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How to Solve the Sponsored Data Dilemma

Mari Silbey
3/23/2016

Wireless carriers are walking on thin ice.

Now convinced that video will save them from sinking profit margins and the pain of capital expenditures, they've started down the path of sponsored data services: allowing video distributors to pay to have their streaming content not count against consumers' monthly data caps.

It sounds like a net neutrality violation -- content producers can pay for preferential treatment -- but legally it's not. Partly because we're talking about mobile carriers, which the Federal Communications Commission (FCC) has been wary of constraining, and partly because the definition of net neutrality is still blurry, particularly in the legal sense. So far, carriers like AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) have been able to move forward with sponsored data services because in theory anyone can take advantage if they're willing to pay. But what about the content producers that can't pay? Consumers shouldn't be punished on their monthly phone bills if they choose to watch the DC Eagle Cam (which streams live video of a pair of bald eagles and their recently hatched eaglets in the National Arboretum) rather than sponsored content.

So what's the solution?

Let's take a step back. Oddly enough, the sponsored data problem ties in to another issue I've mulled over for years now: the fate of free, broadcast TV. (See 'Free' TV Model Under Threat and ABC Makes TV Less Free.)

Broadcast networks make tons of money from licensing agreements today and would be devastated if all or even a significant percentage of Americans still watched their shows for free over the air. They count on the money that cable companies and others pay to retransmit their shows, which is why they challenged Aereo so vigorously in court. Aereo proponents argued that the startup company was just making TV available that is free anyway. But the reality is that broadcast networks really aren't free because most people now pay to access them in their cable bundles.

That's all a roundabout way of saying that the free TV model really doesn't work anymore. But the big question is, should it? When TV was the best form of mass communication and information distribution, it made sense to give everyone free access. (Plus back then the TV industry could support itself on advertisements.) Now, however, we have the Internet, and it's not really clear to me why we should have the inalienable right to watch The Good Wife or NCIS for free.


Want to know more about the impact of web services on the pay-TV sector? Check out our dedicated OTT services content channel here on Light Reading.


Which brings us back to the issue of mobile video. Carriers and content companies are exploring sponsored data features to make mobile video free to stream. But just like with broadcast TV networks, there's a hidden cost. In the TV world, that cost is rising cable rates and periodic programming blackouts. In the mobile video world, the cost comes in the form of viewers being disincentivized to watch media that isn't subsidized by a sponsor. Non-profit, educational and governmental organizations aren't likely to pay to have users be able to watch their videos without it counting toward the monthly data cap. They can't afford to.

So here's my idea. Just like broadcasters are often required in franchise agreements to set aside a certain amount of air space for PEG (public, education, government) programming in return for access to the airwaves, mobile operators should be required to set aside a certain amount of their spectrum capacity to enable free streaming -- as in streaming that doesn't count toward a data cap -- for qualifying content producers. I don't know where the line gets drawn for which producers should qualify, but an easy place to start would be to allow any non-profit educational institution in on the deal. Maybe this would get too onerous if some online lecture series suddenly became extremely popular (we can only dream), but we could put safeguards in place. We could limit the amount of uncapped streaming from qualifying content producers to a specific amount. It might not be perfect, but it would be better than only giving consumers incentive to watch content from companies willing and able to pay for delivery.

My solution doesn't solve the issue of startup video companies that are now operating on an uneven playing field. (Maybe YouTube Inc. helps with that?) It also doesn't address zero rating services like T-Mobile US Inc. 's Binge On, or the fact that Verizon is exempting its own Go90 video service from data caps. (I have a very nuanced view on the latter, but that's a whole other post.) (See also Understanding T-Mobile's Free Video Play.)

However, making carriers support uncapped streaming for select, non-paying video producers is an interesting place to start -- and maybe a way to help Americans get a little more of what they're paying for.

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

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MordyK
MordyK
3/29/2016 | 7:03:58 PM
Re: The merits
Joe, I want referring to the the monopolistic nature of of Ma Bell in my reincarnation dream, but in the innovation and offshoot benefit potential of Bell Labs.

