Why ESPN's Offer To Pay To Have Its Content Bypass Data Cap Meters Plays Right Into The Hands Of Wireless Providers

from the stop-it,-ESPN.-you'll-just-encourage-them. dept

ESPN has been making a little bit of noise recently about being willing to throw a few bucks towards wireless providers in exchange for letting its content roll through to users without affecting their data caps. While this may sound like a good deal for sports fans stuck with low data caps, there's a whole lot wrong with this "offer," above and beyond the obvious "pay-to-skirt-net-neutrality" issue. Chris Morran has a good rundown of the negative side effects ESPN's data subsidy would unleash. First and foremost, ESPN offering to help out users with data caps plays right into the industry's talking points.

Subsidizing wireless usage in this way would only give rise to this myth that smartphone data plans are capped because of congestion and a supposed high cost of moving data. However, studies show that the cost of delivering content to wireless customers has dropped while the user base has increased.
Morran's right. The last thing the wireless providers need is someone granting credence (albeit in a very roundabout way) to their ongoing myth of congestion and costs. This allows these providers to continue dining out on this story while simultaneously casting themselves as "good guys" in the new narrative. "See, we're allowing you to access popular content without using up a chunk of your data plan!" ESPN gets preferential treatment, the providers make more money and everyone wins. Well, almost.
Well-heeled content providers like ESPN would not be hurt financially by subsidies, but if they became standard, that extra could effectively put up a huge roadblock — or at least a very nasty speed bump — to smaller startups seeking to compete.
Basically, if one content provider is shown preference in exchange for a fee, it makes it tougher for the competition to reach consumers. If FOX Sports is just going to eat away at your data plan, it only makes sense to switch to the "free" data ESPN is providing. Wireless companies will be able to leverage content providers against each other, gradually levelling the playing field with fat stacks of subsidy dollars.

If ESPN is able to follow through on its plan, this will become the norm. Wireless providers will have a new source of income and exactly zero reasons to increase or remove data caps, seeing as the caps themselves are providing the incentive for content providers to ante up for unmetered data to keep consumers hooked.

As unmetered data usage increases, the wireless providers will simply adjust the argument, stating that this new level of network strain requires data caps to stay in place and that the infrastructure improvements needed to support this will require higher overage fees and lower caps.

Morran argues it shouldn't be that way, and again, he's right, but given the track record of most providers when it comes to data caps, nothing will change but the amount of cash flowing towards wireless companies.
If content providers do begin subsidizing wireless plans, then consumers should demand lower monthly rates — or the elimination of data caps entirely, as that extra cost will be borne by ESPN and others. Of course, we all know that will never happen.
Consumers can make all the demands they want, but the simple fact is most of them lack the options to make a stand on principle. Even in areas covered by more than one provider, the differences between the "competing" companies is almost imperceptible.

From a business standpoint, this works out extremely well for ESPN. Even if most customers are in no danger of hitting their data cap, the pull of unmetered data is very strong. Unfortunately, it works out all too well for wireless providers, most of whom have shown little interest in upgrading their infrastructure even as they shed crocodile tears over congestion.



Reader Comments (rss)

(Flattened / Threaded)

  1.  
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    DH's Love Child (profile), May 14th, 2013 @ 9:53am

    Another thing...

    If this were to happen, how long would it take for ESPN to position it as a premium feature for a fee? Talk about everyone winning except the consumer...

     

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  2.  
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    Anonymous Coward, May 14th, 2013 @ 10:02am

    How long....

    Before various interests pay network providers for privileged delivery, and push them to reduce data caps for access to user generated content?
    This could be the thin edge of the wedge to turn the internet into a delivery vehicle for content providers.

     

    reply to this | link to this | view in thread ]

  3. This comment has been flagged by the community. Click here to show it
     
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    out_of_the_blue, May 14th, 2013 @ 10:08am

    The "the cost of delivering content to wireless customers has dropped",

    has nothing intrinsicially to do with bandwidth. Total blue herring, there.

    Presumably no one is required to have wireless, so your only real choice is withhold your trade or quit whining. Welcome to "capitalism". You keep writing variant complaints that clearly show you still believe "free markets" mean "fair". -- All wireless carriers need to be heavily regulated to see that they do NOT make deals favoring one source. That's the only method proven to work.

     

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  4.  
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    Rich, May 14th, 2013 @ 10:20am

    Re: The "the cost of delivering content to wireless customers has dropped",

    You always write "angry." Maybe you should switch to decaf (or try a different hemorrhoid cream).

