The internet at a crossroad

This week, two dif­fer­ent views of the inter­net were unveiled: on the one hand, Net­flix made a deal that brought it closer to becom­ing a chal­lenger to tra­di­tional tele­vi­sion; on the other, Google and Ver­i­zon pre­sented a vision of the inter­net that is bring­ing it closer to the tra­di­tional cable TV model.

Net­flix on chan­nel 1

In a trans­ac­tion esti­mated to cost Net­flix about US$1 bil­lion over 5 years, the DVD and stream­ing com­pany part­nered up with Epix, a cable and inter­net stream­ing chan­nel backed by Para­mount, Lion­s­gate, and MGM stu­dios. Con­sid­er­ing the fact that Net­flix already has an estab­lished stream­ing rela­tion­ship with Starz, a com­pany that already has stream­ing rights to Dis­ney movies, this means that Net­flix now has a sub­stan­tial por­tion of the recent block­buster movies tied up for its stream­ing ser­vice (Fast Com­pany reports that the com­bined box office mar­ket share of Epix back­ers was around 21%).

The deal care­fully avoids cre­ate any con­tro­ver­sies around DVDs to estab­lish supremacy in the online stream­ing space. Net­flix is bet­ting, strate­gi­cally, that the DVD busi­ness that brought it to where it is today is a buggy whip type busi­ness in a world that is slowly to mov­ing to the cars-like busi­ness of online stream­ing. Now that the net­flix player is embed­ded in a series of devices that allow for stream­ing across a large foot­print (com­put­ers, TV and, soon, mobile devices), the com­pany is build­ing up its con­tent catalog.

What Net­flix is doing is basi­cally cre­at­ing a new “on-demand” chan­nel that can sit next to the other chan­nels on a TV screen. The com­pany is side­step­ping “appoint­ment view­ing,” which requires peo­ple to set a par­tic­u­lar time and date to see a par­tic­u­lar piece of enter­tain­ment, to pro­vide instead the equiv­a­lent of an always-ready, always-on-demand for­mat of enter­tain­ment view­ing (kind of like “there’s a movie for that”). It’s a future AT&T pre­dicted in 1993 (as an inter­est­ing aside, that very ad cam­paign was also one of the first ban­ner ad cam­paigns on the inter­net) and the com­pany to bring it to you is Netflix.

Basic Inter­net Tenets

Reg­u­lar read­ers of tnl.net will rec­og­nize the trend of every­thing mov­ing to an IP stack. I’ve long held the view (at least since 2004, accord­ing to this entry) that cable chan­nels ought to be deliv­ered à la carte over the inter­net and Net­flix may be the first com­pany to suc­cess­fully deliver an internet-only on-demand channel.

This model, how­ever is pred­i­cated on a few key tenets that have made the inter­net such a great arena for innovation:

• The inter­net is a level play­ing field: Large com­pa­nies do not have an advan­tage over smaller ones as every­one gets the same level of access to inter­net resources, no mat­ter whether they are two guys in a garage or a multi­na­tional corporation.
• The inter­net allows any plat­forms to con­nect: There is no dis­crim­i­na­tion on what type of device can con­nect to the inter­net, as long as the device respects rules around address­ing (get­ting a unique iden­ti­fier on the net) and respects every other devices on the net. As a result, com­put­ers are seen no dif­fer­ently than mobile phones, TV set-top boxes, game sta­tions, watches, coke machines, or what­ever any­one will­ing to agree with the basic rule set attaches to the net
• There is only one inter­net: The minute you agree with the basic tenets of the inter­net, you take it upon your­self to con­tinue sup­port­ing them if you want to be part of the inter­net com­mons. You are free to leave the inter­net and go to another net­work if you want to but you can­not call that the inter­net if it’s a dif­fer­ent network.

A dif­fer­ent view

But not every­one seems to agree. Ear­lier this week, Google, a com­pany that has greatly ben­e­fited from the cur­rent tenets of the inter­net, decided that now that it was a large com­pany, it could throw the inter­net under the bus by break­ing some of those very tenets.

In a joint announce­ment with Ver­i­zon, the com­pany pro­posed a com­pro­mise on net neu­tral­ity dis­cus­sions that starts out with the right con­cepts and even­tu­ally gets off-track to a point where the basic tenets of the inter­net would no longer be valid.

