Net Neutrality. February 2014 VIEWPOINTS

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1 Net Neutrality February 2014 VIEWPOINTS

2 Net Neutrality Daniel Jeydel 1

3 Contents 3 Introduction 3 What is net neutrality? 3 Why has it become an issue? 4 What happens next? 5 What does it mean for my business? 6 Sources and further reading 2

4 Introduction While the title of this Viewpoint implies a position on the sidelines, 2014 has kicked off with an issue that matters to every digital marketer: net neutrality. This is a subject that Neo@Ogilvy has prioritized as it questions the economics of the Internet and will have far reaching ramifications in consumer behavior and media pricing. What is net neutrality? The theory of net neutrality is routed in the belief that Internet service providers (ISP) and governments must be impartial in the treatment of data usage and corresponding charges to individuals, networks and companies. The data in question is cross-device, cross-platform, in our office and home and with the rise of beacons and Wearables (2014's other hot topic), includes the physical. There are now two clear sides to net neutrality. Advocates of net neutrality believe that usage of the Internet, in terms of data consumption, should be unrestricted. The ultimate goal of this group, comprised of Internet-based companies like Google, Yahoo!, Netflix and Amazon is to force legislation mandating cable companies, the supplier of Internet fiber, to allow for unrestricted access to fiber without monitoring by cable companies. Their greatest fear is that ISPs could put a price tag on Internet usage and potentially block competitive services. On the other side of the issue, opponents of net neutrality legislation, comprised mainly of large ISPs, feel that their revenue is suppressed and that they should have a voice in charging content providers based on usage through a tiered model. Opponents also believe that legislation would inevitably favor the largest Internet companies who could afford to subsidize their own traffic, thereby diminishing the access that smaller companies can afford. Why has it become an issue? Net neutrality has become a critical issue due to our enormous and unbridled Internet usage. On any given day, Netflix and YouTube can account for more than half of all Internet usage in the United States. Internet usage is being consolidated within a decreasing number of companies, suggesting to many that they pay a share based on consumption. 3

5 2013 Top 10 Internet Application Consumption For the past decade, net neutrality has been making its way through our government and the Courts. In 2002, the FCC determined that ISPs should not be regulated like phone companies in large part due to the Commission s belief that Internet providers are in the information business and not telecommunications. As ISPs gained power and moved into communications, the FCC decided to introduce Open Internet Rules in 2010 to ensure transparency, equal access and traffic neutrality. Then, in January 2014, the D.C. Circuit Court of Appeals struck down Open Internet Rules, potentially providing legal support to ISPs charging Internet applications for content delivery. The FCC may appeal this ruling to the U.S. Supreme Court, but at this moment, cable companies are at an advantage. What happens next? There are many different scenarios for long-term changes in the marketplace. In the short-term, within the year, we do not expect to see noticeable movement, especially if the FCC appeals the decision to the Supreme Court. However, as Ryan Knutson puts it in the Wall Street Journal, the Internet will gradually move from being a one-size-fits-all service to one where users or content companies can or have to pay more for better service or higher volumes of traffic. The belief is that users will have to pay cable providers for their increasing usage of the Internet for streaming, searching and communication or that companies like Netflix, Google and Amazon will have to subsidize usage and either swallow the cost or pass it to their users. In the event of the latter, there is a palpable fear that larger companies will drown out smaller companies in their ability to subsidize service, thereby enhancing their position in the marketplace. The gamesmanship and possibilities surrounding net neutrality have resulted in some very interesting dynamics. Google, for example, pioneered the much vaunted subscription cable network Google Fiber, which could be seen as a hedge against the growing power of ISPs. On the other hand, since many of the cable companies themselves are also content producers (e.g. Comcast and NBC), the Internet may evolve into a channel where media corporations prioritize their own programming over their own pipes. 4

6 Image searches for net neutrality show just how polarizing the issue has become. What does it mean for my business? New products (RN), prices While the Internet never needs to be prodded to innovate, net neutrality is going to force change. In the event that cable companies are allowed to charge for service or throttle, there will be significant financial ramifications for media providers and buyers. Our behavior of binge-watching and unrestrained consumption of digital video could result in a bill that consumers will either have to pay or have subsidized by Internet application companies. This could lead to new pricing models in streaming and always-on entertainment technology. It could also usher in new types of advertising units designed to offset an increase in delivery costs through a decrease in ad-free content. The so-called balkanization of the internet would most certainly have a significant impact on the way we buy media today. For example, when we place banner ads, we do so under the assumption that anyone could potentially access the content that is adjacent to the ad. As a result, we think of audiences on the Internet as defined primarily by browsing behaviors. Should the concept of net neutrality be successfully challenged, the industry may evolve to a point where websites are more akin to cable channels that are gated by the ISP. In this scenario, audiences could be more fragmented as sites align themselves with ISPs or lose their audiences altogether. On the potentially positive side, by targeting certain sites, we may be able to infer characteristics about the user that we may not have been able to if there was unrestricted access. We advise our clients to follow the issue throughout the year, be aware of how reliant their business is upon Internet consumption and think about how to respond in a world where the Internet is not free. 5

7 Sources and further reading

8 Net Neutrality Written by Daniel Jeydel Published by For the latest industry news, trends and happenings, follow us on Twitter For more information, please contact: Rachel Serton

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video case e-commerce. business. technology. society. KENNETH C. LAUDON AND CAROL G. TRAVER Issues in E-commerce for You e-commerce. business. technology. society. KENNETH C. LAUDON AND CAROL G. TRAVER video case chapter 8 Ethical, Social, and Political Issues in E-commerce case 2 What Net Neutrality Means for You watch