One winner in neutrality game of chicken

It is ironic that the frontline in the net neutrality conflict has shifted to a country where broadband speed is more abundant than anywhere on earth. KT Telecom of Korea has announced it will ‘manage’ the broadband capacity it claims is being soaked up by Smart TV users. It says it must do so to mitigate the effect on other broadband users.

As in any conflict where a lot is at stake, there is no bandwidth limit on the hyperbole. KT claims research shows smart, or connected, TVs use five to 15 times the bandwidth of managed IPTV (a sector in which KT has had mixed success). While a high number of integrated apps, HD services and the tendency for TVs to be left streaming even when no one is watching (less likely on PCs) will use up bandwidth, the claim of up to 15x more than over IPTV seems unlikely.

KT is singling out Samsung’s Smart TV and has suggested it should share the profits made by set makers and service providers like Apple and Google. The fact the world’s biggest set maker is also a Korean company is a clue to why the argument is crystallising there. Interestingly LG, number two in connected TVs and also a Korean company, hasn’t been directly threatened and is rumoured to be negotiating about paying for guaranteed network availability.

Samsung, meanwhile, simply says “it is not logical” to demand payment from what is ‘merely’ a manufacturer making products that happen to use networks. This, in its way, is as disingenuous as KT’s overblown claims of network abuse.

What we have is a complicated game of pass the parcel (or should that be the data packet). If you are a network provider shouldn’t you be able to charge the heaviest use providers? But who are those providers? Of course, the set makers, via connected TV, are trying to make themselves anything but ‘merely’ device manufacturers. They are doing exclusive deals for content, they are making their own apps and providing EPGs and other services. They want to be provider brands and secure ongoing revenue streams from viewers or content providers, or both.

The set maker’s problem is thin margins and that is what they are trying to change. But, as ever, Content is King and, unless makers are going to become global scale rights players (and the record of non content companies getting involved in the creation / rights sector is uniformly disastrous), they are going to remain on the low margins spared them by content, and winning application, providers. They are in danger of placing themselves between a rock and a hard place; they succeed in having consumers associate them with TV services they can’t afford to guarantee, and whose unreliability consumers will blame on them.

The big money in connected TV will go to the service providers; the current pay-TV players, plus Google, Facebook, Apple, Amazon et al (although that probably just about sums it up). By the way, several of these players will develop their own hardware – a further headache for current makers.

In essence net neutrality will play itself out as a game of chicken between the new OTT providers and the major network providers.

The networks can use the OTT providers as a reason to up prices, or restrict prices and try and blame those providers for any poor service. Those that provide their own content can claim savings if viewers choose them. But what if the new providers buy up content everyone wants to see? Can networks deny or restrict access to content their subscribers want? Certainly that is what they will have to do to get the OTT providers to pay up.

Much more likely is that today’s premium prices for superfast broadband will become tomorrow’s commodity costs; the consumer will pay a slightly higher price and the network will swallow a slightly lower margin. The OTT providers will make more money and major popular rights owners will be handed yet more licences to print it.

 

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