New Video Streaming Options and Network Neutrality

           Over the last few weeks, several video streaming options have arrived.  See, e.g., http://www.nytimes.com/interactive/2015/business/media/streaming-tv-cord-cutting-guide.html?_r=0.  These new services raise two key pocketbook issues:

            1)         Can consumers reduce their total out of pocket costs by cutting, or shaving the cable television cord? and

            2)         Can incumbent broadband access providers retaliate by raising the costs of both content providers’ and end users, despite the FCC’s 2015 Open Internet Order?

            Cord Cutter/Shaver Empowerment?

            Many press accounts suggest that consumers can save money by terminating their cable subscription, or migrating to cheaper programming tiers.  If one can tolerate the loss of access to some live sporting events, from networks such as ESPN, then a significant savings accrues even factoring in a Netflix and Hulu subscription.  Cord cutting/shaving works best for consumers who can receive broadcast networks off air without having to install rooftop antennas.

            However, the cost savings equation also has to factor the cost of broadband access and the near certainty that last mile providers, like Comcast, will increase rates for “naked” broadband services, i.e., subscriptions that do not bundle video and/or telephone service with broadband access.  Despite the theoretical argument that platform operators/intermediaries controlling a doubled-sided market cannot gouge, the possibility exists that cable modem service providers can simultaneously raise broadband rates for downstream retail subscribers and extract higher prices and surcharges from upstream content distributors.

            The Specialized Network Exemption from Neutrality

            Another more ambiguous, but potentially harmful issue arises with the proliferation of streaming options: what flexibility and exemption from absolute neutrality can Internet Service Providers (“ISPs”) can achieve?

            This issue will start the process for the many ad hoc FCC "interpretations" that will occur going forward.  Predictably the Commission will have two conflicting issues in play.  On one hand, the 2015 Open Internet Order recognizes a specialized network option for traffic such as VoIP.  I believe the Commission will recognize that the low latency requirements of IPTV also qualifies for a conditional exemption from absolute neutrality.  But on the other hand, the Order explicitly states that the specialized network exemption shall not provide a loop hole for evading the overarching requirement for neutrality.

            The 2015 Open Internet Order generally prohibits paid prioritization and establishes a “no-unreasonable interference/disadvantage” standard for ISP treatment of upstream traffic, like that flowing from content sources.  This probably means that the FCC will want to make sure that specialized routing arrangements are technically necessary on quality of service grounds and not simply a construct to favor traffic of affiliates, or surcharge payers.  Sponsored data arrangements also fit into this category.

            Does an ISP simply partition generic bandwidth and call it a specialized network, or does the ISPs really and truly do something by way of dedicated, management?  Bear in mind that some way, somehow the FCC has avoided having to examine the functions and services performed by proxy server/CDN companies like Akamai.  Does an ISP simply have to show it operates like Akamai, but extends the value added, specialized features for the link downstream to end users?

            Stay tuned.

Revenge of the Cord Nevers

            More and more young users of the Internet will access the cloud without ever having used a corded device--what older folks know as telephones and personal computers.  These “Cord Nevers” do not have to accept the limitations of wired telephone and cable television service.  A nomadic species, Cord Nevers have little tolerance for tethered telephones and “appointment television” where content creators and distributors decide when, where and how often viewers can access programs.  Cord Nevers want access anytime, anywhere, via any device and in any format allowing them to talk, text and watch video content via different screens on their terms.                        

            Cord Nevers are technology agnostic.  They care little about the medium used to deliver service, only that access occurs quickly, reliably and without impediments.  Netflix and some new media players understand this mindset and try to accommodate it.  For example, Netflix allows subscribers to binge on an entire season of “must see” video content by downloading all episodes, instead of applying the appointment television model that rations access to one episode per week.  HBO appears ready to become more accommodating by offering Amazon customers access to some programing without requiring proof of a cable television subscription.

            Cord Nevers appear quite flexible on the size and quality of the screen used to view content.  They want flexibility on the device they use to access content, but appear willing to tolerate much smaller screens than what televisions and computer monitors have to offer.  While screen size does not matter much, the interface providing access has to operate in a user friendly and intuitive way. 

            Cord Nevers may appear both fickle and loyal.  On one hand they constantly seek the next great application and cloud enhancement, quick to jettison one site for another.  Few even recall the early social networking success of MySpace.  On the other hand, Cord Nevers appear willing to stick with a brand, such as Apple, and even pay a premium if a device or service continues to enhance the perceived value proposition. 

            Cord Nevers have the potential to disrupt the status quo in many segments of the Internet ecosystem.  The expectation of anytime, anywhere content access threatens the longstanding distribution model that relies on several “windows” of access at different price points. Disruption will occur when movie access deviates from a standard course of theatrical display, limited and locked down access on a pay per view basis, DVD release, rental and download opportunity, availability on cable television premium networks, etc.  

            However disruption does not mean destruction of business plans and revenue streams.  When cable television made its market debut, movie theater operators and their content producers feared annihilation.  In reality accommodation occurred and so too will Cord Nevers trigger change without causing incumbents to fail. 

            Incumbents need to think strategically rather than simply conclude that Cord Nevers constitute a threat to their intellectual property and livelihoods.    Cord Nevers will pay for content, sometimes in ways that generate more profit than via previously limited commercial options.  For example, some cellphone subscribers regularly paid more for 20 seconds of a song for use as a ringtone, than for access to a disc or file containing the entire song.  Yes, many Cord Nevers think nothing of violating copyright laws, but if the content is compelling and the interface friendly, most will pay for convenient access.

            Incumbents—particularly telephone and cable television companies—appear quick to consider Cord Nevers as threats, rather than premier customers.  Cord Nevers are vilified as bandwidth hogs, copyright thieves and cheapskates.  Many incumbent punish them for these tendencies by throttling the bit transmission speeds of heavy users, threatening litigation and sneaking new billing line items.  A more profitable strategy seeks to reward and accommodate power users, particularly when doing so migrates them to more profitable service tiers.

            Cord Nevers bring their televisions and computers with them everywhere they go.  Incumbents should understand that such expanded access can translate into more services and higher revenues.