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Streaming TV Services Bringing Web Congestion

HBO, Showtime, and Sony Corp. are jumping into online television. But instead of putting their Web traffic on the public Internet’s main thoroughfare, they want to be in a separate lane that would ensure their content gets special treatment.

Those companies have talked to major broadband providers such as Comcast Corp. about having their Web TV services treated as “managed” services, according to people familiar with the discussions. In effect, that would move them away from the congestion of the Internet, which they fear will only get worse as more people opt to stream movies and TV shows on the Web.

The other benefit: A separate lane would be exempt from monthly data-usage thresholds operators enforce for public Internet traffic, saving customers from the surcharges that can kick in if they binge on too many episodes of “Game of Thrones” or “Homeland.”

Such arrangements would tap into a gray area of the debate over “net neutrality,” the principle that all traffic on the Internet should be treated equally.

The Federal Communications Commission’s recently approved net-neutrality rules, which go into effect in a few months, bar broadband providers from accepting payment from companies to favor their traffic. And the rules say the FCC “expressly reserves the authority to take action” if it finds that specialized services are “being used to evade the open Internet rules.”

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But the agency has maintained that cable and phone companies can offer certain specially managed services—digital phone and video-on-demand, for example—that run on a dedicated slice of bandwidth in the cable pipe that is separate from the portion reserved for public Internet access. Operators do that so that consumers don’t experience dropped calls or buffering of shows. Everything else a consumer does online, however—shop on Amazon, search on Google, or stream TV shows and movies—happens on the public Internet.

Now, the media companies want to get the managed-services treatment, too. It isn’t clear whether they would be willing to pay specifically for that arrangement or if it would be part of a wider negotiation with broadband companies.

What would be in it for the broadband providers? Possibly the chance to package Web-TV services with broadband plans, giving them a cut of Web-TV subscription revenue for a new market of “cord-cutters” as well as a tool to entice customers to sign up for more expensive Internet packages.

So far, most broadband providers have pushed back on the idea of treating online TV products from other companies as managed services, people familiar with the discussions say. Some cable executives say such managed-services arrangements could require setting up special infrastructure that would cost them hundreds of millions of dollars for a single online video company.

One top cable executive, however, said it could be done more economically and the idea of offering HBO as a managed service is attractive, because it could help provide customers a “richer experience and deliver a service where you are ensuring quality.”

Regulatory risk has also been a factor. Comcast indicated in conversations with Sony and HBO that it wasn’t willing to do anything for any one content provider that it couldn’t offer to every other company, so it doesn’t run afoul of net-neutrality rules, the people said.

At least one emerging online TV player, Dish Network Corp.’s Sling TV, believes the managed-service arrangement would be a negative overall. “It’s a bad thing for consumers and a bad thing for innovation,” said Roger Lynch, Sling TV’s chief executive, adding that big companies like Dish could afford to cut special deals like this but small companies can’t.

“It makes a mockery of net neutrality,” he said, adding that Sling would strike such a deal only “under duress,” if other companies did first.

The discussions with cable operators revolve around what happens to web traffic on the “last mile”—the portion of cable operators’ networks that stretches to consumers’ homes. (This is separate from the debates over “peering” payments related to how content companies hand off their traffic to broadband providers.)

Read more: http://www.wsj.com/articles/streaming-tv-services-seek-to-sidestep-web-congestion-1426794381