Despite all of the recent interest in cloud computing, the darling of network operator monetization in dollar terms is still content. In addition, content represents the largest risk to the operators, particularly to the cable MSOs who provide more than half the Internet service in the US. OTT video is both a target of opportunity for channelized providers (TV Everywhere and VoD over IP) and a source of competition (Amazon, Hulu, Netflix).
Delivery of content isn’t the only problem. Nobody who watches channelized TV can help but realize that big-budget content production is becoming a thing of the past. Networks are producing more and more “reality TV” and re-marketing their own shows rather than developing the kind of content that’s traditionally been the magnet drawing people to TV. Absent a fresh and continuous source of new material, there is real doubt about whether content can be profitable to anyone. But the big near-term risk is to channelized traditional TV, which sheds viewers to “retrospective OTT VoD” material like Hulu or Netflix when the ever-shortening fall and spring seasons of new material end. With less interesting stuff even in prime season programming, some of these viewers may never come back, and that only reduces the pie to produce material that might keep the remaining viewers happy. Negative feedback is a bad thing.
Content owners are rapidly seeing their power increasing. Epix cut a non-exclusive deal with Netflix this time around, and quickly did a deal with Amazon Prime. Most content providers are now refusing exclusivity, and that increased the total store of content available OTT and also reduces the ability of OTT players to differentiate based on what they offer. Price is all that’s left, and even OTT players have costs they have to cover.
Regulators, meanwhile, are waffling in the voter winds. Congress is considering how OTT videos should be regulated, having already decided that some rules like closed captioning should apply equally. FCC Chairman Genachowski is wringing his hands over the issue of usage pricing, which he feels could be “abused” but is also concerned that the OTTs may be forcing operators into a “stop-investing-in-the-network” corner.
At the root of our problem is the inability to recognize that there IS a root; two, in fact. To make consumer content work you need delivery capacity and content to deliver. Our current free-market model is successfully compromising both of these things, and that’s in no small way due to the fact that lack of settlement for traffic handling on the Internet is creating an artificially reduced cost for OTT delivery for third parties, but increasing costs for operators. This artificial cost advantage has created too much OTT competition and too much traffic, compromising both content production and delivery.
My view is that regulators can forget any rational Internet service model unless they’re prepared to mandate a rational business model. That means putting settlement on the Internet, to provide a mechanism for money to flow from OTT content source to consumer just as traffic does. Might that create higher pricing or fewer OTT competitors? Sure, but if we force ISPs to raise their prices to charge the consumer for delivery, how are we saving consumers? And having money flow track investment need is a better way to insure that we actually have both content and capacity where we need it.