Mobile Video Might Make Carriers, Providers Clash

As mobile video finally starts to take off, making money from it remains a challenge, and content providers and carriers may clash over economics before they find a way to share the costs and benefits.

Mobile video initiatives led by carriers, network builders and local broadcasters in the past few years have stumbled or been slow to take off. In the U.S., Qualcomm shut down its dedicated FLO TV network earlier this year, and the commercial launch of Dyle Mobile TV, a national service offering local digital TV to phones and other devices, has been pushed back from late this year to early 2012. But as an extension of Web-based programming, mobile video is beginning to explode, executives of media companies said earlier this month at the Open Mobile Summit in San Francisco .

Consumers play YouTube videos 400 million times a day on mobile devices, said Francisco Varela, YouTube's global head of platform. The flow goes the other way, too: YouTube's customers upload as much as two hours of their own video content every minute. Executives from ABC, CBS, Hulu and the BBC also said the mobile Internet looks poised to change their businesses. About 20 percent of people in Britain watch BBC iPlayer, an online service of the national broadcasting agency, and tablets are among the hottest platforms for it, said Daniel Danker, the BBC's general manager of Programmes and On-Demand. He hopes to see 80 percent watching iPlayer in five years.

However, the content providers said it's less clear how they will make a lot of money from mobile viewing. Carriers face the same challenge, which could lead to a fight for revenue between the two parties.

Carriers have occasionally hinted at charging third-party content providers for priority on their networks, which video channels depend on to reach consumers. But popular videos can also help to make lucrative mobile services popular, and in other businesses, such as cable TV, the providers of video charge the networks for the privilege of using it. Exactly how things will balance out in mobile is not yet clear.

In 2006, former AT&T CEO Ed Whitacre raised the specter of the carrier, asking OTT (over-the-top) service providers to help cover the cost of building out its wireline broadband network. This raised strong objections on the grounds of net neutrality. But in the mobile arena, U.S. net neutrality rules are considered less strict. Meanwhile, mobile network management tools now exist that could prioritize traffic from specific providers. Verizon and AT&T were not able to provide executives to talk for this article.

Video providers say they already spend a lot of money bringing their content to Web and mobile users, a distribution channel with a far less certain return than traditional broadcasting.

"As content providers today, the most expensive way for us to reach our audience is over IP," BBC's Danker said. "Those sticks on the hill have been there for a long time. They work really well. They reach tens of millions of people for the cost that we spend to reach one person with a program today over IP."

"It's not like content providers just put something up there for free and it's viewed and we're reaping the benefit," said Albert Cheng, executive vice president of digital media at Disney/ABC.

If additional charges for delivery over mobile carrier networks were tacked on, it might not be possible to keep distributing video over mobile, Cheng said.

Cheng pointed out that some of his company's distribution partners, such as broadcasters, cable operators and Apple's iTunes store, pay ABC/Disney for its content. But he didn't go so far as to say the company wants to charge mobile operators for its videos. "We all have to collaborate to figure out how to monetize it," Cheng said.

Mobile video could become a flashpoint of the debate over net neutrality, said Art Brodsky, communications director for Public Knowledge, a public-interest law firm involved in Internet issues. He is not aware of any mobile operators trying to charge a premium for certain video services, but the idea has major implications for the content providers, he said. "They have a lot to lose with a network that is not open and non-discriminatory," Brodsky said.

The net neutrality rules proposed last year by the U.S. Federal Communications Commission, which Congress is now considering whether to block, are more lenient for mobile than for wireline networks. But if a carrier tried to charge a video provider extra for priority, it might lead to an interesting legal challenge, he said.

The two types of players naturally see things differently because their responsibilities are different, said Tolaga Research analyst Phil Marshall.

"The carriers place more value on their networks than the content providers believe that it's worth," Marshall said. "It's a mismatch."

But CDNs (content delivery networks) may eventually bring them together, Marshall believes. Most of the companies distributing video on the Internet already use CDNs, such as the network run by Akamai, to cache their content in data centers closer to viewers. Caching can reduce latency and everyday demands on network links.

Mobile operators may start to bring that practice closer to subscribers, Marshall said. He pointed to a partnership announced in February between Akamai and Ericsson, one of the biggest cellular base-station builders, under which they plan to integrate Akamai's caching capability into the mobile network. Akamai said the companies have ongoing trials showing promising results and expect the technology to be commercialized in the second half of next year.

Eventually, caching may go all the way to the phone itself, Marshall said. Content providers are skeptical of that idea, mostly because of copy-protection concerns. But within the next two years or so, they might be willing to make deals with service providers to cache their content closer to viewers, he said. The two sides may see eye to eye then.

"I see the CDN activity as ... a catalyst," Marshall said.

Content caching wouldn't violate net neutrality principles because it doesn't involve bandwidth throttling or other network-management practices, Marshall said.

Still, it might not be worth the risk of a backlash, said analyst Roger Entner of Recon Analytics. He thinks content providers might sue carriers who asked for payment, and that would shine a spotlight on the request.

"A couple of million here or there isn't worth the pain of having the FCC or state regulators looking over your shoulder," Entner said. The major benefit of caching content in the mobile network would be conserving the operator's own wired backhaul capacity, which could be achieved without discriminating among content sources, Entner believes.

The mix of places where mobile users can get video and ways they can consume it, plus the various business models involving advertising and subscriptions, will complicate the problem for some time, said analyst Avi Greengart of Current Analysis. "In the short term, I don't see anything that's going to slice through all this."

Stephen Lawson covers mobile, storage and networking technologies for The IDG News Service. Follow Stephen on Twitter at @sdlawsonmedia. Stephen's e-mail address is stephen_lawson@idg.com

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