     

    reply to this | link to this | view in thread ]

  5.  
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    Ninja (profile), May 14th, 2013 @ 10:24am

    Re: The "the cost of delivering content to wireless customers has dropped",

    Or maybe not having a rgulated monopoly granted to them so they are actually forced to compete?

     

    reply to this | link to this | view in thread ]

  6.  
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    Ninja (profile), May 14th, 2013 @ 10:27am

    Ah what an artificial monopoly can do. Even Brazil is surpassing the US in terms of broad band offerings (at least in big urban centers). That should be shameful.

    As for the wireless I have this feeling all the crackdown on open wireless connections are also means to boost the crappy mobile connections with absurd caps....

     

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  7.  
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    Ima Fish (profile), May 14th, 2013 @ 10:33am

    Big legacy players such as ESPN don't want a free and open internet. They want to make sure the little guys have to pay a toll to get through. The money they're paying to bypass datacaps will likely be a great investment in avoiding a future disruptive web-based technology.

     

    reply to this | link to this | view in thread ]

  8.  
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    John Fenderson (profile), May 14th, 2013 @ 10:33am

    Re: The "the cost of delivering content to wireless customers has dropped",

    your only real choice is withhold your trade or quit whining


    But feedback is critically important. Whining, especially loud whining, is a legitimate and often effective recourse for unhappy customers. Particularly if you both withhold trade and whine.

     

    reply to this | link to this | view in thread ]

  9.  
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    Anonymous Coward, May 14th, 2013 @ 10:40am

    Re:

    Open WIFI makes it more difficult for the government to monitor people Internet usage as it happens, they don't know which accounts to tap.

     

    reply to this | link to this | view in thread ]

  10.  
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    Anonymous Coward, May 14th, 2013 @ 10:41am

    Re:

    The idea of big companies allocating part of their budget to prevent the development of new technology is giving me a headache.

     

    reply to this | link to this | view in thread ]

  11.  
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    Anonymous Coward, May 14th, 2013 @ 10:47am

    RIP Consumer Protections.

    Remember how a century ago the US was leading the way with consumer protections and reforming so many things? Now the US is falling farther behind even some third world nations in consumer protections.

    This kind of stuff is very short sighted. Sure it might help create more jobs and tax revenue now, but if you keep letting big corporations and billionaires run over everyone else you're screwing over future generations of growth and tax revenue.

     

    reply to this | link to this | view in thread ]

  12.  
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    Anonymous Coward, May 14th, 2013 @ 10:49am

    the whole thing about data caps is total bollocks! there is absolutely no need for them at all. people are actually paying for unlimited data already. what really happens is that when customers dont use much data, companies are gaining. when they put data caps in, they are actually making money twice for the same data. it's the same with broadband speeds. there is absolutely no need at all to drop speeds at busy times. it's just another way of companies being paid extra for giving the speed that's already available. and in both instances, Congress allows this to happen, giving more monopolies to telecom companies. then when an 'upstart' comes on the scene, all sorts of shit is dished out to stop it from being successful, giving what everyone wants and the established companies can already give but refuse to do so!!

     

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  13.  
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    Anonymous Coward, May 14th, 2013 @ 10:52am

    Who owns ESPN?

     

    reply to this | link to this | view in thread ]

  14.  
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    Rich Fiscus (profile), May 14th, 2013 @ 10:59am

    Well-heeled content providers like ESPN would not be hurt financially by subsidies


    Actually they will be hurt by it because, while ESPN is the most profitable cable property by a wide margin today, they will also lose the most to cord cutting over the next several years.

    ESPN charges pay TV providers a little more than $5 per subscriber on average. Their contracts with providers also require the purchase of a bundle which includes significantly less popular ESPN channels - nothing shocking there - but more significantly it also requires that these channels be included in each TV provider's 2 most popular tiers if I remember right. As a result their profits will take a hit from almost every lost cable and satellite customer.

    ESPN is far and away Disney's most profitable unit. And since we're talking about Disney it doesn't take a crystal ball to predict their reaction. They are a textbook example of the clueless old media company whose knee jerk reaction to the changing market is to double down on failure and yell at that damn Internet to get off their lawn. They will jack up the price to the point where they lose leverage with pay TV services who can no longer afford their channels. ESPN's profit margins will decline, starting gradually and probably snowballing after a while.

