Recently The Wall Street Journal reported on Viacom’s CBS and Time Warner’s HBO’s intent to establish a stand-alone streaming service for their content. For cord cutters that dream of putting together their own portfolio of video content, this may seem like the a la carte approach that consumers and policymakers have been asking for. While these moves are not indicative of a tsunami of movement by programmers from traditional cable, I have to wonder what the media world would look like if all content providers took the Netflix, over the top approach to getting programming to the consumer. What would be the new consumer behavior? Would net neutrality become a non-issue?
Regarding consumer behavior, consumers may feel emboldened by this increase in consumer choice, especially given the cost of cable service. According to data from the Federal Communications Commission, as of January 1, 2013, the average price for cable service in all communities is $64.41. Where there is effective completion, average price for cable service is $63.03, but where effective competition is non-existent, average price is $66.14.
I can see consumers combining Netflix programming at $8 per month with ESPN at $30 per month; CBS at $6 per month; and AMC at $10 per month. I can’t pass up on “The Walking Dead.” I agree with The Journal article’s conclusion that cord cutting may become more expensive than traditional bundling packages. This becomes apparent when you look at the stand alone prices for internet access.
Again, according to data from the FCC, the price for stand-alone, 1-5 Mbps, internet access service is $35. Consumers that want faster service ranging from 5-15 Mbps pay on average $44, while consumers feeling the need for more speed ranging from 15-25 Mbps pay on average $56.50.
If consumers make the decision solely on price, I don’t see much migration from current bundling options for cable. According to an article in ArsTechnica.com, American cable subscribers receive an average of 189 cable channels but only watch 17 of them. Assuming consumers could subscribe to 17 stand alone streaming internet channels at a price of $6 per channel, plus the broadband capacity sufficient for streaming video, consumers would still pay over $100 for service while given up 170 channels. That may be okay for some subscribers if exercising consumer choice through a la carte service is that important to them.
If I’m paying that much to stream “Game of Thrones” strictly via the internet, I don’t want my service slowed down because my video bits have the same priority as a cat video on YouTube. I would be willing to designate which content traffic should get higher priority to ensure that I see whether the Lannisters win the Iron Throne. Netflix, HBO, or Viacom may not want the quality of their services degraded either due to equal treatment of their traffic and the traffic from a website showing the best way to apply lipstick. This emerging on-demand/streaming model for video may see consumers driving the demand for paid prioritization.
Seeing how the FCC would manage the political fallout from telling consumers that consumer prioritization is a no-no would be very interesting. Telling Viacom that it cannot meet consumer demand by entering prioritization agreements with backbone or last-mile broadband operators on the premise that such arrangements would put a cat video at a disadvantage would have content providers thinking twice about innovation in online video distribution.
As Hal Singer shared with me in a tweet, net neutrality is a Trojan Horse and Title II regulation is the end game. I don’t see either approach advancing CBS or HBO’s new services.