The Net Neutrality Trap

The significance of the federal court’s decision to strike down the FCC’s net neutrality ruling may not be in its effect on Netflix or Google or any of the usual suspects the inter webs are all freaked out about. No, the companies hit hardest by this lawsuit may be the ones who actually filed the lawsuit in the first place: the MVPDs.

Allow me to explain.

As I wrote last month, there has been much whispering as of late that GAFA (Google/Apple/Facebook/Amazon) have— individually or collectively— figured out that the only way they are going to have a shot of getting into the TV business is to own the means of access, e.g. broadband.

They’ve figured out that so long as they’ve got to go through Comcast or Verizon to get their programming onto people’s TVs and tablets, there’s not a whole lot of reason for NBC or CBS to sell them rights. At least not at a price point that allows them to make any money. And even if they do manage to get the content, they’ve then got to deal with potential broadband caps and other roadblocks the MVPDs will throw up to make sure they don’t steal their audience. Which, as Intel learned the hard way, is why Hollywood sees no reason to play nicely with them.

So the plan seems to be to lobby Congress to declare broadband access an unfair monopoly or oligopoly. Most people only have one or two realistic options for broadband, and those are both via MVPDs. So the plan is to use net neutrality as the crowbar with which to open the door to divestiture and open up the broadband market to new players, e.g. GAFA.

Why net neutrality? Because despite what the court may have ruled earlier this week, most Americans believe that net neutrality is fair. The opposite— letting broadband operators start charging different prices in a way that affects consumer experience is not going to be popular. So just pointing out how evil the MVPDs could be if left to their own devices— especially in light of the recent ruling—- might just be enough to get Congress to sit up and take notice.

“Could” is a long way from “will” though. There’s a strong counterargument that having invested billions in building out the nation’s broadband infrastructure, it would be criminal (or at least socialist) to force the MVPDs to surrender their broadband assets.

So divestment is far from a slam dunk.

Plan B may be for Amazon, Facebook and Apple to follow in Google’s footsteps and build out their own broadband services. While Google Fiber is currently limited to Kansas City and Provo, Utah, noted analyst Rich Greenfield expects them to expand to a major market in 2015. Should the other GAFA members follow suit, the resulting networks could provide a formidable counterweight to the current MVPD oligopoly, especially if they offered a more popular, more consumer-friendly counterweight. And that would be the change needed to launch a major disruption.

Grab your popcorn and enjoy the show.

UPDATE, 1.21.14: Today's confirmation that Verizon has purchased Intel's OnCue service and is likely going to launch a virtual MVPD, has, as Will Richmond points out, created a new wrinkle in the Net Neutrality issue: what if the the MVPDs start denying each other equal access. Will that help GAFA's argument or hurt it? I'm not sure-- depends on how over the top the battle for over the top gets.