    To be honest I'm not sure there's any way to sustain their current margins anyway since they're already charging almost as much per customer as HBO. Let's say half of those people would subscribe to an ESPN online offering; a ludicrously generous estimate. Not counting the cost of providing their own infrastructure or lost revenue for bundled channels that means doubling the price to maintain the current margin.

    That's simply not going to work. It might happen. I mean they might try it, but it would fail spectacularly.

    The irony for me is that, at least during football season, ESPN is one of the few channels I would pay for simply to get Monday Night Football. It killed me to miss the first Bears/Packers game last year but I refuse to pay for content on the industry's terms. And I certainly wouldn't pay much more than what the providers do now for ESPN.

     

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  15.  
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    TheUglyOne (profile), May 14th, 2013 @ 11:03am

    ESPN vs. FoxSports

    What you will also see happen is fragmenting of the market rather than competition. For example, ESPN will be on AT&T and FoxSports will be on Verizon with Sprint and T-Wireless and regional carriers having nothing or third rate content providers. It will once again take away choice from consumers. Rather than an open and free internet it will be limited by the players willing to pay the most.

    (Yes I know they will claim you can still access competing services but it will be at a direct cost to the consumer in a charge against data caps.)

     

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  16.  
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    RichS (profile), May 14th, 2013 @ 11:26am

    Re:

    Disney of course

     

    reply to this | link to this | view in thread ]

  17.  
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    Anonymous Coward, May 14th, 2013 @ 11:59am

    Isn't this a net neutrality issue too? I mean you're blocking everything except for the stuff being paid to let through.

     

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  18.  
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    Anonymous Coward, May 14th, 2013 @ 12:49pm

    No good deed goes unpunished. The reality is that there are data caps. ESPN acts to mitigate the effects so more people have access to their content and the Techdirtbags go nuts. I'm guessing it's because live action role playing is the favorite sport of most of you; and mercifully, ESPN doesn't cover it.

     

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  19.  
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    txpatriot, May 14th, 2013 @ 1:10pm

    Win-win-win (or not)

    Lessee: Good for sports fans. Good for ESPN. Good for the carriers. I see this as a win all around.

    Yet somehow the "consumer advocates" spin this as bad for consumers. Well, as a consumer, it looks pretty good to me.

    So who appointed you clowns to represent me?

     

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  20.  
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    txpatriot, May 14th, 2013 @ 1:11pm

    Re:

    Nobody is "blocking" anything.

     

    reply to this | link to this | view in thread ]

  21.  
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    DH's Love Child (profile), May 14th, 2013 @ 1:34pm

    Re:

    Very true. Let us remember that ESPN is owned by ABC which is owned by that bastion of IP freedom.... Disney.

     

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  22.  
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    John Fenderson (profile), May 14th, 2013 @ 1:35pm

    Re: Win-win-win (or not)

    Good for sports fans. Good for ESPN. Good for the carriers. I see this as a win all around.


    That's because you're ignoring everyone who is not a sports fan, ESPN, or carrier. For them, it's not so good.

     

    reply to this | link to this | view in thread ]

  23.  
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    Dave (profile), May 14th, 2013 @ 2:22pm

    Well, actually...

    I've done a bit of number-crunching on the impact cord cutting might have on ESPN.

    http://www.whatyoupayforsports.com/2013/04/could-espn-weather-a-growth-in-cord-cutting/

    tl;dr : Because their current deal with cable & satellite carriers calls for a 6.5% carriage fee increase every year, ESPN's annual carriage fee income will continue to increase between now and 2020 -- unless the annual number of cord cutters increases by 50%, year over year. And that rate of cord cutting seems rather unlikely at the moment.

    Also, if ESPN became a premium channel, the network would need 40.7 million subscribers at $14.95/month, or 30.5 million subscribers at $19.95/month, to make as much as it makes now in annual carriage fees -- about $7.3 billion -- from ESPN, ESPN2, ESPNU, and ESPNEWS. And it probably couldn't get away with selling $3.3 billion in ads if it went premium.

    So yeah, big media really isn't going to change until we all stop giving it so much money.

     

    reply to this | link to this | view in thread ]

  24.  
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    Anonymous Coward, May 14th, 2013 @ 8:10pm

    I fucking love sports, but damn this is a bad move that is sure to have a lot of negative impact on wireless data limits.

    I won't even begin to lie because I'd love to have unlimited ESPN on my phone.