I just look at the data and infrastructure that carriers have and see a missed opportunity for a slew of innovation and product.
Joe Stanganelli
Joe Stanganelli
3/27/2016 | 11:39:07 AM
Re: The merits
Fun counterargument: The nice thing about the disaggregation of these resources is it helps to prevent a Ma Bell 2.0. ;)

But your point is well taken.  I'm not entirely sure competition prevents this innovation, however.
MordyK
MordyK
3/26/2016 | 5:09:45 PM
Re: The merits
Joe, some companies have a DNA of cooperation and others have a spirit of doing their least to cooperate, and unfortunately the history of carriers is that they will do the least they can do.

This puts paid to the idea of creating a flexible sructure and requires mandates. The problem with mandates is that they are hard to change and don't really evolve with time, and therefore lose their value with the progress of time and the market.

Just take a look at how many "mandates" are on the books hogging resources with little current value. Take USF as an example: if it were created with a vague mandate to bring universal connectivity, it would have obviously evolved into bringing universal broadband. Instead we have a fund and a mandate plagued with problems and at this point is achieving little.

 

Its unfortunate because if the telco community had the DNA of cooperation and community resposibility, they could be involved in greating great things and having something like a Bell Labs 2.0
Principa15062
Principa15062
3/26/2016 | 4:04:01 PM
Sponsored Data
Sponsored Data is a classic ad supported model. Ad supported models are used in all types of media today (as you pointed out broadcast TV). Print media is dying because the paid model alone can't support it as advertisers have left print media. We are in the middle of an ad-blocking debate for online advertising, where online publishers are arguing that if consumer block ads, they don't have a right to get content for free anymore. 

So why does sponsored data get treated any different? It shouldn't. Consumers who are reaching the limits of what they can spend on mobile data can access more mobile data via ad-supported social contract -- Sponsored Data. 

More on market drivers and challenges for sponsored data in my blog post here http://bit.ly/1Rv4KYS
Joe Stanganelli
Joe Stanganelli
3/26/2016 | 9:44:38 AM
Re: Ugh
@msilbey: Yes, better to save that data for when you need to catch up on Game of Thrones while taking mass transit.  ;)
Joe Stanganelli
Joe Stanganelli
3/26/2016 | 9:42:34 AM
Re: The merits
Re: "Which effectively means that any undefined rule will basically be tested and abused to the limit."

While not entirely inaccurate, that's a rather harsh way of putting it, no?  It is only economically rational to obey the regulations and not do much else.  After all, if speed-limit signs said "just not too fast," they would be almost entirely unenforceable.

So, yes, if you're a regulator, you regulate -- and if you fail to regulate or specify something, then you're essentially leaving it for the lawyers.
MordyK
MordyK
3/23/2016 | 4:36:27 PM
The merits
As a net neutrality proponent I agree that there's a more nuanced argument for the support of a better implementatiton of sposored data, which in its former name of oll data highlighted the value of this model a bit better, as we all appreciated the value of 800 numbers business model.

However seeing as it a nuanced argument, I can't see carriers getting it right, as they're prone to acting like a bull in a china shop where they even bring their own china. Which effectively means that any undefined rule will basically be tested and abused to the limit.

There may be a formula similar to the affordable housing approach in larger cities or carbn ofsets, where based on the amount of sponsored data X amount is set aside for unsponsored free data, which would be set aside in a formula for PSC, NGO as well as startups with vrious limits based on revenue, funding stages or something similar.

Years ago I was building something and we were in deperate need for sponsored roaming data, so I appreciate that there's a place for this..
msilbey
msilbey
3/23/2016 | 11:21:46 AM
Re: Ugh
That does kind of sound fair, but on the other hand, my neighbor called me about the eagle cam yesterday telling me I should share it with my daughter. I pulled it up on my phone, and then thought twice about staring at birds that might push my data cap over the limit. 
Joe Stanganelli
Joe Stanganelli
3/23/2016 | 11:19:44 AM
Ugh
I dunno... If someone is using their phone (and therefore presumably doing so while they're "on the go") to stream ambient video of animals, maybe they should be punished.  ;)
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