ISP/Website ‘Mutuality of Interests’—or Retrans Blackouts—Among Net Neutrality Reversal Possibilities
ISPs and websites working together to enhance quality of service (QoS) to broadband subscribers or site blackouts akin to TV station retransmission consent contract disputes are possibilities in the U.S., post-net neutrality court remand, said lawyers observing the industry Friday. There are some reasons to think ISPs such as cable operators and online video distributors won’t undermine each other, said Howard Homonoff, a former lawyer at NBC’s cable networks who now consults for media incumbents and new entrants, and Guggenheim Partners analyst Paul Gallant. The next few years will “see the market evolve around this” month’s remand by the U.S. Court of Appeals for the D.C. Circuit of the FCC 2010 net neutrality order (CD Jan 15 p1), “as opposed to an aggressive thrust of legislation or regulation coming out of the FCC,” said Homonoff responding to our question at a Technology Policy Institute panel (http://bit.ly/1mDoOpZ).
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ISPs benefit by customers being able to use Time Warner’s HBO Go to stream what’s on the premium-subscription pay-TV network and video on websites including Hulu and Netflix, said Homonoff. “For consumers to have that available to them, to have it work well, to not have buffering in the middle of movies, etc.” means “there is a mutuality of interests” between ISPs and Web companies, he said. “The market has yet to determine” if QoS must be “contractually secured,” he said. Cable and telco ISPs, websites including Netflix and their vendors have been working together to improve QoS (CD June 21/12 p5).
Amid so-called cord cutting, multichannel video programming distributor subscribers may not fare well if a la carte is imposed, said Associate Professor Jeffrey Prince of Indiana University’s Kelley School of Business. The economist cited a peer-reviewed academic paper in 2012 by Greg Crawford, an FCC chief economist under then-Chairman Kevin Martin, and Ali Yurukoglu (http://bit.ly/1bneblW) that said consumers may not benefit from a la carte: “It shows this kind of countervailing force for the consumer.” MVPD customers could be better off in one sense if the government forced cable channels to be sold separately, since they don’t usually frequently watch most networks they receive, but countering that is that they would also pay more per channel, said Prince. More data from MVPDs is needed to make a more precise determination about how consumer welfare would be impacted by any a la carte rules, said Prince, who doesn’t do any MVPD-related consulting, in an interview. “Let’s find more ways to get into more of the data that’s out there to find out more about this market."
ISPs are unlikely to degrade access to content that lacks preferential traffic or other deals, said Homonoff, managing director of Homonoff Media Group. Netflix said last week (http://bit.ly/1mDsI25) (CD Jan 24 p1) that while U.S. ISPs “now can legally impede the video streams that members request from Netflix, degrading the experience we jointly provide,” the “most likely case” is ISPs “avoid this consumer-unfriendly path of discrimination.” To “the degree that ISPs adhere to a meaningful voluntary code of conduct, less regulation is warranted,” the company told shareholders. Netflix is saying it will keep an eye on the situation, and it’s an issue for that company and others like Amazon and Google “and anyone who has high-bandwidth stuff that they sell to consumers,” said Gallant. “I don’t think anything is going to change overnight in the way that they do business."
Some cable operators have rebuffed Netflix’s request to locate gear in the ISPs’ headends, said Gallant in Q-and-A with panel moderator and TPI Vice President-Research Scott Wallsten. With the D.C. Circuit decision, “maybe there is an opportunity there” to “reengage on that point,” said Gallant. What net neutrality advocates worry about is ISPs will change how they exchange traffic with websites, so that “it seems that some of them have to pay,” said Gallant. Netflix must be “on guard that a truly deregulated environment” could hurt the company, with any showdowns between content owners and ISPs “almost like the new retrans,” he said.
Looked at like retrans, the question would be whether Netflix is like a broadcaster, and whether industry now is seen having more power in carriage pacts with MVPDs than pay-TV companies, said Gallant. “Is Netflix a broadcaster? Do they have enough power to inflict damage on any broadband provider who might want to inflict damage on Netflix” with that OVD saying it will turn off service to subscribers of a recalcitrant ISP? asked Gallant. He said the summer’s retrans blackout on Time Warner Cable of CBS, where TWC lost more customers than expected, is “a bit of a concern with cable operators that were in retrans disputes: Pick your battles carefully.” Netflix “may have enough power to protect” itself should there ever be a retrans-like dispute over that service, said Gallant. “They don’t need the government, perhaps.” (jmake@warren-news.com)