     

    reply to this | link to this | view in thread ]

  25.  
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    Leonardo (profile), May 15th, 2013 @ 5:46am

    Chris Morran's congestion analysis is FLAWED

    Most of the spectrum the wireless carriers have is configured as FDD, at a time when voice was paramount, the requirement that the capacity for uplink and downlink be equal made sense. Most of the capacity constraints today are video which is primarily on the down link. What that means if a carrier has 40MHz of LTE spectrum, reality is only 20MHz is available for the downlink. Sprint is the only carrier advocating TDD which is dynamic allocation, uplink or downlink where the capacity demand occurs at the cell site. This is why there are data caps- the network is limited in flexibility because of FDD.

     

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  26.  
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    Rich Fiscus (profile), May 15th, 2013 @ 7:18am

    Re: Well, actually...

    First off, very nice job with that analysis. I think you're absolutely correct that sports programming is probably the biggest key to pay TV's future simply because of the huge amounts of money and complex web of contractual relationships involved. That's without even considering the technical hurdles in delivering delivering real time programming on a national scale given the current state of US broadband.

    Now here's why I think it's going to happen anyway, perhaps starting as soon as the next 3-5 years. Depending on the contracts involved perhaps more like 8-10. As you note in that piece, a lot of people are switching from cable to satellite and I'm sure sports are one of the major factors in that.

    In terms of the NFL and NBA I don't think there will be any big changes any time soon. However baseball is a different story for a number of reasons. First off they are not nearly as well situated financially so there's motivation for the owners. In addition there is, by and large, less national interest in most baseball teams and therefore a much more fragmented broadcasting market.

    More importantly, the reason it remains that way when the NFL and NBA have consolidated nationally is the fragmentation of the owners which is why there is no salary cap and a huge revenue disparity between teams. Likewise there is a disparity between sports networks. While it's true that Fox Sports is a growing threat to ESPN, Comcast SportsNet remains second tier and primarily regional. Local and regional markets, including cable providers, are much more important to them than they are to a national satellite service.

    Finally there's the question of what cable operators can offer that satellite can't. If they're going to compete that's going to be key because without widespread consolidation they can't compete financially. The answer is Internet service. Also keep in mind that there's a big push among traditional telcos to get into TV programming to compete with cable. I might also add in the wildcard of Google Fiber since they happen to operate in a market where one of the most financially disadvantaged teams is located and their infrastructure is so advanced for the US.

    Now let's say CSN sets up an IP-based service offering packages from various MLB teams and sells it through any broadband provider who's interested. There would be some technical questions to deal with like what kind of box would be required, whether it could be delivered via the regular CATV lineup and IP, one or the other, and possibly whether/how to offer some type of VOD component. It would certainly need to be accessible off-network from other devices. It could even, theoretically, be available through streaming appliances like Roku sells as an option for people who have them.

    Just looking at the local market here in Des Moines I can see a lot of potential for that. The cable company gets more angry calls every year from baseball fans than anyone else. When Chicago Cubs baseball moved from WGN to CSN they had to choose between carrying Cubs and Cardinals games. They went with the Cardinals. They said it was about audience numbers (maybe true) but I believe there was a strong financial component.

    In any case it doesn't matter which one they go with. There will be a good sized unserved audience for the other. Not to mention the significantly smaller, but still good sized in the aggregate, number of people who would pay to see less popular teams like the Twins, Brewers, and Royals. Offer them an IP-based option and I suspect there would be a lot of takers. The cable company (Mediacom) might prefer not to offer such a thing except that it gives them something to compete with the more expansive sports offerings from DirecTV. If the local telco (Centurylink) jumped on it Mediacom would pretty much have to.

    I'm not saying this is what's going to happen and I certainly can't know when but I'm sure something will eventually. In fact in the long run I expect it will come directly from the leagues and teams as the money for insane broadcast contracts (especially for the NFL) dries up.

    The most important thing to remember is that you can't look at the current market leaders to find the trend of the future because all you're going to see there is more of the same. That's a nearly universal truth. Market leaders keep doing whatever has brought the most success in the past until they've been knocked down a couple pegs When they're as big, arrogant, and generally clueless as ESPN/Disney and Fox usually until they drive themselves into the ground.

     

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  27.  
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    Anonymous Coward, May 17th, 2013 @ 8:00am

    I just their read NFL Nation blogs and whatever is hotlinked on Twitter or the mobile site. The mobile site should be zero bandwidth on 3G speed. I'm sure with a little LTE you would be looking at massive overages along with a few streaming videos

     

    reply to this | link to this | view in thread ]


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