FCC chairman Wheeler says we are in a golden era for the delivery of video services. He also says it is under threat from pay-TV providers “playing both ends against the consumer.” What does that mean and why does it matter?
Speaking at the INCOMPAS Policy Summit on Monday FCC chairman Tom Wheeler said that we are in what he characterized as the third age of video. He laid out the three stages as:
- A scarcity of programming in the broadcast age, characterized by a few local broadcasters and fewer national networks
- An abundance of programming from one or two providers, including 500-channel packages on dedicated video networks
- An even greater abundance of programming from many providers, where programming comes to the user over all the older networks and the Internet.
This third age, the age of competition, Mr. Wheeler sees as the best yet, but he fears it could be short-lived:
“It can be artificially blunted by incumbent pay-TV providers, who can play both ends against the consumer in the middle – by supplying broadband connectivity to online video providers while at the same time competing with these emerging video providers for viewers.”
What exactly does Mr. Wheeler mean by this statement and why is the consumer in the middle?
Online video providers (OVPs) like Netflix and Amazon need broadband to deliver service to their customers (obviously!) Big ISPs, like Comcast and TimeWarner Cable, are forcing big OVPs to pay them a fee for this access. Naturally enough, the OVPs don’t like this. If they don’t pay, their services perform badly, and for them that is a deadly state of affairs.
At the same time, companies like Comcast and TimeWarner Cable are competing with OVPs for customer attention using their broadband. They are providing video over broadband through TV Everywhere services like Xfinity Go and TWC TV app, and in standalone broadband services like Comcast Streampix.
The operator services have advantages over Internet based OVPs. Because they are delivered within an operator’s network and the streaming servers are closer to the users, performance should be better. As well, there are ways for operators to actively favor their own services over the OVPs. A simple way is to bundle them in for free with broadband, as Comcast is doing with Streampix for Internet Blast Plus and Internet Plus customers. Another way is to prioritize the broadband traffic from an operator service over an OVP service, giving the operator service better viewing performance. Comcast has been accused of doing this in the past with its Streampix. Operators can also exempt their services from data caps. Comcast has been incorrectly accused of doing this with its IPTV service Stream.
An analogy to this situation between OVPs and operators might be if a toll-road owner were to start up a freight hauling company. It could favor its trucks by not charging them tolls or allowing them access to car pool lanes or locating loading areas right by the toll road entrance. In this way it could beat the competition using the toll road because it can charge less for hauling goods, or deliver goods faster. Other freight hauling companies are stuck paying tolls and delivering more slowly.
Why is the user caught in the middle, in Mr. Wheeler’s statement? Ironically, the consumer ends up paying twice to access their favorite OVP service. They must pay for broadband to get access, and they will have to pay slightly more for the OVP service as the provider passes along the amount it must also pay the operator to deliver good service to them.
Looked at another way, the operator is ”playing both ends” because it gets paid twice for the bandwidth to deliver an OVP video service: once by the broadband customer and again by the OVP.
Today, the amount paid by OVPs to operators is not crippling, and the evidence of direct favoritism of operator services over OVP service on broadband is scant. However, Mr. Wheeler clearly fears it will not stay that way.
Why it matters
The FCC chairman believes the Internet has ushered in a golden age of video, with increased competition and choice.
He also believes that pay-TV operators that are also ISPs have the potential to derail this favorable situation for consumers.