Net Neutrality, ESPN 360, and Retransmission Consent

One of the interesting things that has been lost in the net neutrality debate is the case of ESPN360. It has been covered by some, but received little media attention. When paired with the ongoing conflicts over retransmission consent, it really does paint a picture of the good intentions of government going horribly awry.

In the Net Neutrality debate, the content providers allege that the cable and telephone companies will block access to their sites unless they pay the access providers. That theory is what drives the mania around the issue. People fret that, “I won’t be able to access Amazon.com if my ISP has a deal with Barnes & Noble.”

What it indicates, however, is a shortsightedness on the part of content providers to assume that there is only one business model for making money. For Google, that model is ‘give things away to customers, and charge anyone wanting to reach those customers for advertising’.

What would happen if Google, with its incredible market share, went to the ISPs and said, “If you want your customers to have access to Google, YouTube, etc, then you have to pay us. Otherwise, we’ll block incoming requests from your customers.” It’s the exact opposite of what proponents of NN are alleging will happen.

Well, guess what. It’s happening.

ESPN360 is a content service provided by ESPN networks via the Net. ESPN has told major ISPs that they have to pay to give customers access. Verizon has agreed and is paying the fee. Comcast is not.

The ESPN360 effort should raise new doubts about heaping new rules on access providers and assuming they have all the power. There is clear evidence that content providers have power as well.

If you question that, look at the other big debate taking place in telecommunications. There have been a series of recent skirmishes over retransmission consent (or retrans, for short). For those unfamiliar with the term, retrans refers to the agreements that allow cable and satellite systems to retransmit the signals of programmers and broadcasters. The systems pay a price for that right.

The trouble, at least in some recent cases, is the conflict that creates with a government mandate known as must-carry. Congress forced cable systems to carry the primary signals of the broadcasters (ABC, NBC, CBC) under the theory that the free, over-the-air programming serves a vital public interest. Under the terms of must-carry, there were no mandated cash payments between systems and the broadcasters.

Recently, some broadcasters have decided there is a value to their programming and have begun to demand payment for their programing. This puts the government in an odd position. Given the shrinking viewership of broadcast television, it is entirely possible that they would eventually have no audience. Due to the government intrusion into the process, however, cable operators face a mandate to carry these stations, and now are forced to pay for them, too.

Under a net neutrality regime, ISPs could face a similar situation. The government may create a mandate to allow access to all content, and leave open a business model for content providers to demand payment. If Google, Amazon and eBay begin to charge ISPs for access, and the cable companies have no recourse to experiment with other business models, we could, in ten years, be looking at the same situation with the Internet that we’re currently seeing with retrans.