Sometime back, I warned that the deal between ESPN360.com and Verizon would have consequences in terms of internet fragmentation. Now, the American Cable Association, which represents small cable operators (who often have very different concerns from their larger cousins in the National Cable Telecommunications Association) is complaining that Disney wants to charge them for access to ESPN.com.
Note, this does not mean put stuff behind a pay wall and charge viewers. It means replicating the cable model and charging the ISP on a per-subscriber basis. This represents a shift away from the standard internet model (you can go anywhere, although you might have to pay for access) to the cable model (we charge the access provider for content on a per-subscriber basis and this cost gets bundled into the charge). It also, as I noted when this first started, encourages competing providers to cut exclusive (within their service area) deals for what they hope will be “must have” content — again, replicating the cable model.
Recent developments involving Disney more aggressively pushing small cable operator ISPs for subscriber-based fees to access ESPN.com has triggered a sharp response from the American Cable Association (ACA) and a war of words between ACA and the Wall St. analysts who love the concept of exploiting market power of big content providers for fat profit margins. While (as you can guess) I sympathize with the ACA, I'm not convinced this scheme can actually work the way it does in traditional cable programming. So while I see possible problems on the horizon, especially if Disney and other cable programmers start including access to websites as part of retransmission consent negotiations, I don't think this calls for federal intervention just yet — although it will surely suck in the short term as te big boys experiment and learn once again that “scarcity” is not the winner on the web that it is elsewhere.
Unlike video programming, broadband access does not appear to have “must have” content — a “defect” the cable broadband access providers keep trying to “correct” by limiting the ability of users to get at competing video content via broadband capacity caps, metered pricing, and occasionally degrading peer-2-peer traffic. What users want from a broadband provider is access to all the applications and content created by the several billion other users, and the ability to upload their own content and applications. My inability to get at ESPN.com may annoy me, but it generally doesn't significantly diminish the value of my broadband access. So while little rural cable guy needs ESPN and ABC to sell video (and therefore gets screwed by Disney in retransmission consent negotiations (“retrans”) because a subscriber may drop the service or switch to satellite), a significant number of broadband subscribers are unlikely to care enough to chase ESPN.com from one broadband access service to another.
Second, most broadband providers face little or no competition, with significant user lock-in due to high switching costs. So even if a subscriber gets annoyed at ACA member because he or she can't access ESPN.com, what is he or she going to do about it? Switch to FIOS? Sorry, not an option. Switch to Wild Blue or some other satellite service? Assuming terrain doesn't block the clear line of sight needed to get satellite “broadband,” and assuming the satellite service pays Disney for access to ESPN.com, a user switching from cable to satellite faces the hassle of switching combined with a possible increase in subscription price, cost for new equipment, and other hurdles that make switch unlikely.
Mind you, this can still lead to some very unpleasant places in terms of fragmenting internet content. And, if combined with cable retrans, it will really screw over the ACA and add yet another layer of complexity to an already inefficient and byzantine market. Also, I may very well change my mind in response to new empirical data — because the above analysis is just my gut feeling on the basis of very limited real world data. But I'm still not where I would pull the trigger on this, nor confident that the FCC could act without new Congressional authority (despite a recent D.C. Circuit opinion appearing to give the FCC more authority to regulate anticompetitive practices in cable.