidy model as the basis for demanding surcharges from heavy volume content providers such as Google and Youtube?  Would the ESPN subsidy model morph into a “pay to play” shakedown targeting new ventures seeking to make a splash?  Or is this model nothing more than an extension of what Amazon currently does when you want to download a book purchase wirelessly?  Amazon looks for a zero cost wi-fi option, but failing that the company will bear, without a surcharge, the cost of cellular radio carriage to Kindles equipped to receive such signals.

            When Comcast offered not to debit downloads of its video on demand service to Xbox360 users, the company insisted that it was not discriminating against viewers via conventional computers.  Comcast asserted it routed movies to XBoxs via a specialized network somehow different than the Internet cloud it uses to deliver the very same content to personal computers and tablets.  Under the existing rules wireless carriers would not have to claim that they routed ESPN subsidized traffic over something specialized.  But what would happen if the ESPN payment guaranteed “better than best efforts” traffic routing possibility leading to a measurable and identifiable difference between the subscriber viewing experience for ESPN content versus Fox and other sources of competing content?

            Stay tuned.

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