Experts Predict Doom For New Walled Gardens

    February 17, 2009
    WebProNews Staff loudly reminded everyone a little over a week ago about ESPN’s deal with specific ISPs to license ESPN360 content. The prevailing concern about these licensing arrangements have carried phrases like “reverse net neutrality” and “cable-ization of the Internet” (second one mine), but some great Internet minds see nothing to get worked up about and predict the licensing model will fail.
Wired Blog Network
My own chief worry was that other premium content providers would follow suit, ushering in a time when consumers, choosing between the pair of ISPs in their region, would be faced with the same type of consumer-unfriendly choice they have when selecting cable TV services and mobile phone providers: ESPN360, Hulu, NYT, Washington Post on Verizon, or YouTube, Comedy Central, Fox News, Wall Street Journal on TimeWarner.

One assumes, in this hypothetical, the rest of the Internet would be accessible via the old public access Internet route, as only those with sufficient viewership would be able to leverage deals with access providers. This is the same situation Network Neutrality advocates have feared, only in the opposite direction. Instead of ISPs actively shaping the content coming across their network via “network management” premiums to content providers, the content providers sort of hold their content for ransom.

The success of the reverse model, of course, depends on sufficient leverage from the content provider, without which they are laughed off the negotiating table. And, unlike a handful of ISPs enjoying duopoly status in many markets dictating terms to content providers, content providers have seemingly endless competition. It is for this reason these types of arrangements, at least to the crowd I’m speaking to, seem destined to fail.

“I think the Net routes around stupidity,” Wired founder John Battelle told WebProNews. “I hope it does!” founder Drew Curtis equates ESPN’s arrangement to alienating customers. “I bet it fails,” he said. “A friend of mine runs a diner in Frankfort (Ky.). He has very strong political views, and used to hang pro-Obama/anti-Bush signs outside his place. One day he was asking me what I’d do to increase customer traffic. I told him I’d take the signs down because he’s chasing off half his customers.

“That’s what this deal does—restricts audience size for a new product. Bad idea.”

Others point out the failed “walled gardens” of the past. One is Internet and marketing law expert Eric Goldman. “In this case, IAP (internet access provider) customers may be unwittingly paying for content they aren’t using, but this has been true for a long time. For example, IAPs used to pay to carry Usenet groups that only a fraction of subscribers used. We haven’t sent too much success with IAP-mediated walled garden models, and I would be surprised if ESPN’s offering is the exception to that rule.”

Though Verizon has referred to the ESPN deal as a “tremendous value-add” and has licensed Disney (parent company of ESPN) and National Football League content, John Czwartacki, Executive Director of External Communications for Verizon, speaking for himself and not officially for Verizon, also brought up the walled gardens of the Internet’s past. “I’m not sure how this plays out, but it seems when anyone picks winners/losers without the consumer in mind, they are asking for big trouble. Look at AOL/TimeWarner. AOL thought they were ‘winners,’ and now where are they?”

And as for Net Neutrality in reverse? “I don’t see any direct bearing on Net Neutrality issues,” said Goldman, “except to point out that the Net Neutrality topic is so complex and multi-faceted that we don’t even agree what it covers.”

“The [ESPN] case also shows how hard it is to predict and regulate ahead of the bad actors, because they can arise from where you least expect them,” said Czwartacki.

That’s interesting considering ISPs have announced in advance their intentions of, well, acting badly.

On his blog, TechDirt’sCarl Longino suggests ESPN’s licensing is good news for content producers because it enhances the value of content and, in a backwards kind of away, boosts neutral net principles. “By enabling access to more content, they’ve enhanced the value of their networks. Imagine if Google took this approach and went to ISPs demanding payment, instead of the other way around.

“ISPs would very quickly figure out that impeding their customers’ access to content — the entire crux of the net neutrality argument — will kill them in the marketplace. ESPN’s gotten its ISP customers to admit that ensuring users can access as much content as possible enhances the value of their networks, and if anything, that affirms the principles of network neutrality.”

I think it’s true that competition on the Internet in it’s current form will at least hinder licensing agreements like this as users go for alternative content (as opposed to lack of alternatives in providers). ESPN is in a unique situation to its benefit, having a virtual monopoly on professional and college sports coverage. But down the line, we may see this again in larger scope, especially as news organizations struggle for revenue models. Their current re-flirtation with iTunes models for news content is a disturbing insight into that possibility.

But also, as we look down the line, as the Internet engulfs all media, as TV, radio, newspapers all merge exclusively onto to the superhighway, it’s not an absurd projection to imagine a distinct rift between premium and public content. Unlike proposed “dumb pipe” requirements likely to be placed on ISPs to prevent them from leveraging their holds on the market, there may be a free-market solution to preventing the cable-ization of the Internet as described here, especially since it seems ludicrously hard to justify regulating what kinds of deals content producers make with carriers.