Thursday, April 02, 2009

Clash Of The Titans

Well, here we go:
In a strategy that's likely to rankle consumers but be copied by competitors, Time Warner Cable (TWC) is pressing ahead with a plan to charge Internet customers based on how much Web data they consume. Starting next month, the company will introduce tiered pricing in several markets.

In April, Time Warner Cable will begin collecting information on its customers' Internet use in the Texas cities of Austin and San Antonio and in Rochester, N.Y. Consumption billing will begin in those cities later this summer. In Greensboro, N.C., the billing changes will begin sooner.

..."We need a viable model to be able to support the infrastructure of the broadband business," Time Warner Cable CEO Glenn Britt says in an interview. "We made a mistake early on by not defining our business based on the consumption dimension." Time Warner Cable has 8.4 million broadband customers.

...In the case of Time Warner Cable, customers will be charged from $29.95 to $54.90 a month, based on data consumption and desired connection speed. Customers will be charged $1 for each gigabyte (GB) over their plan's cap. Time Warner Cable offers four cap levels of 5, 10, 20, and 40 GB. A download of a high-definition movie typically eats up about 8 GB. A recent report from Sanford C. Bernstein suggests that a family on the 40 GB plan that streams 7.25 hours of online video a week (a fraction of the 60 hours Americans spend watching TV in a week) could end up spending $200 per month on broadband usage fees. And that's just for video viewing, before factoring in such Internet activities as music downloads and photo sharing. "To put it mildly," says Bernstein analyst Craig Moffett, "the decision to limit data consumption can be expected to have profound implications for [consumer] behavior."

Boy, it's a good thing I don't live in Aus--oh, crap.

Look, I know this announcement makes it look like Time Warner is trying to limit how consumers use their broadband connections, but it's not. It's not a shakedown of consumers, because we have shallow pockets.

It is, however, a shakedown.

When in doubt, look for the deep pockets, and in this case, those pockets belong to the content providers. Video-on-demand has absolutely EXPLODED in the last two years, and new services seem to get added daily. Content providers are stampeding to get all of their content online and watchable on demand.

Particularly interesting is ESPN360, which offers an incredible amount of content, both live and via replay. Well, maybe: is available at no charge to fans who receive their high-speed internet connection from an affiliated internet service provider. is also available to fans that access the internet from U.S. college campuses and U.S. military bases.

Hmm. So if my ISP isn't an "affiliate," how do I get access?
Switch to an affiliated internet service provider or to contact your internet service provider and request

Oh, and guess what--Time Warner, among others, isn't an affiliate.

Oh, yes--it's war.

I think Time Warner has very little interest in us. What they're interested in is getting money from content providers who are now finding that on-demand video can be very profitable.

What's the best way to do that? Roll out "usage-based pricing" in a particularly high-usage city like Austin (where people are very likely to be using the new on-demand services), then just sit back and wait as content providers see their revenue from Austin plummet.

Yes, Time Warner is going to lose customers, but as far as broadband goes, they're essentially the only game in town if you don't want to go with DSL (and we can't). And they're willing to take that risk, because their number one priority is to strangle every service that doesn't negotiate with them.

This is important:
"We need a viable model to be able to support the infrastructure of the broadband business," Time Warner Cable CEO Glenn Britt says in an interview. "We made a mistake early on by not defining our business based on the consumption dimension."

Britt isn't speaking to us--when he talks about a "viable model to support infrastructure," he's talking to content providers. If they're going to make him extend his infrastructure to support their services, he wants to get paid. It's billionaires fighting billionaires, basically, with us caught in the middle.

Make no mistake: this is very, very high stakes poker. Every on-demand content provider, be it Netflix, Amazon, ESPN, or anyone else, faces the wall here. Without unlimited broadband access, their services can't thrive.

OnLive? Hell, OnLive is dead before it starts if these kinds of bandwidth caps become accepted.

What Time Warner may not understand, though, at least in Austin's case, is that this is a very politically active town, with lots and lots of very smart people. Smarter, I'm guessing, than the people at Time Warner.

I'm guessing there will be a revolt, and it will be televised. I'll keep you posted.

That was not a pun.

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