Before I go into the details of what’s wrong with the pro­posal, let’s first look at what’s right (although I have to take what they say with a grain of salt since I’ve trusted the com­pany in the past only to see it turn its back on ear­lier announce­ments):

A broad­band Inter­net access ser­vice provider would be pro­hib­ited from pre­vent­ing users of its broad­band ser­vice from:

1. send­ing and receiv­ing law­ful con­tent of their choice;
2. run­ning law­ful appli­ca­tions and using law­ful ser­vices of their choice; and
3. con­nect­ing their choice of legal devices that do not harm the net­work or ser­vice, facil­i­tate theft of ser­vice, or harm other users of the service.

I would have some ques­tions on the def­i­n­i­tion of “harm” here but, for the most part, these seem to be points that could be agreed upon.

The lines would also carry a non-discrimination prin­ci­ple that are, for the most part OK, except for the fol­low­ing sen­tence (empha­sis is mine):

Pri­or­i­ti­za­tion of Inter­net traf­fic would be pre­sumed incon­sis­tent with the non-discrimination stan­dard, but the pre­sump­tion could be rebutted.

I would argue that strik­ing those last 6 words would make the rest of that sec­tion OK.

The next sec­tion is about trans­parency and the propo­si­tion of providers telling peo­ple when they do dis­crim­i­nate or make other mod­i­fi­ca­tions seems sound.

How­ever, it starts going down­hill from there. Pro­vi­sions like net­work man­age­ment (a tricky area that ends up being the place of most dis­agree­ment), addi­tional online ser­vices, wire­less broad­band and case-by-case enforce­ment give up on the notion of the inter­net as a sim­ple (or stu­pid) net­work.

It is true that net­work man­age­ment is nec­es­sary to the proper func­tion­ing of the inter­net com­mons but, as Bar­bara Van Schewick (via Fred Wil­son) points out, there is a sim­ple rule on deal­ing with net neutrality:

A non-discrimination rule that bans all application-specific dis­crim­i­na­tion, but allows all application-agnostic dis­crim­i­na­tion. Dis­crim­i­na­tion is application-specific if the dis­crim­i­na­tion is based on the spe­cific appli­ca­tion or con­tent (e.g. Skype is treated dif­fer­ently  from Von­age), or based on classes of appli­ca­tions or con­tent (e.g. Inter­net tele­phony is treated  dif­fer­ently from e-mail).

The main chal­lenge in Google and Verizon’s pro­posal is the idea of a dif­fer­en­ti­ated inter­net. If the first two com­po­nents of their pro­posal (con­sumer pro­tec­tion and non-discrimination) were con­sid­ered valid, the rest of the pol­icy frame­work would be invalid. One can­not say in the same sen­tence that a broad­band provider is pre­vented from allow­ing users and appli­ca­tions almost unfet­tered access to the net and then turn around to say that this may not be the case for new appli­ca­tions or parts of the net.

Like it or not, the wire­less inter­net is part of the inter­net. While there are parts where it can be con­trolled, inter­net is still a word that works as sin­gu­lar and has no plural. Any­thing else (a dif­fer­en­ti­ated net­work) is not the inter­net and don’t let peo­ple tell you otherwise.

Moti­va­tions

So what moti­vated such pro­posal? Well, first of all, it appears that there are a num­ber of strate­gic areas where Google could do well in appeas­ing the tele­com and cable industry:

• The Android OS is a nat­ural fit here as Google is work­ing on ensur­ing that it will do bet­ter than Apple in the mobile space.
• GoogleTV is another arena where the com­pany would ben­e­fit from sit­ting on a “dif­fer­en­ti­ated net­work” where it could serve con­tent as a pre­mium pack­age. In its fight with Apple (Apple’s busi­ness model is still largely pred­i­cated on sell­ing hard­ware, like AppleTV), Google could offer an advertising-sponsored model car­ried on dif­fer­en­ti­ated pipes.
• Of course, another arena would be wher­ever there are tools that are poten­tially threat­en­ing Google. For exam­ple, pic­tures from Picasa could be served at a faster rate than pic­tures from Face­book on that net­work. Or movies from YouTube could get pri­or­ity access over movies from Netflix.

So, hav­ing estab­lished that Google has much in terms of align­ment with the telco indus­try, it is now time to ques­tion whether its motives are truly in line with its pre­vi­ous pol­icy of not being evil or whether they are bet­ter aligned with pure prof­itabil­ity motives. The deci­sion could allow the inter­net to grow or the world to return to the pre-internet world of balka­nized networks.