It’s looking increasingly likely that new FCC Chairman Ajit Pai will succeed with his newly announced plan to repeal the Obama-era net neutrality rules insuring free and open access to the internet.
But what does this mean for Hollywood and big media companies?
Pai’s proposal — which is expected to be formally approved next month in a party-line vote — would render the FCC powerless to stop internet service providers like Comcast, AT&T and Verizon from slowing down or creating paid “fast lanes” for certain sites.
And that could produce some big winners and losers throughout the industry.
Winner: Big Internet Service Providers
This one is obvious. If Pai’s proposal is accepted on Dec. 14, ISPs would immediately gain more power: the ability to throttle speeds for certain streamers or websites, or to charge their competition more for running content on their networks.
As Chris Smith, head of USC’s Media, Economics, and Entrepreneurship program, told TheWrap, curtailing current FCC regulations would give ISPs “optionality.” Internet giants like Comcast — which holds a stake in Hulu — could also play hardball with streaming competitors like Netflix.
“[ISPs] know they have a big stick, and Netflix knows they have a big stick now,” said Smith. “They can go to the table with Netflix and be a little more cool under pressure, and have negotiations over bandwidth consumption. It gives them leverage.”
Loser: Netflix and YouTube
If ISPs are allowed to jack up the price on certain content providers, this is clearly a black eye for even the most established of streaming heavyweights.
This would be a blow to Netflix or YouTube, albeit a manageable one for the powerhouses. ISPs would have the green light to charge more — an increase that would present Netflix with two undesirable options: eating the cost and putting less money into developing its business, or passing it along to its customers. After raising its prices just months ago, this would be a tough pill for Netflix to swallow (even if it makes Wall Street happy).
YouTube would suffer the same fate. The two sites account for more than 70 percent of peak internet traffic in North America, and ISPs could add a “prime-time” tax to watching Netflix or YouTube during those hours. Still, this would be a risky gamble: most customers look at streaming content and their internet as going hand-in-hand. Why pay for internet — if you have options — if its hindering the primary reason you use it?
Winner: Yahoo — and other services owned by ISPs
Don’t call it a comeback. With Yahoo under the Verizon banner, would the telecom giant consider throttling search behemoth Google? Frankly, it’s hard to think of a clearer path for Yahoo to regain relevancy.
But this lingering threat applies to any content or service owned by ISPs; the “nightmare scenario,” Smith said, would be for ISPs to make their content stream faster than their competitors.
Loser: Upstart streaming companies
For younger streaming services without the financial resources of Netflix or YouTube, any new charges placed on getting access to high-speed streaming could prove crippling — or at least more expensive.
“I’m competing against giants,” Colin Petrie-Norris, CEO of over-the-top streaming startup Xumo, told TheWrap bluntly. “My concern is that, whereas Netflix and others launched with a level playing field in the streaming space, I could be greatly disadvantaged as a new entrant if I’m expected to pay for a high quality streaming experience, for example.”
Revoking net neutrality protections “disadvantages new entrants, it disadvantages startups, it disadvantages the new startups of tomorrow,” he said. “It really entrenches around the incumbents, and that’s really frustrating.”
That might also include Disney, which announced plans in August to cut ties with Netflix and launch its own digital streaming services for movie and TV content as well as for its ESPN sports content.
Though the entertainment giant has deeper pockets than any pure startup, launching its own streaming networks might get even pricier than it had previously bargained.
Adding costs could also stifle the drive to come up with new technologies that make users continually turn to the internet in the first place, experts noted.
“Where innovation is concerned, this is a big mistake,” said Smith. “The ISPs have not been innovators like Netflix and these other online digital startups. This kind of rewards the wrong economic actors overall.”
Pai believes his proposal mitigates this concern by forcing ISPs to disclose sites they’re throttling or prioritizing. In his view, it would be economic suicide for a company to charge more to stream Netflix when customers could simply change providers.
However, critics point out that internet is often a duopoly — at best — in many parts of the country. Without more competition in the space, consumers may be at the mercy of their ISP even if they are being transparent about setting different streaming rates for certain content.
Winner: Studios Aligned With ISPs
Content that’s already in bed with the biggest internet providers would get a boost. Comcast could prioritize NBC or Universal to its customers. Charter — which bought Time Warner Cable in 2016 — could give a leg-up to its own Lakers broadcast when its up against a national game on ESPN.
AT&T — if its proposed merger with Time Warner makes its way through the Department of Justice gauntlet — would have a treasure trove of assets to push its customers. HBO, CNN, and Warner Bros. would all be at its disposal.
On the flip side, it could be bleak for studios like Sony, which don’t have these built-in advantages. To get its content in front of the most people, in the most high-end way, studios could be pushed into the arms of ISPs. Further consolidation of content makers and distributors could be on the horizon.
The biggest loser of all. Any higher costs from full-speed streaming would ultimately be passed along to the customer.
And many Americans fear the specter of a Portugal-esque future — where customers pay for a “social media” package to use Facebook and Snapchat, and a “streaming” package for Netflix and YouTube.
That may be why a near sweep (98.5 percent!) of the 22 million complaints filed to the FCC opposed changing the current regulation, which have been in place since 2015.
Loser?: Free expression
Many also fear the potential impact on free expression. The FCC’s 2015 ruling held that broadband providers could not block access to “legal content, applications, services, or non-harmful devices.”
By allowing ISPs to restrict or charge a premium for information on their networks, the commission gives them the potential authority to determine what you can see and read based on any rationale they choose — so long as they disclose what they are doing.
Pai feels the opposition is being alarmist, and notes that he’s rolling back “heavy-handed” regulations that have only been in place for two years. “President Clinton got it right in 1996 when he established a free market-based approach to this new thing called the internet, and the internet economy we have is a result of his light-touch regulatory vision,” Pai told NPR this week.
“We saw companies like Facebook and Amazon and Google become global powerhouses precisely because we had light-touch rules that apply to this internet,” he said.
But former FCC Commissioner Michael Copps takes a different view. “There can be no truly open internet without net neutrality,” he said this week. “To believe otherwise is to be captive to special interest power brokers or to an old and discredited ideology that thinks monopoly and not government oversight best serves the nation.”