Insight Bite

The prospect of Internet service providers (ISPs) metering online services based on bandwidth usage is a terrifying potential for start-ups. For digital media services, especially those that provide video-sharing facilities, it is potentially a dealbreaker. Yet last month’s ruling by an appeals court in the US has essentially paved the way for an entirely new Internet landscape. The court ruling threw out the ability of the FCC, the country’s telecom regulator, to enforce the Open Internet Order, which is a basic “net neutrality” principle that prevents backbone providers from charging services based on their bandwidth usage.

Panic has already ensued in the US, a market that tends to have a massive influence on digital markets across the globe and which is home to some of the biggest digital media players. Indeed, the ruling likely had a significant impact on the network-sharing agreement penned by the online media giant Netflix and backbone provider Comcast this month. Netflix, estimated to be responsible for around a third of total bandwidth during peak hours in the US, has essentially thrown in the towel in the fight against the providers and accepted the end of net neutrality principles. Time Warner could also be on a verge of a huge $45 billion merger with Comcast, the move likely to be partly motivated by the changing landscape. Whether other video-sharing services will follow the same path (digital media provider + backbone firm) will determine whether this model of operations becomes the norm.

Yet while a relatively mature and mainstream service such as Netflix is able to find a willing infrastructure partner and the likes of cash-rich Google (which owns YouTube) can probably build their own broadband capacity, young start-ups won’t have this financial fallback. A market already difficult to breakthrough due to its domination by major platforms has just become more capital-intensive. It remains uncertain if other countries round the globe will follow the US lead, especially as the likes of Chile and the Netherlands have net neutrality as an enacted law.

Assuming bandwidth metering is a slow-moving global trend, largely inevitable as more people come online and broadband infrastructure costs continue to rise, what are some positives for start-ups? One outcome is the greater willingness of backbone providers to purchase video platforms and expand their market share in the segment. This is already underway to some degree, with US ISP Verizon purchasing Intel’s OnCue Streaming Platform last month for around $300 million. Business transfer agents should anticipate a spike in media start-up activity. Another potential plus is the greater motivation for backbone firms to improve bandwidth capacity and increase speeds during peak usage times, which would ensure smoother loading times for most digital services. And ultimately, in a rapidly expanding online adspend market, video platforms could simply pass on the additional bandwidth costs to advertisers, who have been benefitting from fairly cheap Internet exposure for years. A lack of net neutrality does not mean no opportunities – just a less regulated and more competitive environment for all.