Payment Innovation at the Content/Carriage Interface
18 Pages Posted: 1 Apr 2012 Last revised: 6 Sep 2012
Date Written: March 31, 2012
The paper identifies the possibility of payment innovation at the content/carriage interface -- that is, business models in which a content provider's payment structure relates in some manner to the carriage of the content. For example, an online video provider might offer a discounted price for delayed delivery in order to manage bandwidth costs. Similarly, an applications provider might make an arrangement where a consumer's purchase of the application permits the consumer to use the application exempt from the consumer's carrier's bandwidth cap or charges. The recently announced arrangement where Xfinity streaming will not count against Comcast Internet customers’ bandwidth cap is a real-world, emergent example.
The paper begins by positing that such innovations are plausible for three reasons. First, carriers face peak-demand congestion issues, and at least some of these innovations could help address these issues. Second, consumers dislike uncertain payment structures. Both research and the market have shown that consumers prefer, and will pay a premium for, unlimited service packages or other packages where the amount that will be later billed is reasonably predictable. Third, content/carriage business models might create the opportunity for market-segmentation.
The paper then provides a brief review of some precedents from utility and other regulation, such as the use of interruptible supply contracts in natural gas markets. Such contracts, which set priorities among customers, could address peak-demand issues; indeed, they mirror congestion pricing solutions.
Finally, the paper addresses three possible policy dimensions of such payment innovations: privacy, intellectual property economics, and competition issues (plus net neutrality). As to privacy, some of the possible innovations present concerns that carriers will access customer-specific content information in a new way, although doctrinally any privacy concern can probably be met through disclosure and consent. The intellectual property owners will have to construct business models that account for the tradeoff between real-time streaming and the use of local storage. In the domain of net neutrality and competition policy, the paper analyzes several of the possible innovations. Although most such innovations can be described as "non-neutral" on at least some dimension, the paper concludes that most such innovations also have a plausible pro-competitive (consumer value enhancing) dimension as well. The paper notes that, while vertical foreclosure scenarios are possible, the Antitrust Division in the Comcast/NBC merger decided that it could address those issues in significant part by looking to the performance of the carrier's Internet service -- and that no rule against carrier-affiliated services was necessary.
The paper's aim is to demonstrate that such new business models could have merit, both in a business sense (although it aims to be modest on that claim) and in a legal sense.
Keywords: Content Distribution, Bandwidth Caps, Network Neutrality
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